7 Principles of Toyota Production System

1. Reduced Setup Times:
All setup practices are wasteful because they add no value and they tie up labor and equipment. By organizing procedures, using carts, and training workers to do their own setups, Toyota managed to slash setup times from months to hours and sometimes even minutes.

2. Small-Lot Production:
Producing things in large batches results in huge setup costs, high capital cost of high-speed dedicated machinery, larger inventories, extended lead times, and larger defect costs. Because Toyota has found the way to make setups short and inexpensive, it became possible for them to economically produce a variety of things in small quantities.

2. Employee Involvement and Empowerment:
Toyota organized their workers by forming teams and gave them the responsibility and training to do many specialized tasks. Teams are also given responsibility for housekeeping and minor equipment repair. Each team has a leader who also works as one of them on the line.

4. Quality at the Source:
To eliminate product defects, they must be discovered and corrected as soon as possible. Since workers are at the best position to discover a defect and to immediately fix it, they are assigned this responsibility. If a defect cannot be readily fixed, any worker can halt the entire line by pulling a cord (called Jidoka).

5. Equipment Maintenance:
Toyota operators are assigned primary responsibility for basic maintenance since they are in the best position to defect signs of malfunctions. Maintenance specialists diagnose and fix only complex problems, improve the performance of equipment, and train workers in maintenance.

6. Pull Production:
To reduce inventory holding costs and lead times, Toyota developed the pull production method wherein the quantity of work performed at each stage of the process is dictated solely by demand for materials from the immediate next stage. The Kamban scheme coordinates the flow of small containers of materials between stages. This is where the term Just-in-Time (JIT) originated.

7. Supplier Involvement:
Toyota treats its suppliers as partners, as integral elements of Toyota Production System (TPS). Suppliers are trained in ways to reduce setup times, inventories, defects, machine breakdowns etc., and take responsibility to deliver their best possible parts.

Introduction to Six Sigma

Pioneered at Motorola in the mid-1980s, Six Sigma was initially targeted to quantify the defects occurred during manufacturing processes, and to reduce those defects to a very small level. Motorola claimed to have saved several million dollars. Another very popular success was at GE. Six Sigma contributed over US $ 300 million to GE’s 1997 operating income.

Originally, Six Sigma was defined as a metric for measuring defects and improving quality; and a methodology to reduce defect levels below 3.4 Defects Per (one) Million Opportunities (DPMO). Six Sigma is a registered service mark and trademark of Motorola, Inc who has reported over US$17 billion savings from Six Sigma to date.

Six Sigma has now grown beyond defect control. It can be defined as a methodology to manage process variations that cause defects, defined as unacceptable deviation from the mean or target; and to systematically work towards managing variation to eliminate those defects. The objective of Six Sigma is to deliver world-class performance, reliability, and value to the end customer.

It is important to recall that every customer always values consistent and predicable services and/or products with near zero defects. Therefore they experience the variation and not the mean. Mean is their expectation or our target.

If we can measure process variations that cause defects i.e. unacceptable deviation from the mean or target, we can work towards systematically managing the variation to eliminate defects. It is implemented via two potential scenarios - (a) there is already an existing process(s) that is working “reasonably” well and (b) there is no process at all or the process is considered to be poor.

Scenario (a) focuses on significant process improvements and requires use of DMAIC:

* Define process goals in terms of key critical parameters (i.e. critical to quality or critical to production) on the basis of customer requirements or Voice Of Customer (VOC)
* Measure the current process performance in context of goals
* Analyze the current scenario in terms of causes of variations and defects
* Improve the process by systematically reducing variation and eliminating defects
* Control future performance of the process

Project Charter

What is a Project Charter?

The project charter is part of your Project Strategy document. This document is one of the first deliverables on your project. The project charter should be no more than one page, even on large projects. The intention of the project charter is to provide an overview of the project, in business terms, that everyone can understand. It is not a list of requirements. In a sense, it is the project's mission. The project charter should consist of the following sections:

• Background

  Who is requesting the project? Focus on the original group requesting the change, not those joining the project with their own requests. This section is a very brief statement of the business area originating the request and who eventually owns the application.

• Problem Statement

  What problem is the project's completion solving? It is very easy to include too much detail in this section - don't! Instead, focus on solving the main problem. This should not be a list of requirements, simply an explanation of the problem to solve.

