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Cat Cashes In on Six Sigma

Executives at Caterpillar Inc., a $20 billion manufacturer of construction and earth moving equipment, have recently credited the aggressive adoption of Six Sigma management methods as a major contributor to bottom-line improvements.

And at the Assembly Technology Expo, Sept. 23-25, in Rosemont, Ill., attendees heard a first-hand report on some of the results and how they were achieved.

“If you look at year-over-year improvements for the second quarter (ended June 30, 2003), we were about $200 million better in terms of profitability, and we think $138 million of that came from Six Sigma methods,” said Jerry Palmer, a Caterpillar vice president, during a Sept. 23 keynote presentation at the Assembly show.

Six Sigma is a management methodology that aims to increase profits through a highly structured approach to achieving near-perfect quality of no greater than 3.4 defects per million opportunities. Caterpillar made the decision to deploy Six Sigma at an August 2000 strategic management conference of top managers, said Palmer. The company launched an aggressive corporate-wide rollout starting in January 2001. “We became the first company to launch Six Sigma at all business units simultaneously—worldwide,” he claimed. Caterpillar operates 110 manufacturing facilities in 24 countries.

The initial effort included the training of 700 Six Sigma “Black Belts”—a title bestowed upon individuals who have attained the highest degree of proficiency in Six Sigma strategies, tactics and tools. The effort produced a rapid payback, according to Palmer, with first-year gains exceeding first-year deployment costs.

Since then, Caterpillar hasn’t looked back. “Today, about three years after we made the decision to deploy Six Sigma, we have more than 1,900 Black Belts who are dedicated 100 percent to Six Sigma problem solving, and we have over 14,000 Green Belts who devote at least 20 percent of their time to Six Sigma projects,” Palmer said. Other employees contribute as Six Sigma team members, while more than 2,000 Caterpillar managers have been assigned as “sponsors” overseeing Six Sigma projects. In all, 22,000 employees worldwide, or nearly a third of Caterpillar’s 67,000 employees, are involved with Six Sigma.

“Our initial focus was on training and developing Black Belts to lead DMAIC projects,” said Palmer. His reference was to the Six Sigma “Design, Measure, Analyze, Improve and Control” approach that is used to make improvements to existing factory processes. Later efforts were aimed at applying Six Sigma disciplines to the creation of new processes, using an approach referred to as DMEDI, for “Define, Measure, Explore, Develop and Implement.” DMAIC improvement projects typically require four to six months to complete, while DMEDI projects applied to new processes have a six- to 18-month gestation period, Palmer told the group. As projects are completed, the Black Belts turn the processes over to “process owners,” who must ensure that the gains are maintained.

Project Examples

Palmer provided several examples of successful Six Sigma projects at Caterpillar. A plant in Sanford, N.C., faced the need to increase production by 50 percent on vehicles known as skid steer loaders, due to increasing demand, while maintaining the same factory floorspace and avoiding capital expenditures. By identifying and eliminating process roadblocks and modifying workflows, among other things, a cross-functional Six Sigma team was able to achieve those goals. In fact, maximum production capability improved by 67 percent, exceeding the target, while cost per unit produced was decreased by 25 percent, Palmer said.

Another Six Sigma project was aimed at improving the use of engineering design tools such as Pro/E solid modeling software. Due to rapid changes in the technology, not all engineers had the same level of proficiency, Palmer said. This was resulting in large numbers of inaccurate models, which required excessive time to correct, and also led to incorrect models downstream and parts that were incorrectly manufactured. A Six Sigma team analyzed the problem and instituted changes that included the use of error checking routines and more standardization, as well as engineer retraining, said Palmer. “After we’d gone through the whole process, our error rate went from 1.25 errors per drawing down to something approaching zero today.”

Palmer cited other successful examples of Six Sigma projects that produced benefits ranging from inventory reduction to improved efficiency in machine recapitalization and replacement. In all, he told conference attendees, Six Sigma projects at Caterpillar have numbered more than 17,000 to date.

Given the success of the Six Sigma initiatives, Caterpillar is now looking to extend the methodology for use by its suppliers and dealers, as a way to drive continuous improvement throughout its value chain, Palmer said. He cited one instance in which a Caterpillar Six Sigma team has helped a supplier reduce defects by 75 percent, while also significantly reducing costs. “We’ve now got 56 dealers and 140 suppliers that are using Six Sigma,” Palmer said. “It’s allowing us to have a common language when we’re jointly working on problems, as well as giving them the tools they need to solve their own internal problems.”

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