1Q 2009

The global economic crisis has resulted in challenges for Caterpillar and Cat dealers. In these times of uncertainty, we must effectively use 6 Sigmait is the way we do business. 6 Sigma is how we execute strategy, improve quality, strengthen processes, increase sales and reduce cost. These actions are exactly what all of us have to do to remain successful in this economic downturn. 6 Sigma provides the methodology and tools to identify gaps in our business processes while providing opportunities for success. Although short-term cost challenges are a top priority, we must not lose sight of our customers demands in these challenging times. Each 6 Sigma project discussed in this edition of Dealer Briefs provides an opportunity for replication. Using 6 Sigma and CPS for Dealers provides an opportunity to improve your organizations efficiency and quality. For instance, Caterpillar and dealers joined 6 Sigma forces to improve and streamline the warranty process; WesTrac WA reduced parts bin errors through a 6 Sigma Rapid Improvement Workshop (RIW); Gregory Poole improved process efficiencies through a value stream transformation in the Used Parts Department and Barloworld Iberia applied 6 Sigma to improve their Customer Service Agreements (CSA) profitability, while delivering on customer expectations. Good companies become great companies when they conquer adversity. Enjoy this issue of 6 Sigma Dealer Briefs!

Quality Corner
In the fourth quarter of 2008, Caterpillar announced an enterprise realignment that would transform the company into a more customer-focused organization. As the organization continues to embark on the realignment, Caterpillar is now better positioned to deliver its key brand attributes. A key change in the organizational structure is the creation of five end-to-end machine business divisions (MBD): Mining, Quarry & Specialty Industries, Excavation, Earthmoving and Building Construction Products. These divisions have direct responsibility for the entire value chain from design and manufacturing to marketing, product support and sales. The new divisions will provide the company and dealers with better opportunities to understand our customers and drive accountability within each machine business division to impact product quality.

Tom Gales Americas Distribution Services Division Vice President

Rob Charter Asia Pacific Distribution Division Vice President

Jim Parker Americas Distribution Services Division Vice President

Paolo Fellin EAME

Distribution Division Vice President

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Improving Customer Service Agreements at Barloworld Iberia
Barloworld STET needed to improve how its staff wrote, maintained and applied Customer Service Agreements (CSA). So it turned to 6 Sigma and DMAIC methodology to tune up an existing process into a smooth running production. While the overall objective was to improve CSA profitability, the dealership also wanted to show improvements in delivering on customer expectations. Deployment Champion Solange Mendes and the Barloworld project team reviewed all aspects of CSA application from contract coverage, customer expectations and analysis from all major departments of the dealership to drive consistency in the process. Even if we consider selling machines as Barloworld STETs core business, fact of the matter is that these contracts represent an undeniable and important role of our companys overall business, explains Mendes. In fact, in 2008 machine CSA contracts amounted to 17.5 percent of the total postsale profits. The team worked with CSA units and workshops to ensure awareness and understanding for the changes being applied to the process. Leadership within the organization actively participated and supported implementation of process changes. Weve created a companywide awareness for the need to look at contracts through a more structured and systemic approach, said Mendes. According to Mendes, by reviewing databases and current contracts, several inefficiencies in the process were identified and improved. The opportunities and improvements identified: Transfer of CSA results from the central CSA unit to the workshops to drive accountability and ownership. New price definitions directly based on project conclusions. New discount policy to set limits and meet customer expectations; redefined contract exceptions. New contract definition for machines used in harsh applications such as quarries. Benefits and deliverables from this project included: Understanding customers needs and expectations for contract services delivered. 8.5 percent increase in machine CSA profit in 2008. Total Barloworld STET profit impact of 10 percent. Predicted increase of 27 percent profit for five-year project implementation. The project also opened a forum for debate, allowing team members to exchange ideas and work as a team to solve practical problems. The ultimate benefit of this project was the increase of overall CSA profitwe will get there through changes to the existing process, but also through fundamental changes to the way the contracts themselves are built and prices are determined, Mendes said. Note: For additional information, please contact Joo Pedro, 6 Sigma Black Belt at jpedro@stet.pt. About Barloworld STET Located in Portugal, Barloworld STET provides a wide range of machines and energy solutions to customers.

