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COST MANAGEMENT

EXCELLENT CLASS PROGRAM 2015


FACULTY OF ECONOMICS
TRISAKTI UNIVERSITY

REPORT
Six Sigma at Caterpillar Company

CREATED BY :
ANGELA AVITA SUGIARTO (023151176)
DYAH EKA PRATIWI (023151223)
HANI PERMATASARI (023151245)
RENA NUR PADILLAH (023151252)
AULIA ULFAH RACHMAN (023151254)
About The Company

Caterpillar is the worlds leading manufacturer of construction and mining equipment, diesel
and natural gas engines, industrial gas turbines and diesel-electric locomotives. We are a leader
and proudly have the largest global presence in the industries we serve. With 2016 sales and
revenues of $38.537 billion, Caterpillar is the worlds leading manufacturer of construction
and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric
locomotives. The company principally operates through its three primary segments -
Construction Industries, Resource Industries and Energy & Transportation - and also provides
financing and related services through its Financial Products segment.

Vision

Our vision is a world in which all peoples basic needs such as shelter, clean water, sanitation,
food and reliable power are fulfilled in an environmentally sustainable way and a company
that improves the quality of the environment and the communities where we live and work.

Mission

Our mission is to enable economic growth through infrastructure and energy development, and
to provide solutions that support communities and protect the planet.

Code Of Conduct

Our Worldwide Code of Conduct, first published in 1974, defines what we stand for and believe
in, documenting the uncompromisingly high ethical standards our company has upheld since
its founding in 1925. The Code helps Caterpillar employees put our values and principles into
action every day by providing detailed guidance on the behaviors and actions that support our
values of Integrity, Excellence, Teamwork, Commitment and Sustainability.

On February 9, 2015, Caterpillar Inc. approved amendments to its Code of Conduct (the
"Code"). The Code applies to the daily activities of employees of Caterpillar Inc., its
subsidiaries and affiliates worldwide and members of its Board of Directors. Caterpillar Inc.
amended the Code to elevate Sustainability as a core Value, clarify, update or enhance certain
provisions, and improve readability for employees.

Brands

Caterpillar Inc. owns a complex portfolio of brands whose roles and relationships support the
growth to achieve our enterprise goals. The Caterpillar brand is used in communication to
represent our corporation with the investment community, employees, public policy makers,
and other key stakeholders. The Caterpillar brand is the umbrella that shelters all other brands
in the portfolio.

The brands of Caterpillar Company is :


Cat Financial
Cat Reman
Cat Rental Store
Anchor
Asiatrak
FG Wilson
MAK
MWM
Hypac
Perkins
Etc
Six Sigma at Caterpillar Company

The textbook definition of 6 Sigma refers to a step-by-step approach designed to reduce the
number of errors in a given process. At Caterpillar, anything that produces a result is considered
a process. This can mean everything from assembling a product to finding areas of opportunity
to profitably grow the company. The end result is fewer errors and more successful, efficient
processes across the enterprise.

The Greek letter Sigma is used to represent a statistical unit of measurement. It defines standard
deviation, or in Caterpillars case, the number of errors made in a product or process. 6 Sigma
equates to only 3.4 errors per million opportunities.
Most businesses operate at a 4 Sigma level, meaning theyre about 99.5 percent defect free.
Sounds pretty good, right?

But it really isnt good enough when it translates into the following statistics:

Two accidents a day at major airports


210 minutes a month without electricity
2,500 incorrect surgical procedures a week
20,000 pieces of mail lost an hour
100,000 incorrect drug prescriptions a year.

To reach the 6 Sigma level, Caterpillar uses 6 Sigma methodology to guide projects and
implement processes. The methodology utilizes a common, disciplined approach that focuses
on gathering information, analyzing data and making fact-based decisions to ensure the most
efficient and effective processes, products and services are in place to meet customer
requirements.

*DMEDI (Define, Measure, Explore, Develop and Implemen)t. In Caterpillar Company, the
**DMEDI is create new processes, products, services, and plants to 6 Sigma quality.
The quality of Caterpillars products reflects the power and heritage of the company.
As the organization focuses on executing the enterprise strategy and living by its values, one
of the top priorities continues to be product quality. The goal to achieve world-class product
quality requires each Caterpillar employee to live Our Values in ActionIntegrity, Teamwork,
Commitment and Excellencepassionately every day to ensure the company delivers on its
promises to customers.

To ensure this focus on the customer, Caterpillar Inc. made organizational changes
early this year to align its machine product and marketing organizations, which positions the
company to achieve its 2010 and Vision 2020 goals and to build deep expertise in product
development.

