Businessmodel of Cummins

Customer Segments

Cummins serves customers within the automotive industry with a broad selection of products. The Company’s customers can principally be organised into the following categories:

• Original Equipment Manufacturers, comprising manufacturers of automotive products across the light-duty automotive, medium and heavy-duty automotive, commercial automotive, and off—highway automotive markets, as well as the recreational marine market;
• Distributors, comprising a range of automotive equipment distributors that serve both the original equipment manufacturing market and the automotive aftermarket, including repair and maintenance service providers; and
• Power Customers, comprising various customers to which the Company provides mid-range, heavy-duty, and high-horsepower engines that for standby, mobile, and distributed power generation solutions. Cummins’s original equipment manufacturers comprise producers of light-duty vehicles such as passenger automobiles, medium and heavy-duty vehicles such as trucks, commercial vehicles such as buses, and off-highway vehicles such as those used in agriculture and construction.

Cummins has numerous large customers around the world. Its largest customer is PACCAR, which accounted for around 15% of the Company’s consolidated net sales in 2015. The Company also has long-term heavy-duty and mid-range engine supply agreements with Daimler Trucks North America, Navistar, Volvo Trucks North America, and MAN. Cummins also has supply agreements with Fiat Chrysler and Komatsu.

Value Propositions

Cummins provides value to its customers in the following ways:

• Its track record and reputation, with the Company widely recognised as a reliable and efficient provider of high-quality products and services, indicated by its ability to attract recurring business from high-profile customers such as Volvo Trucks North America;
• Its broad portfolio of products and services, with the Company offering a range of engine and other equipment products for use in a variety of vehicles, spanning passenger cars to vehicles used in mining, as well as its range power generation products;
• Its international operational reach, with the Company serving a broad network of clients across the Americas, Europe, Asia Pacific, and the Middle East;
• Its commitment to innovation, with the Company committed to developing new and innovative products and processes, devoting a significant portion of its funds each year to research and development projects; and
• Its industry experience and expertise, with the Company employing specialist personnel across its operating segments, as well as a team of experienced industry executives. ### Channels

Cummins operates a website at www.cummins.com, through which it provides information on its various products and services, target markets, and activities. The Company operates an online portal for parts and servicing named QuickServe Online, which customers can use to order parts and arrange the provision of services. The Company also operates an online store, its PowerStore, which offers a range of Cummins-branded merchandise, such as apparel and homeware, to customers.

Cummins primarily serves its customers through a network of approximately 600 company-owned and independent distributor locations and more than 7,200 dealer locations in more than 190 countries and territories. The Company’s owned distributors are located in key markets across its various operating regions, including North America, Australia, Europe, the Middle East, India, China, Africa, Russia, Japan, Brazil, Singapore and Central America. Its joint venture distributors are located in similar key markets, including North America, South America, China, Thailand, Singapore and Vietnam.

Cummins operates its own in-house manufacturing infrastructure, including a broad range of production facilities for its four operating segments across the Americas, Europe, Asia Pacific, and Africa, including locations in Nigeria, Brazil, Turkey, South Korea, and France.

Customer Relationships

Cummins operates multiple channels that allow customers to access products and service son a self-service basis. This notably includes the Company’s QuickServe Online portal, which enables customers to independently arrange the delivery of parts and services, and its PowerStore merchandise portal, which allows customers to browse various products, make purchases, and arrange deliveries without interacting with members of the Company’s sales personnel.

Cummins makes the majority of its sales through its network of distributors and dealer locations. These channels allow the Company to consult directly with customers providing tailored advice and guidance on its products portfolio and service options. Cummins seeks to establish longstanding relationships with its customers, with contracts often spanning multiple years.

Cummins provides ongoing support to its customers, with larger clients provided their own relationship management teams. Customers can also access personalised customer support by contacting the Company over the phone across its various regional offices, as well as by filling in an online contact form. The Company certain online resources, such as a service locator and product registration information.

Alternatively, customers are able to interact directly with Cummins through its social media accounts, including with Twitter, Facebook, YouTube, LinkedIn, and Instagram.

Key Activities

Cummins is a manufacturer of diesel engines and other related products. The Company aligns its operations into four reportable business segments: Engine, which manufactures and markets a range of diesel and natural gas-powered engines under the Cummins brand name, for customers across the heavy-and medium-duty truck, bus, recreational vehicle, light-duty automotive, agricultural and governmental equipment markets; Distribution, which services and distributes the Company’s products and, such as parts and filtration, power generation, engines; Components, which supplies a range of products, including after treatment systems, turbochargers, filtration products and fuel systems; and Power Generation, which manufactures and distributes power generation systems, components and services for power solutions and mobile power solutions.

Key Partners

Cummins works closely with a network of partner companies to ensure that it provides and efficient and effective service to its customers. These partners include:

• Supplier and Vendor Partners, comprising suppliers of raw materials and tools that are utilised across the Company’s manufacturing operations, as well as suppliers of services and technologies that are utilised more broadly across the entire enterprise;
• Channel and Distribution Partners, comprising distributors and sales agents that support and extend the reach of the Company’s in-house sales and marketing organisations;
• Joint Venture Partners, comprising various manufacturing and distribution companies within the automotive sector, with which the Company provides products and services on a joint basis through mutually owned entities; and
• Community and Social Partners, comprising various non-profits and charitable organisations, with which the Company collaborates on community, social, and sustainability projects around the world. Cummins has a number of partnerships in place. This includes a global corporate responsibility partnership with Komatsu, and a distribution deal with BIA Group.

Key Resources

Cummins’s key resources are its intellectual properties and technologies, its raw materials and supply chain, its manufacturing facilities, its sales and distribution infrastructure, its online platforms, its IT and communications infrastructure, its partnerships, and its personnel.

Cummins owns and control a significant number of patents and trademarks that relate directly to its portfolio of products. Searches of records published by the US Patent and Trademark Office identified a number of patent applications filed in the name of Cummins including applications entitled ‘Method and algorithm for diagnosing an NH3 sensor in an SCR system using measurements from two channels of the sensor’, ‘Optimization-based controls for diesel engine air-handling systems’ and ‘Cylinder head for internal combustion engine’.

Cummins also owns a number of physical properties that are key to the Company’s operations, most notably its network of manufacturing facilities, comprising 32 core facilities across the Americas, Asia Pacific, Europe, and Africa.

Cost Structure

Cummins incurs costs in relation to the development of its designs and technologies, the procurement of supplies and materials, the operation of its manufacturing facilities, the operation of its sales and distribution infrastructure, the maintenance of its online platforms and of its IT and communications infrastructure, the implementation of marketing and advertising campaign, the management of its partnerships, and the retention of its personnel.

In 2015 Cummins records total cost of sales for the year of $14.16 billion. The Company’s selling, general, and administrative costs totaled $2.09 billion, while its research and development expenses, net of contract reimbursements, totaled $718 million.

Revenue Streams

Cummins generates revenue through the manufacture and sale of various automotive and power generation products. In 2015 the Company generated annual revenue of $19.11 billion, down slightly on the $19.22 billion recorded by the Company in 2014. The majority of the Company’s revenue was attributed to its Engine segment, which alone generated revenue for the year totalling $10.45 billion. This was followed by the Distribution segment with $6.23 billion, and the Component segment with $5.17 billion.