Analyzing the Caterpillar Production System


Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.

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

  • Product Design: One of the factors for Caterpillar’s 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: Caterpillar’s 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 CAT’s 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 it’s project management techniques, resulting is higher success rates of its projects. Have you had a similar system implemented in your company. Do you think a system like CPS will work for non-manufacturing organizations?


4 thoughts on “Analyzing the Caterpillar Production System

  1. I think there are different levels of implementation within a firm which can match the CAT way of doing things. For example, a firm may establish a defined process for project management such as gathering requirements, organizing stakeholders, etc but also at the same time miss the overall planning that helps a firm to succeed. Additionally, the processes that firms develop in an effort to standardize project management can also suffer through the lack of acceptance, adoption, or even simple communication. A perfect example of this is within my firm. I am taking on a project management position but have at no time been provided with a process to follow. I hear bits and pieces of it from meetings but at no point has formal training been provided. It is essentially a model of here you go have fun.

    Another critical part that is required in any organization is a committee steer for the overall implementation of projects. I currently participate in a committee that steers the rating of projects for their criticality and against budget constraints. This cohort of sorts includes stakeholders throughout the global organization and has become a model for other areas to follow as we have enjoyed extremely high levels of success and resource allocation along with a common vision of where each project supports helps move us to our future vision and provides for success of the BAU environment. A firm amy have strong project management processes or systems but without a central core group of stakeholders all agreeing on a vision for the future these strong systems cannot provide for future success.

  2. Having worked with Caterpillar for many years and been impressed by their ability to look for the gold at the end of the rainbow (to turn disruptions, product or economic, into opportunities) I am not surprised by this write-up. I want to respond to the response published in July of 2013 — yes, it is all too often that companies that have implemented good to excellent process controls, including those that foster innovation, find themselves wasting the resources and the opportunities these processes reveal. Jean-Philippe Deschamps and I have published a book on Innovation Governance (Wiley, 2014) which underlines this problem and presents several case stories of companies that have been able to design, implement, and benefit from good governance models. Caterpillar has impressed me by their ability and willingness to apply a corporate-wide understanding of what will be done, how it will be done, what will be resourced — all critical questions for corporate governance.

  3. Hello Im researching about how TPS can be used outside of japan and I found your blog how CAT uses TPS. I was wondering if you can link me the articles you used for your paper?

  4. I have worked in Caterpillar myself, and the current state of CAT does not surprise me.
    The problem range from lazy employees to strategic blunders committed by the CAT Executives.
    All the wonderful information that you see is only limited to papers, books, manuals and online storage. None of the things you see here is actually implemented. I would bet anything, if at least 10-20% employees in Operations showed where the CAT Production System manual even is…
    I am a witness to situation where employees faked the data to show, how they are meeting their targets and goals. The employees would not even turn up to the meetings, playing solitaire in their cubes. The list is never ending….
    The story of the company that slides from 100K + workforce to around 40K.

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