Five end-to-end machine business divisions were created: Mining, Quarry & Waste,
Excavation, Earthmoving and Building Construction Products. These divisions incorporate
design, manufacturing, marketing, sales and product support for the entire value chain. The
alignment also introduces three new regional distribution services divisions within
CaterpillarEurope, Africa/Middle East; Asia Pacific; and the Americaswith responsibility
for Caterpillars total portfolio of business with each dealer, the dealer relationship, dealer
development and ensuring the most efficient and effective distribution of Caterpillar machines,
engines and parts. This alignment will strengthen Caterpillars world-class product and service
offerings.

The alignment builds on Caterpillars success at deploying 6 Sigma, a critical


component of the companys enterprise strategy. 6 Sigma has helped Caterpillar achieve record
results, all while improving the way it does business. With more than 7,500 active projects
currently aligned to Critical Success Factors, Caterpillar continues to utilize 6 Sigma resources
and processes to deliver results.

6 Sigma also serves as the foundation from which to ensure product quality. This
disciplined approach is used throughout the product lifecyclefrom product development to
production through product support

Caterpillar, also known as Cat, is a company that provides construction,


mining equipment, diesel and natural gas engines, and industrial gas turbines in the world. Not
only that, they also provide services such as finance, logistics, and manufacturing.
Caterpillar managed to reach out to the entire continent through their products and
services. Even in 2008, Caterpillar has hired as many as 113,000 employees across their
corporate network. Caterpillar usually do not sell the products and services they have to the end
consumer, but do so using a global distribution network of dealers. This time, they have more

than 180 dealers across North America, Africa, Middle East, Asia, and Latin America. The
overall dealers have more than 131,000 employees it serves as liaison from the end
consumer to paint. The company also has a great financial success. In 2006, Caterpillar has
achieved total sales and revenue amounting to 41.5 billion dollars, exceeding the goal
that they specify in the year 2001. Caterpillar created an extremely aggressive growth
strategy and the cost of funding that is not a little. For example, the company has spent in the
amount of 1.4 billion dollars just for the cost of research and development in 2006. Based on
the top 100 company version of Fortune magazine, Caterpillar was at no. 44 which
have earnings of 51.3 billion dollars and had a profit of 3.6 billion dollars.

6 Sigma in Caterpillar
Caterpillar began to apply Six Sigma methods in the year 2001,
when CEO Glen Barton challenged the companies to make changes. To introduce his ideas,
Barton made a dramatic simulation where the 3 black belted karateka using their power
to break the branches of a tree, each branch represents quality, cutting costs, and the purpose
of the income that reached 30 billion.

Barton realized he needed a tools that allows the company to help analyze where the
change needs to be done, to help implement these changes, and to help develop the company,
so then Barton chose Six Sigma. Initial training the implementation of Six Sigma in
the Caterpillar has spent more than 300,000 hours in the first year. And Campion,
Master Black Belt assessment shows that in Caterpillar Black Belt, the average number
of years of experience the company is around 5 to 7 years. At Caterpillar, the average number
of years of experience the company is more than 20 years.

When He decided to retire in 2004 and his leadership will be handed over
to Jim Owens, some parts of the company become a little worried. They fear not Owens will
continue Six Sigma has been done by Barton. However, in his final, the Black Belt,
Master Black Belt, and all project changes related to Six Sigma believes that with the
commitment of Owens, the methodologies and their role in Caterpillar will continue to run.
The entire section on the Caterpillar participated in Six Sigma projects annually, ranging
from factory floor to top management that always supports the planned strategies. According
to the company, there are about 2,000 active Black Belt. Every employee knows and
understands that the major initiatives and changes will be done using Six
Sigma strategy. If there is a problem, Six Sigma is tools that will help Caterpillar finds
a solution. In fact, employees have also learned from the time they becoming a volunteer
at another company.

Six Sigma culture has spread in all aspects of business in the Caterpillar. In
the implementation of the changes, the Caterpillar was aided by Craig Brabec, the
Global Finance and Strategic Support Six Sigma Division Champion while it's originating
from a business consultant. Brabec found something different from a Six Sigma Six
Sigma: Caterpillar do not only apply to the manufacturing side and technique but also applied
to the financial section and also human resources.

In 1990, Caterpillar reorganized the structure of their business unit, as it is


sometimes still found difficulties of communication between business units. They used Six
Sigma, as Six Sigma provides a mechanism for effective change, the Fund means
to integrate knowledge and communication studied by whole business units through the Six
Sigma project. As a result, a business unit of Caterpillar is now a more focused and easy
to share knowledge and communicate.

