Caterpillar Operation Management Paper

2012 Operations Management

Caterpillar Inc.

Running head: Caterpillar Inc.

Caterpillar Inc. Amen Mukhlis Southern New Hampshire University

Caterpillar Inc.

abstract The paper investigates the operations and operation o peration management at Caterpillar Inc. In addition add ition to the company's business model and supply chain that contributed to the success suc cess of the organization, the company is known for its solid operations that has seen Caterpillar Inc. Increase their sales and revenues in the times of rescission. As the company was one of few companies to make drastic operational decisions to overcome the state of the economy which resulted in a sharp decline in Sales and revenues.

(morningstar, 2012)

The main objective of the paper is to identify Caterpillar's Operation management model and investigating all the factors that related to the success of this model This report will look into caterpillar's financial performance, customer satisfaction and industry reviews as indicators for the degree of success of Caterpillar's

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Caterpillar Inc.

Table of contents:

Introduction:

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Operations Management at

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Caterpillar Inc.

Caterpillar Operation

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Management development:

Lean thinking at Caterpillar Inc.

Implementing six sigma:

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Current Six sigma

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New Six sigma applications at

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caterpillar Inc.

Continuous Product and process

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improvement

Caterpillar and Their customer's

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Supply Chain Management

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Caterpillar's Financial

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Performance: References

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Caterpillar Inc.

Operations Management at Caterpillar Inc. Introduction

Caterpillar Inc. is the world's leading leading manufacturer of construction and mining equipment, equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services.

With 2011 sales and revenues of $60.138 $60.13 8 billion (Caterpillar, http://www.caterpillar.com/, 2012) Caterpillar was ranked number one in its industry and number 44 overall in the 2009 Fortune 500. Caterpillar stock is a component compone nt of the Dow Jones Industrial Average Caterpillar Inc. traces its origins to the 1925 merger of the Holt Manufacturing Company and the C. L. Best Tractor Company, creating a new entity, entit y, the California based Caterpillar Tractor Company In 1986, the company re-organized itself as a Delaware corporation under the current name, Caterpillar Inc. Caterpillar's headquarters are located in Peoria, Illinois, United States. (wikipedia.org, 2012)

Caterpillar products and components are manufactured in 11 0 facilities worldwide. 51 plants are located in the United States and 59 overseas plants are located in Australia, Belgium, Brazil, Canada, England, France, Germany, Hungary, India, Indonesia, Italy, Japan, Mexico, the Netherlands, Northern Ireland, the People's Republic of China, Poland, Russia, Singapore, South Africa and Sweden. Caterpillar's historical manufacturing home is in Peoria, Illinois, which is also the location o f  Caterpillar's world headquarters and core research and developmen t activities. (wikipedia.org, 2012).

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Caterpillar Inc.

Operations Management at Caterpillar Inc. Caterpillar Inc. Has adopted a unique management concept by dividing their departments into main departments and having an Operations research and evaluation evaluation unit for each of their main departments. The caterpillar management system define their different departments and the employees and tasks for those departments clearly with a unique system of measuring the effectiveness of their current operations, their employee value and the market respond for their products and how much this department contribute to the product produc t and the whole existence of o f Caterpillar Inc.

The table below illustrates the different departments that compose Caterpillar Inc.

Number

Department

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Management and Management Decision

2

Engineering

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Production and Production Planning

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Purchasing and buying

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Supply chain research and Management

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Materials Management

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Marketing

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Accounting and Financial Decisions

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Caterpillar's Financial Arm.

Caterpillar has sub departments that assist the objective of those departments an example is tech support, customer Service and Voice of Customer, Cu stomer, Technical Writing, and The unique network  of distributors.

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Caterpillar Inc.

Caterpillar Operation Management development:

Caterpillar Inc. Consider having a trained staff with op erational management skills to be an essential part of their success; the company has developed de veloped many programs and training programs to insure having the talent and experience to continue the operational excellence

The company started the Development program initiative and define it as: " Our Manufacturing Professionals Development Program is a leadership career path that consists of  three, one-year assignments. Caterpillar operations and manufacturing managers ma y also be placed directly into more traditional roles". (Inc., 2012)

The company has operations in almost every country around the globe giving the company a big challenge to have flexible flex ible operations that take in consideration the differences between the way each culture does business, the company has expanded to markets in china, brazil and the Arabic region through distributors, warehouses and Manufacturing facilities .

