A Closer Look At Caterpillar Inc and Their Lean Systems

A company like Caterpillar has a natural quality that make a lean system a natural choice for the company to implement. The company launched the Caterpillar Production System (CPS), an order-to-delivery process unique to them that improves safety, quality and velocity, add capacity, and improved cost management.

I encourage you to take a look at the following videos that describe Caterpillar’s Manufacturing approach as well as a more detailed look at the production of one of their products.

 

The company expanded on their operation management foundation that was based on the 6 Sigma principle, which we know from class as being a disciplined, data-driven approach to eliminating defects in a certain process. CPS has improved the way that Caterpillar manages its operations, conducts their business in general, and has resulted in a higher success rate of their projects. Four key metrics drive action in the company: People, Quality, Velocity, and Cost.

 

As one of the world’s largest heavy equipment maker, the company needed to find a way to enforce compliance and drive their quality from the origin. By implementing end-to-end visibility of parts in transit, demanding consistent overseas transit ties, and finding ways to validate parts before moving the company was able to gain a stronger control of their process. Before, with long lead times and specific requirements for shipping equipment the company experienced high buffer stock and lengthy lead times.

The Caterpillar Production System embraces lean manufacturing concepts like Poka Yoke, pull, and continuous improvement. Poka Yoke is a mechanism in a lean manufacturing process that helps an equipment operator avoid mistakes. This is necessary for a company like Caterpillar which is built on safety and quality and produces products that can be harmful if not built correctly.  Its purpose is to eliminate product defect by preventing, correcting, or drawing attention to human errors as they occur. Because Caterpillar offers a range of products, they incorporate the pull systems in their order fulfillment. A pull system is one in which production orders will begin when inventory reaches a certain level.

Caterpillar really embraces the Just in Time ( JIT) approach through different material replenishment strategies including Order Specific Sequence and Kanban. The company gauges the demands that comes and then prepared a forecast of rolling demand for 24 months. This is then narrowed down to a month based on realistic demand. Maintaining JIT  inventory levels goes hand in hand with JIT scheduling. In order to keep inventory levels as low as possible, the company has to constantly adjust its schedule or ordering and delivery. This requires communication both up and down the supply chain. For a company that produces large, heavy, and oftentimes cumbersome products, being efficient with inventory is necessary. JIT makes production operations more efficient, cost effective, and customer responsive. JIT allows manufacturers to purchase and obtain parts close to when they actually need them on the assembly line. Doing this releves the company of the burden of housing and managing these components.

For a Lean operation, Kaizen is the term used to describe continuous improvement. Kaizen targets human resources and processes in order to raise efficiency and productivity. Caterpillar strives to fulfill their mission of continuous innovation and aims to ensure that every customer and environmental need is satisfied. Caterpillar has several other key foundations of a lean system present throughout their operations including quality at the source, small lot sizes, automation, and preventative maintenance.

What other companies can you think of that implement the Lean approach to their business? Why do you think this approach is so successful for a company like Caterpillar? How does it help them stregnthen their four key metrics of  People, Quality, Velocity, and Cost? Is there anything that Caterpillar can do to improve their business results even more?

Relevant Articles:

https://www.academicmind.com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management.html

 

https://www.caterpillar.com/en/news/corporate-press-releases/h/caterpillar-announces-new-organization-to-drive-sustained-improvements-in-customer-deliveries-and-operational-efficiencies-and-to-build-on-recent-product-quality-improvements.html

 

4 thoughts on “A Closer Look At Caterpillar Inc and Their Lean Systems

  • March 1, 2018 at 1:11 pm
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    As one of the largest construction equipment manufacturers, having a consistent and efficient supply chain is vital. So much of the United States’ infrastructure is dependant on Caterpillar and their production. Additionally, other firms’ reliance on the servicing of their Caterpillar products is hugely important because, with machinery as large and expensive as what Caterpillar makes, you need your equipment fixed correctly and as soon as possible. They are able to do this because the production of their products initially is so well done. Their clean process just in regards to the engine improves quality metrics which can be applied to many other processes through the supply chain. Automation helps keep this process consistent, especially with the balance of human labor. With such massive and intricate machines, full automation through the supply chain would likely cause problems.

  • February 28, 2018 at 8:01 pm
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    Jessica,

    Reading your post about Caterpillar’s operations and supply chain process and efficiencies was very interesting. I was especially interested in the part of the first video where they build their engines in the cleanest possible environment, in order to not introduce any contaminants and maintain a quality and efficient engine.

    The process involving the engines clearly helps them to strengthen their quality metric. I am sure there are other processes or sub-processes throughout their whole supply chain that this same clean environment technique can be implemented, although, it would be costly.

  • February 28, 2018 at 3:02 pm
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    Jessica,

    I enjoyed your post about Caterpillar. Also, I thought the videos you included gave great insight into the physical production plants. The one part of your post that particularly caught my eye is when you drew attention to the fact that Caterpillar’s operations management was founded on the Six Sigma principle. It is no coincidence that a company so focused on the quality of their organization was able to launch a process system that significantly helps the company as a whole.

    Another aspect of Caterpillar’s manufacturing process that they are clearly doing right is the balance of automation and human labor. With a company as big as Caterpillar, it is easy to invest massive amounts of money to make the process more and more automated, but since they are committed to high quality and safety for their products, they still have a large human presence on the factory floor.

    Finally, Caterpillar takes the quality of their products one step further by consulting with customers about the best way to maintain Caterpillar products, as well as how to operate them safely. While exploring the Caterpillar website, I stumbled upon an entire safety services section. They offer specialized services for individual companies, as well as general events. This also improves the reputation of Caterpillar as a whole because companies that know how to utilize the equipment in the best way will have more positive experiences with the machinery. If you would like to read more about their safety services, please refer to the following link: https://www.cat.com/en_US/support/safetyservices.html.

  • February 28, 2018 at 12:52 pm
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    Jessica,

    Your post was timely given the President of Caterpillar’s Resource Industries Group, Denise Johnson, will be coming to speak on campus in a few weeks. I am planning on going to the talk, and I’m happy that I read your post because it was a good primer on CAT’s operations and approach to lean systems.

    CAT ranks 8th in the Lean Institute’s Top 10 Lean Manufacturing Companies in the World. In the short description provided, Lean Institute mentions that the Caterpillar Production System that you highlighted in your post was “modeled after elements of the Toyota Production System.” As we discussed in class, the TPS is regarded as the industry standard for creating and implementing a lean system. One of the most interesting aspects of your post was the media component showing the production of various CAT products. More specifically, I’d like to highlight the role that individuals played in the CAT production videos. Our textbook notes that there are significant organizational considerations when implementing lean systems. In lean systems, lower-level workers take on responsibilities that higher-level managers often have in other manufacturing systems, and thus a successful lean system requires a significant amount of cooperation and trust from the workforce. It’s difficult to quantify cooperation or trust, but the video components of your blog post did have examples of some of lower-level workers and first-line supervisors doing activities such as quality control that exemplify the trust between CAT management and CAT employees that has made CAT a successful lean organization.

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