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?