LEAN

MENUFACTURING
Application of lean in
Caterpillar Inc.

Ayush Gautam (BFT/14/632)

Introduction of the company
Caterpillar Inc. manufactures for construction, mining, natural gas engines and diesel
engines, gas turbines of industrial level as well as diesel electric locomotives. Energy,
Transportation, Construction Industries, and Resource Industries. It also offers financing
solutions (financial products division) are the business segments of Caterpillar Inc. The
headquartered of the company is in Peoria, Illinois. Caterpillar has offices in 36 countries.

Fig1 : Sales and profit share of the company from 2000 to 2007.

6 Sigma

The heritage and power of Caterpillar is reflected through the quality of its products. The
main agenda of caterpillar is to carry on those values as well as its strategy, those values and
strategy also includes quality as their top concern. To satisfy the costumer worldwide
Caterpillar wants that the employee to follow the values of company in action, Integrity,
commitment, teamwork as well as excellence to keep the promise of the company to the
customers.

Caterpillar Inc. goes through organizational restructuring in 2000 to keep its machine,
product and marketing organizations in positions so that the company can achieve its 2010
Vision, 2020 goals.

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 DMAICDefine,
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.

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.

Caterpillar Production System

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.

The Caterpillar Production System is the common Order-to- Delivery process being
implemented enterprise-wide to achieve our Safety, Quality and Velocity goals for 2010
and beyond.
 o Applying a consistent set of standard processes
o Continuously improving processes through waste elimination
o Creating an environment to facilitate change and improve the way we work
o Creating a culture that shares successful practices and learns from mistakes
o Achieving breakthrough improvements.
o Identifying challenges and determining what must change.
o Delivering on our promises our 2010 strategic goals.

The ultimate goal of CPS is the elimination of waste. Waste is any activity that
consumes resources, but creates no value for the customer