Caterpillar recognizes that their operations domestically and Around the world is important to their success and in their recent expansion to brazil, china, Dubai and India the company established programs with the local universities in addition to the internal career development programs.

Caterpillar suppliers are all connected to the company's data source (Share point system) that contains training records and operational lectures and strategic operational planning that allows suppliers to train their newly added employees and an d prepare them for successful career in caterpillar

Part of Caterpillar's Caterpillar's ability to provide provide excellent operational decisions is their flexibility flexibility and fast response the company has developed a fast response mechanism through their six sigma program Many examples are present for the flexibility Caterpillar provide in their operational de cisions at all levels some of the most notable examples are : 6

Caterpillar Inc.

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Reviving and upgrading old equipment found in Tunisia: the company responded fast to a suggestion made by a Tunisian Dealer to revive, revive , rehabilitate and old caterpillar equipment in Tunis as the economical state did not allow the construction industry nor the agricultural to purchase new equipment; the company started a new program to revive and fix older caterpillar models and trained many of the mechanics and dealers to upgrade those models, the flexibility in this decision has lead to increase in parts sale and upgrade orders which was another source of income for the company in the down term of  the economy.

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The company responded to the economical change and the slow construction and mining industry by giving financial incentives and Lease op tions through their financial arm which was established to encourage businesses, dealers and customers to keep investing in their industry and take the help of caterpillar to grow.

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The company's headquarters decided to expand fast in the middle east, china, idea and brazil, the company's fast response to the changing chan ging factors in the world economy proved essential in gaining more edge over competitors, compe titors, as the company was able to identify new markets and respond fast by having a an easy flow communication and easy decision making sequence.

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Caterpillar Inc.

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Change in work environment : The Th e company is recognized for their fast response to employee's complaints, suggestions and implanting Ideas.

Lean thinking at Caterpillar Inc.

Caterpillar Inc. Has adopted lean thinking in in their operations identifying this step as a primary and necessary step to excel in business Kurt Schrom, facility manager at Georgia plant identified Caterpillar's Lean thinking efforts by emphasizing on the importance of creativity and finding new solutions "With the mindset of  (creativity before capital,) we're we're expending without large amounts of money. (Jusko, 2012)

An Example for the results that caterpillar Inc. Has achieved throu gh using lean thinking is Caterpillar’s creativity led to the introduction of OEE, a measure that tells users the percentage

of time that equipment, when running or required for production, is producing good-quality product at an acceptable rate. It is calculated by multiplying availability rate (utilization) by production rate (efficiency) by first-pass yield (quality). Caterpillar used the information provided by the OEE metric to institute changes that addressed the constraint. As a result, build rates improved and outsourced work came back inside the plant. (Jusko, 2012).

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Caterpillar Inc.

Implementing six sigma: Caterpillar started implementing six Sigma since day one, beginning in January 2001. The program was applied in all departments; from their perspective, an ywhere there was an outcome, there was a process. If there was a process, p rocess, there was variation in performance. If  there was variation in performance, the process was subject to Six Sigma. No area of the company was excluded from production to revenue recognition to client services. The company rolled out the th e program in ―waves,‖ and, by the end of 2001, had 700 Black Belts. Today there are roughly 2,000. Black 

Belts at Caterpillar are trained by Master Black Belts and receive a minimum of 160 hours h ours of  training while also working on their first project.

Caterpillar employees at all levels view six Sigma as the way they work to solve problems and make decisions that involve rigor and discipline, with a goal of process excellence. ex cellence. (Keith T. Jones, 2010)

To illustrate how serious caterpillar in their Six sigma efforts and How valuable this concept has been to the success of caterpillar The company has developed a tracking tool to track the changes resulted to their operations based on the use of six sigma, below is some of the numbers that Caterpillar is proud to show 

Caterpillar has introduced 850 suppliers worldwide to 6 Sigma,

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1,000 supplier Black Black Belts to help run Caterpillar's projects.

Caterpillar Explanation for using Six sigma in the employee manual reads (Caterpillar, 2012) (Don Bolin) :

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We are using 6 Sigma to Drive Strategy to an Actionable Level

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Creating a Quality Culture Supported by ―Our Values in Action‖

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Driving Best Practices to Common Practices – Standard Work 

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Zero Defect Culture

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CPS / Product Development / Sales & Service Alignment

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Caterpillar Inc.

