Analyzing the Caterpillar

Production System
Caterpillar is the worlds 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 Caterpillars operations

management strategy. The key operations processes of the firm,
powered by CPS include:

Product Design: One of the factors for Caterpillars

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-and-
demand 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: Caterpillars 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 CATs 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 its 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 Caterpillars 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 ActionIntegrity, 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 CaterpillarEurope,
Africa/Middle East; Asia Pacific; and the Americaswith
responsibility for Caterpillars 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 Caterpillars
world-class product and service offerings.

The alignment builds on Caterpillars success at deploying 6 Sigma,

a critical component of the companys 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
lifecyclefrom product development to production through product
support.

Product Development
Caterpillars 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, DMEDIDesign,
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, CPSalong
with 6 Sigmais improving manufacturing efficiencies in
Caterpillars
global operations.

6 Sigma is foundational to CPS and improving order-to-delivery

processeseverything 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 wastedefined as any activity that
consumes resources but creates no value for the customerin Cats
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 Controlmethodology, 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 Caterpillars product support is

its dealer network. Caterpillars 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 Cats 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.