6 Sigma RIW Reduces Bin Errors at WesTrac WA

As a result of internal and external customer feedback, Asia-Pacific dealer WesTrac WA discovered opportunities to improve the consistency of its parts supply. As a result of the voice of customer, the dealer launched a 6 Sigma Rapid Improvement Workshop (RIW) in November 2008. The project was led by Black Belt Sandee Nilsson to focus on reducing bin errors and removing rework costs. Significant process improvements are visible from the RIWs our dealership has conducted, said Nilsson. These projects were conducted across a broad scope of business units and cross-functional teams. Employees are motivated to identify quick hits action items which in turn lead to additional successful RIWs. According to Nilsson, the team was comprised of individuals from the Guildford Parts Warehouse, Cats Melbourne distribution center and the Parts Supervisor from a WesTrac Regional Branch. This RIW focused on two critical areas: improving the consistency of the parts replenishment process and the parts picking process. By mapping the entire process, the team was able to easily identify potential areas of improvement and realize potential impacts downstreamall the way to the customer. The solutions and opportunities the RIW generated include: Reducing Excess Motion by changing the layout of consolidation benches and printers. Reducing Defects and rework by developing a position to control distribution of pick tags and perform random audits on pick and consolidated orders. Reducing Waiting by developing a process to split large orders between pickers. Reducing Waiting and Over Processing by developing a scanning system for stock replenishment operations that are available 24/7. Implementation of color coded boxes that correlate to order priority to Make it Visual. Implementation of labeling on pallet cartons to Make it Visual. -Continued on Page 3

Left to Right. Using the color-coded bins for pick tag distribution. Clearly marked destination labels on the branch cartons.

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-Continued from Page 2 Benefits/deliverables from the project were: Exceptions per 10,000 line items have been reduced by 32 percent. Number of help desk calls submitted by customers has decreased by 26 percent. Outcomes of this project have been well received by the warehouse staff and leadership team. The stock replenishment process improvement allows customers to purchase parts received in stock shipments, which results in reduced customer back orders and emergency freight costs. Overall, the increased accuracy of the parts picking process has increased customer satisfaction and employee engagement. RIWs drive things to get done as soon as you walk out of the meeting room, Martino Caratti, area manager in Parts, said. Note: For additional information, please contact Sandee Nilsson at sandee.nilsson@westrac.com.au. About WesTrac WesTrac WA has 61 branches in key locations throughout Australia and China employing 3500 people. Major facilities of South Guildford (WA) and Hunter Valley (NSW) are open 24/7 so they are available for customers to get parts and servicing to keep working.

Dealer Follows Value Stream to Find Process Efficiencies

The Used Parts Department at dealer Gregory Pooles Washington, North Carolina, branch takes machines that have met their expected service lives and salvages parts that meet Caterpillars reusability guidelines. The area has been challenged with major process inefficiencies due to rapid growth over the past two years. Gregory Pooles Deployment Champion Lloyd Gurley, Master Black Belt Fred Rich and Used Parts Manager Jerry Calhoun led a team to implement process improvements by utilizing several key 6 Sigma and CPS principles. Key tools used during the teams value stream transformation: Value Stream Mapping By documenting the as-is process for used parts, the team could understand the functions of the process better and identify areas for refinement. Multi-Generation Project Plan (MGPP) The MGPP helped to prioritize key functions and determine how Gregory Poole would implement process improvements effectively. Rapid Improvement Workshops (RIWs) Two RIWs were conducted; one focused on removing excess inventory from the shelves and the other was to improve efficiency at the teardown shop and warehouse stocking procedures. 5S (Sort, Set, Shine, Standardize and Sustain) Organized the shop, parts warehouse and storage yard. We scrapped many items opening up room for the good used parts. Morale is higher because the facility is much more professional, explained Rich. The inventory is much more current and leaner. The yard, the warehouse and the shop are much safer places to work. Standard work documentation, standardization of metrics and Continuous Improvement boards are also being implemented in the teardown shop and warehouse. Benefits and deliverables from this project include: Increased safety and overall safety awareness for teardown of machines. Removed dead inventory by selling it as scrap metal that generated incremental revenue. Created flow in yard and shop areas, opened up lanes to allow for thru-traffic. Standard work was developed and documented. Prioritization of information on the Gregory Poole intranet. The team plans to sustain the gains by improving inventory accuracy, amplifying the safety improvements and reviewing the metrics to validate the improvements. We want to make sure we are measuring the right things, Rich said. And its really about the culture here and how we keep the culture change a key focus. Note: For additional information, please contact Fred Rich, 6 Sigma/CPS master black belt at rich@gregpoole.com

About Gregory Poole: Gregory Poole is headquartered in Raleigh, North Carolina, with 17 locations serving the eastern portions of North Carolina, South Carolina and Virginia. More than 900 employees provide customers with sales, rental, parts and service for construction, forestry, lift systems and power generation equipment.

