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?