Current Six sigma projects :

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improve threaded joint design in the assembly process using Six sigma applications, this  project focuses on continuous improvement in Caterpillar’s quality culture culture and provides

an opportunity to leverage best practices and replicate solutions across the company. 

Caterpillar Inc. Is Is working on a six Sigma project project that focuses on ergonomic improvement. The project is helping to put processes in place that allow a proactive and, preventive approach to ergonomic injuries — providing providing a better work environment for employees. (John Gillett, 2010)

New Six sigma applications at caterpillar Inc.

Six sigma has been a corner of Caterpillar's success leading to the operational ex cellence in Caterpillar's department, the program has succeeded in achievin g the goals that it was intended to achieve such as minimizing the defects, customer satisfaction, cost saving, less wastes and transparency in both operations and financials.

The program has been part of the caterpillar's Inc. Daily operations and in every ev ery corner and all facilities around the world, The company has decided to use the success Six sigma has brought b rought to Caterpillar Inc. in their environmental initiative . Caterpillar Inc. has pledged to reduce its total absolute global greenhouse gas (GHG) emissions by 3 percent from 2006 to 2015. The company has committed to the reduction goal as part of the U.S. Environmental Protection Agency's Agenc y's (EPA's) Climate Leaders program, which Caterpillar joined in 2003. Projects implemented by Six Sigma teams focused on heating efficiency, more efficient lighting and control of equipment and can be replicated across the globe at Caterpillar facilities, not only reducing emissions, but also saving money, improving quality and engaging employees. (RP news wires, 2012).

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Caterpillar Inc.

Continuous Product and process improvement

Caterpillar Inc. give the CIP and CPI a great deal of importance giving the impact they made on caterpillar's business ; Caterpillar Inc. employ the CIP and oth er tools from the house of  quality to insure their process are always improved, the Six sigma throughout the company with the CIP employment Guarantees caterpillar an edge over competitors and achieving their goals in having operational excellence and great value products. the company also has its CPI CP I (Continuous product improvement) a program designed to allow a llow the company get the needed feedback to improve their products and it gives the company an advantage to work closer to their customers.

How does the Caterpillar Enterprise Impact Quality? (Caterpillar, 2012) (Don Bolin) 

Know & Understand the ―Corporate Quality Manual‖

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Follow the NPI, APQP & MQ Discipline

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Build in Sequence

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Don’t Pass on Defects – Manufacturing & Transactional

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Stop & Fix

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Establish Execution Plans with the Rigor of ―6 Sigma Process‖

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Remember – The work we do, reflects who we are.

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WE ARE THE BRAND!

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Caterpillar Inc.

Caterpillar and Their customer's

Caterpillar has a unique relationship with their customers throughout their dedicated efforts to service their customers and throughout their service guarantee which is covered by the CPI program as well as through their chain of distributers Caterpillar identifies their CPI programs as: " While Caterpillar is renowned for outstanding product quality, work is consistently done to ensure that the quality is is upheld over the life of the product. One of the major processes utilized throughout Caterpillar is Continuous Product Improvement (CPI), which allows dealers and service representatives to identify product issues through customers that need to b e rectified for the individual customer and the entire entire engine population. This means that the factory is in frequent communication with customers to ensure their long term product satisfaction." (Caterpillar).

Supply Chain Management

(Gray, 2010) 12

Caterpillar Inc.

Caterpillar Inc. Has had one of the most complicated co mplicated supply chain network giving the size of  operations combined with the products caterpillar manufactures, the compa ny has a domestic and international operations which in turn add to the complexity of caterpillar's operations.

Caterpillar Inc. has developed their supply chain and supply chain management to develop their unique i2 System for supply chain management Tailored for the unique needs of automotive and industrial manufacturers and suppliers, i2 solutions provide services such as increased order-to-promise reliability, reduced time-to-market, optimized product option mix availability, and improved manu facturing throughput efficiency and flexibility. i2 solutions have resulted in a reduction in prod uct inventory, a reduction in assembly cycle time, and a reduction in assembly a ssembly line re-sequencing.

In addition, i2 solutions are adding speed and intelligent decision-making to Caterpillar, increasing the company’s productivity. By operating as a high-velocity company, Caterpillar will

provide a higher-quality product to its customers.

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Caterpillar Inc.