In addition to its own use, Caterpillar has been taught to the supplier and and dealer
about the benefits of using Six Sigma to improve the entire sales model. Caterpillar has
introduced Six Sigma to 850 of their suppliers around the world, who have established more
than 1000 Black Belt to help the implementation of the project. When implementing Six
Sigma, Caterpillar using facts and data to show results that can be expected by
the supplier, that will affect the supplier to participate in applying these methods.
The dealer has been committed to the changes with Six Sigma. More
than 165 dealerships also have produced 1000 Black Belt to help the implementation of the
planned projects. The dealers feel AWE because they can share each other's projects in
Caterpillar illustrating best practices among on the dealer. Although the each dealer
is managed as a separate business, Six Sigma has given them a ' sense of Community ' around
the world.

Product Development

Caterpillars reputation is built on producing quality products, and these products


provide a competitive advantage. The product development process focuses on bringing a
concept to production to meet or exceed target levels for quality, reliability, cost and schedule.

New Product Introduction (NPI) is the process Caterpillar uses to develop, build and deliver
quality products and services to customers worldwide. The NPI process builds on the 6 Sigma

product and process creation methodology, DMEDIDesign, Measure, Explore,


Develop and Implement. DMEDI is embedded within the phases of the NPI process. Guided by
NPI tools and Caterpillar product and industry strategies, NPI teams work together to
continuously improve the quality, technology, performance, durability and reliability of
Caterpillar product.

Production

In 2005, Caterpillar launched the Caterpillar Production System (CPS) to implement a


common enterprise-wide order-to-delivery process to improve safety, quality and velocity, add
capacity, and improve cost management. Throughout the company, CPS along with 6 Sigma
is improving manufacturing efficiencies in Caterpillars global operations.

6 Sigma is foundational to CPS and improving order to delivery processes everything


from the time a customer places an order until he or she receives the finished product. The
principles followed with 6 Sigma and the alignment process for closing gaps in achieving goals
are all leveraged in the execution of CPS processes. CPS focuses on eliminating waste defined
as any activity that consumes resources but creates no value for the customer in Caterpillars
processes from order to delivery.
Product Support

Responding quickly to product problems experienced by customers is critical. Integral


to product support is the Continuous Improvement Process (CPI), the global process for

resolving product problems. Embedded with the fundamentals of 6 Sigma DMAICDefine,


Measure, Analyze, Improve and Controlmethodology, CPI provides a disciplined approach

to identifying root cause and ensuring permanent corrective action. By quickly resolving and
addressing product problems, trust is built and maintained between Caterpillar, dealers and
customers.
Perhaps the most critical element to Caterpillars product support is its dealer network.
Caterpillars distribution system is unmatched in delivering integrated solutions tailored to
meet customer needs. Caterpillar dealers build lifelong relationships with customers that
provide critical information to meet their needs effectively. The excellence of Cats distribution
system is a formidable competitive advantage that enhances the value of its products and
services.

Conclusion

When Glen Barton introduced Six Sigma to Caterpillar, he envisions will use this
method to help Caterpillar to reach a revenue of 30 billion dollars in 2006. However it turns
out, what conceivable Barton materialized in the year 2004 just two years of the
plan first. Jim Owens, CEO of Caterpillar that replace Barton, currently continues to develop
a strategy change by using Six Sigma methodology. The goal of this new strategy also
includes human resources, processes and performance of the products, to the growth
of companies that are profitable.
Caterpillar has developed metrics for each of the strategic objectives for the
year 2020. Metric or measurement against the performance of processes and products
including also became number 1 in quality, market leadership, and
market leading availability. In the end, profitable growth measurement includes 50 billion
dollars in revenue and earnings per share increased over 50% of
the Standard and poor's 500 Companies.
During the last 8 years, Caterpillar has proven the benefits of Six Sigma method in
achieving their strategic objectives. This is done by combining methodology and its
principles as a whole in all aspects in the company, including suppliers and dealers.
Caterpillar strongly believes that by using Six Sigma to make changes, their
new goal will be achieved more easily.

One of the real example that illustrates the integration of Six Sigma sustainably into all
aspects of the company's Caterpillar is a project that will improve the combined design
of series in the Assembly process. This project focuses on the improvement on an ongoing
basis in the culture of quality in Caterpillar and provides an opportunity to continue to
improve best practices also mimic solution across the entire enterprise.
Caterpillar is also being focused on Six Sigma projects that emphasize on the
improvement of ergonomics. This project helped Caterpillar apply process on the area to
look proactive, which in the end is to provide a better work environment for employees.
As can be seen, Caterpillar continues to embrace the Six Sigma method to
do continuous improvement, not only in the manufacturing and engineering departments, but
rather to all parts of the organization. Way of working and thinking of the Six
Sigma method has been successful in bringing corporate strategy towards changes over the
years.
A strong commitment to excellence and focus on the needs of customers drives
Caterpillar to continuously improve the quality and reliability of its products and services.
Historically, Caterpillar has been recognized for providing the highest quality. Continued
success depends on exceeding the quality expectations of customers and standing behind
everything the company does.