Analyzing the Caterpillar Production System
Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric Wprides itself on being the biggest, the best, the most ethical and even the coolest – the CAT cap has become an emblem of urban chic. However in 2005, Caterpillar realized that its factories would win few awards for efficiency and productivity. So Caterpillar launched a major effort – the Caterpillar Production System (CPS) – to raise its manufacturing game. CPS is the common Order-to-Delivery process that was implemented enterprise-wide to achieve people, quality, velocity and cost goals. Primarily based on the Toyota Production System (TPS) philosophy, CPS embraced lean manufacturing concepts such as reducing waste, Poka Yoke, standard work, visual factory, continuous improvement, quick change over, pull among others. CPS was not only implemented in the factory operations but also in other functions such as product design, purchasing, supply chain and quality. CPS implementation created a remarkable transformation for Caterpillar. By 2008, Caterpillar had capitalized on the economic boom that started in 2004. Sales and revenues topped $51 billion, exceeding the 2010 goal of $50 billion much ahead of schedule. Profit per share was also at a record of $5.66. However, the real test was the downturn of 2009-2010. Caterpillar had a “trough” plan and emerged stronger after the recession through continued implementation of CPS. Sales and Revenues were $42.59 billion, an increase of 31% from 2009 and profit per share was $4.15, up from $1.43 in 2009. Caterpillar Production System (CPS) fuels Caterpillar’s operations management strategy. The key operations processes of the firm, powered by CPS include:
Product Design: One of the factors for Caterpillar’s dominance over its rivals include the strength in product
design. There is constant innovation in this area to ensure that customer needs and environmental needs are fully satisfied. A Demand Management: The Demand Management process delivers integrated and synchronized value chain supply-anddemand plans that maximize service levels and profit throughout the band of demand. It delivers one consensus, an unbiased forecast and supply plan that prepares for the inherent forecast variation, and enables proactive actions to be taken in place of reactive actions. Quality Management: The Quality Management process enables facilities to proactively control quality. It delivers defect-free products and services to customers and internal process partners. Process Planning: Process Planning specifies the procedures, bill of material and resources needed to transform product design into products. Supply Chain / Materials Management (including Outsourcing and Procurement): The Supply Chain / Materials Management process ensures consistent delivery of the right part, to the right place, at the right time, at the right quantity, at the right cost, at the right quality every single time. Lean systems: Caterpillar’s lean systems drive the execution of CPS processes on the production floor — including all processes involved in production from receiving raw materials at the facility to delivering the finished product to the customer. Capability Building / Training: Capability Building relentlessly pursues bringing CAT’s workplace values to life and delivers on the methodology, principles and tools of CPS. As an enabling process of CPS, Capability Building provides the necessary skills development, learning opportunities and coaching for the employees of Team Caterpillar. The implementation of the Caterpillar Production System (CPS) has created a remarkable transformation in the way Caterpillar manages its operations and conducts business. It has also helped improve it’s project management techniques, resulting is higher success rates of its projects. Have you had a similar system implemented in your company.
Caterpillar Production System (CPS)
CPS is inspired by the Toyota Production System. Caterpillar has provided clarity to the future state of its business. It outlines that three of the top priorities as a company are Safety, Quality, and Velocity. The Caterpillar Production System was created to reinforce these priorities. It will help Team Caterpillar set the “gold standard” for the industry as they produce the highest quality products, as efficiently and as safely as possible. (CAT 2020) The Caterpillar Production System has defined 15 Guiding Principles that support their Values in Action: Integrity, Excellence, Teamwork, and Commitment.
Figure 4: CPS 3 subsystem and 15 guiding principles
CPS also identifies 8 area of wastes which if reduce will greatly increase capability of the company. The wastes includes unused capability, defects, inventory, over production, waiting, excess motion, transportation, and over processing. The team aimed to locate these wastes when making VSM and spaghetti charts.