Do you have a project that could be replicated?

Please submit successful projects to your local distribution services master black belt.
Americas Distribution Services Division: Eric Schmutzler schmutzler_eric_a@cat.com Scott Krieger krieger_scott_e@cat.com Sergio Scaglione scaglione_sergio@cat.com

Asia Pacific Distribution Division Joe Tanner tanner_joe_n@cat.com EAME Distribution Division Robert Hartmann hartmann_robert@cat.com

6 Sigma Training Opportunities

The next 6 Sigma black belt workshop is May 18, 2009. For additional information, please contact your distribution services division MBB or Gary Gronewold at gronewold_gary_d@cat.com

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Weve made system changes that allow failure information to transmit sooner to Caterpillar by approximately 19 days, Cardines said. We also made a systems change that allows dealers the ability to edit and correct failure data prior to claim submissionincreasing accuracy of failure information. Using 6 Sigma tools and methodology, the Warranty Strategic Improvement Project (SIP) teams identified the need for a global warranty group that would become the one safe resource for administering warranties around the globe.

Fixing the Warranty Process

Dealers, Cat Join Forces for a Better System

A warranty is a written guarantee that a manufacturer stands behind its product by repairing defects in material or workmanship. But what happens when the warranty process becomes the problem? It usually means customer dissatisfaction and a loss in sales. Thats something a business cant have happen; and its one of the reasons Caterpillar launched the Warranty Strategic Improvement Project (SIP) in 2008. Warranty is a far-reaching process to manage for both Caterpillar and its dealers with processing costs alone ranging in the millions each year. Problems with the processes are not isolated to any one region, product or division within the company. Warranty impacts the companys ability to be supplied with timely critical failure information used by Caterpillar for product problem management. Couple this with escalating costs and inconsistent policies; one can see that the warranty process needed improvement. The mission of improving the process fell to a global team of 10 people who in turn scoped out 18 other 6 Sigma projectseach designed to take a bite out of the problem. More than 100 people from the corporate and dealer ranks worked these projects that determined the root causes plaguing the process. According to Sheila Cardines, Enterprise Warranty Administration manager for the Customer & Industry Support Department (C&ISD), the one thing in common among all the root causes was the lack of standardization. The lack of standard processes and policies has caused inconsistent, inefficient and costly handling of warranty for both Caterpillar and the dealer, said Cardines. Lack of standard warranty policies causes confusion for our customers as well. Another factor contributing to lack of standard work and inefficiencies was having five different groups within Caterpillar handling warranty autonomously. The lack of standard processes and policy complexity around the world was so taxing that approximately 1200 people within Caterpillar and our dealers were needed to work warranty claims. This resulted in increased costs in processing along with increasing the timeframe to reach product problem resolution.

Through creation of a global warranty group, we were able to use the synergy of five different groups to identify the best process for claims adjudication, a single safe source for warranty documentation, and standardize multiple warranty policy differences, explained Cardines. With the consolidation of five warranty groups into one, five websites were merged into one safe source, and eight warranty guides were reworked into one global guide for Cat dealers. This consolidation, when complete, will provide a welcomed relief for dealers who were finding it difficult to navigate the confusion that the difference in rules and procedures were causing. At Empire, our engine division, North America machine group and Latin America machine group had been working with three separate warranty groups. This meant three different warranty guides, with three sets of rules that varied slightly from one to the next, explained Warranty Manager Sally Patterson at Empire Machinery. As a dealer, we had many challenges with the different rules, when crossing not only international borders like from the U.S. to Mexico, but also when repairing engines in AGCO or JLG machines which fell under the rules and guides of the engine division versus typical North America machine guidelines. Cardines credited the success of the SIP projects to the input and expertise of the dealer personnel and Caterpillar green belts. Dealers participated in many of our projects and provided feedback throughout the course of identifying solutions, she said. They were most helpful in focusing our early efforts on the most troublesome areas. With the heavy lifting done in 2008, the SIP is now focused on implementation of the new processes and policies. Dealers can now look forward to consistent processing of their claims around the world better enabling them to serve the customer. We were happy to be included and solicited by the global warranty group for opinions, needs and possible impacts of the planned changes, said Patterson. We are eager to see the end product of the consolidation of efforts and we look forward to continuing to work in unison with Caterpillar to make things more efficient for both the dealers and Cat. Note: For additional information, please contact Sheila Cardines, Enterprise Warranty Administrator at cardines_sheila_r@cat.com.