By reducing operational time, the company compan y will be able to make more intelligent business decisions. By having access to information faster and the ability to study forecast analysis, Caterpillar will be able to better manage its supply suppl y and demand operations. (i2 The supply chain)

In addition to the i2 System Caterpillar has its Logistic department that provide logistic support for the corporate, the dealers and the customers. The logistic department in Caterpillar is one of their most important assets as it provide supply chain management solutions using Linear programming models, transportation networks and Routes computed using Linear programming software. (Logistics)

Cat logistics provide highly important functions to Caterpillar's supply chain an example for the functions CAT logistics provides (Logistics) :

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help design the flow of inbound and outbound materials through the supply chain network.

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analyze capital and non-capital assets required to optimize supply chain performance, including outsourcing analysis, financing options, tax planning, and incentive utilization.

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perform tactical analysis and planning that can be b e used to establish ideal traffic routes, modes, and carriers.

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evaluate historical and future inventory demand profiles, "best practice" op erational process requirements, and desired customer service needs in order to help design an optimal facility layout, and determine material flow and equipment requi rements to achieve world class distribution performance

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analyzes and designs effective and efficient workflows and b usiness processes within and between organizations to achieve measurable performance improvements. This includes utilization of the methods and tools of a Six Sigma, fact based, process driven approach.

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Caterpillar Inc.

(Caterpillar, 2012)

Caterpillar's Financial Performance:

Caterpillar's Cash flow statement gives a clear judgment about their ma nagement and operational decisions as it provide us with the results of those decisions and the income generated by their operations.

Caterpillar is one of few companies That opted to invest in the current economy while other companies has seen the situation to risky to invest, Caterpillar stayed on their promise to improve and Their senior management took a decision to invest and this decision de cision was rewarded with the income the company has seen; the decision to keep investing inve sting was one of Caterpillar's most important operational decisions and it was to keep the company closer to their customers, the Investing was through the Financial Arm and the leasing programs in addition to moving mo ving

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Caterpillar Inc.

equipment from a location to another and expand their upgrade program which was one of their best assets during the recession.

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Caterpillar Inc.

References:

Caterpillar. (n.d.). Retrieved from www.cat.com: www.cat.com/cda/files/2408092/7/Overview+-+CPI+Final.doc Caterpillar. (2012, 03). http://www.caterpillar.com/ . Retrieved 03 2012, from http://www.caterpillar.com/: http://www.caterpillar.com/ Don Bolin, P. G. (n.d.). “Caterpillar’s Passion for Quality for Quality Performance Excellence”. Lincoln Excellence”.  Lincoln Foundation for   Performance Excellence  –  ASQ Meeting . Meeting . Gray, D. (2010). Transforming the Caterpillar Global supply chain. caterpillar Logistics Services, Inc. i2 The supply chain, r. c. (n.d.). http://laurenbossers.writersresidence.com http://laurenbossers.writersresidence.com.. Retrieved from /aurenbossers.writersresidence: http://laurenbossers.writersresidence.com/system/attachments/files/3678/original/Caterpillar_Factory_Planning_case  _study.pdf  Inc., C. (2012). www.caterpillar.com. www.caterpillar.com. Retrieved from www.caterpillar.com: http://www.caterpillar.com/careers/jobopportunities/operations-and-manufacturing John Gillett, R. F. (2010). How Caterpillar Uses six sigma to Execute Strategy. STRATEGIC FINANCE . FINANCE . Jusko, J. (2012). Lean (2012).  Lean Manufacturing Operations Propel Caterpillar Forest Products. Products . Retrieved from www.industryweek.com: http://www.industryweek.com/articles/lean_manufacturing_operations_propel_caterpillar_forest_products_25857.as  px Keith T. Jones, C. C. (2010). The Pervasive Success of 6 Sigma at Caterpillar. STRATEGIC FINANCE . FINANCE . morningstar, f. (2012). financials.morningstar.com (2012). financials.morningstar.com.. Retrieved from financials.morningstar.com: http://financials.morningstar.com/income-statement/is.html?t=CAT®ion=USA&culture=en-us RP news wires, N. C. (2012). www.reliableplant.com www.reliableplant.com.. Retrieved from www.reliableplant.com: http://www.reliableplant.com/Read/13935/six-sigma-helps-caterpillar-pursue-emissions-goals wikipedia.org. (2012). wikipedia.org . Retrieved from wikipedia.org: http://en.wikipedia.org/wiki/Caterpillar_Inc.

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