6 Sigma: Foundation for Quality at Caterpillar The quality of Caterpillar’s products reflects the power and heritage of the company. As the organization focuses on executing the enterprise strategy and living by its values, one of the top priorities continues to be product quality. The goal to achieve world-class product quality requires each Caterpillar employee to live Our Values in Action—Integrity, Teamwork, Commitment and Excellence —passionately every day to ensure the company delivers on its promises to customers. To ensure this focus on the customer, Caterpillar Inc. made organizational changes early this year to align its machine product and marketing organizations, which positions the company to achieve its 2010 and Vision 2020 goals and to build deep expertise in product development. Five end-to-end machine business divisions were created: Mining, Quarry & Waste, Excavation, Earthmoving and Building Construction Products. These divisions incorporate design, manufacturing, marketing, sales and product support for the entire value chain. The alignment also introduces three new regional distribution services divisions within Caterpillar—Europe, Africa/Middle East; Asia Pacific; and the Americas—with responsibility for Caterpillar’s total portfolio of business with each dealer, the dealer relationship, dealer development and ensuring the most efficient and effective distribution of Caterpillar machines, engines and parts. This alignment will strengthen Caterpillar’s world-class product and service offerings. The alignment builds on Caterpillar’s success at deploying 6 Sigma, a critical component of the company’s enterprise strategy. 6 Sigma has helped Caterpillar achieve record results, all while improving the way it does business. With more than 7,500 active projects currently aligned to Critical Success Factors, Caterpillar continues to utilize 6 Sigma resources and processes to deliver results. 6 Sigma also serves as the foundation from which to ensure product quality. This disciplined approach is used throughout the product
lifecycle—from product development to production through product support. Product Development Caterpillar’s reputation is built on producing quality products, and these products provide a competitive advantage. The product development process focuses on bringing a concept to production to meet or exceed target levels for quality, reliability, cost and schedule.
New Product Introduction (NPI) is the process Caterpillar uses to develop, build and deliver quality products and services to customers worldwide. The NPI process builds on the 6 Sigma product and process creation methodology, DMEDI—Design, Measure, Explore, Develop and Implement. DMEDI is embedded within the phases of the NPI process. Guided by NPI tools and Caterpillar product and industry strategies, NPI teams work together to continuously improve the quality, technology, performance, durability and reliability of Caterpillar products. Production In 2005, Caterpillar launched the Caterpillar Production System (CPS) to implement a common enterprise-wide order-to-delivery process to improve safety, quality and velocity, add capacity, and improve cost management. Throughout the company, CPS—along with 6 Sigma—is improving manufacturing efficiencies in Caterpillar’s global operations. 6 Sigma is foundational to CPS and improving order-to-delivery processes—everything from the time a customer places an order until he or she receives the finished product. The principles followed with 6 Sigma and the alignment process for closing gaps in achieving goals are all leveraged in the execution of CPS processes. CPS focuses on eliminating waste—defined as any activity that consumes resources but creates no value for the customer—in Cat’s processes from order to delivery. Within CPS is the Quality Management process focused on delivering defect-free products and services to customers.
Product Support Responding quickly to product problems experienced by customers is critical. Integral to product support is the Continuous Improvement Process (CPI), the global process for resolving product problems. Embedded with the fundamentals of 6 Sigma DMAIC— Define, Measure, Analyze, Improve and Control—methodology, CPI provides a disciplined approach to identifying root cause and ensuring permanent corrective action. By quickly resolving and addressing product problems, trust is built and maintained between Caterpillar, dealers and customers. Perhaps the most critical element to Caterpillar’s product support is its dealer network. Caterpillar’s distribution system is unmatched in delivering integrated solutions tailored to meet customer needs. Caterpillar dealers build lifelong relationships with customers that provide critical information to meet their needs effectively. The excellence of Cat’s distribution system is a formidable competitive advantage that enhances the value of its products and services. Our Values in Action A strong commitment to excellence and focus on the needs of customers drives Caterpillar to continuously improve the quality and reliability of its products and services. Historically, Cat has been recognized for providing the highest quality. Continued success depends on exceeding the quality expectations of customers and standing behind everything the company does.