• Justification

  Why should the project be done? This section should be a high-level statement of the reasons why the project should be done. Do not give detailed justifications, such as cost-benefit ratios.

  
  

Staffing Process

Glossary of Terms

AQI (Annual Quality Improvement) - a philosophy that challenges the organization to strive for a superior level of performance.

Billable Expenses – is service expenses that are charged on a work order to external customers or interdepartmental customers.

Billable Hours - labor hours that are charged on a work order to external customers or interdepartmental customers on all work orders.

Billable Hours Invoiced – labor hours that are charged on a work order to external customers or interdepartmental customers on invoiced work orders.

Billable WIP Hours - billable labor hours that have not been invoiced to the revenue customer or interdepartmental customer on open and close work orders.

Claim Dollars – dollars that have been submitted as part of warranty and/or policy, product improvement safety work carried out by the dealer.

Claims dollars recovered % – reflects, as a percentage, the claim dollars recovered of the Total Claims for the reporting period.

Claim $ Recovered = (Total Settled Claim $ / Total Claim $) * 100

Commercial impact - any situation that affects the customer's perception of the dealer's products or services.

Contamination control self-review - a dealer's self-assessment of his parts and service operations processes to identify contamination control issues.

Cost of Sale - cost of labor, SOS, contracted transportation, travel expenses, outside work, and supplies that are invoiced on a Time and Material or Flat Rate basis to revenue or interdepartmental customer.

CSA (Customer Support Agreement) - an agreement between the customer and the dealer for the dealership to handle some or all of the customer's equipment management needs.

DataView - a portable diagnostic tool that allows data measured by sensors temporarily installed on Caterpillar products to be viewed or data logged on a personal computer.

Dealer Warranty Register – a record of warranty claims that have been submitted and the corresponding settlements for these claims. Typically used to determine the percent of warranty recovery and the amount of time to process warranty claims.

DCAL (Dealer Customer Acceptance Level)

DCAL Service by formula (Machine) - percentage of parts sold through the service department of the total parts sold at the dealer, all parts at cost. It is most useful in trend analysis. Use the following formula to calculate DCAL:

Service DCAL = (Revenue Service Parts $ + Interdepartmental Parts $) divided by (Revenue Service Parts $ + Interdepartmental Parts $+ Direct Parts Sales $) x 100 = DCAL

Note: All dollars are at Cost. Goal is based on average of top 25% DCAL dealers in NACD. These dollars exclude Reman. Intend to add Reman to calculation once tracking of Reman parts within Service shops is possible.

DCAL Product Tracking Opportunity System (PTOS) - (See Percent of Available Business)

DCAL Western Region Dealer Excellence (Market Share)- the percentage of parts sold through Service at cost versus total parts sold at cost.

Western Region DCAL = (Revenue Service $ + Interdepartmental $ + Net Reman Shop Sales) / (Revenue Service $ + Interdepartmental $ + Direct Parts $ + Total Net Reman Sales (Shop plus counter))

Note: Excludes Cores, TEPS, and Work Tools

Direct Expenses - expenses that are incurred by the service department during the operation of the service facility. Used to assess the cost of the service operation.

Direct Expenses % - reflects, as a percentage, the total direct expenses of the total service sales dollars for the reporting period.

Direct Expense % = (Direct Expense $ / Total Service Sales $) * 100

Direct Parts Sales – is parts sold (at cost) over-the-counter to customers.

DPI (Dealer Process Improvement) – an NACD program that provides a structured approach to change management.

ET (Electronic Technician) - a software tool used to diagnose Caterpillar products which have electronic controls.

Exception based reporting - a reporting process that uses predefined dealer exceptions to generate a report alerting service management to deviation from norms.

Expense Hours – labor hours paid to service personnel, which are not billable to external customers or interdepartmental customers.

Expense Hours % – reflects, as a percentage, the total expenses hours of the total service hours for the reporting period.

Expense Hrs % = (Expense Hrs / Total Service Hrs) * 100

Field technician productivity - the number of service labor hours worked resulting in revenue that is expressed as a percentage. Calculate as follows: Technician Productivity % = Number of Non-Expense Hrs / Number of Hours Paid X 100

Field Trips per Work Order – reflects the average number of field trips made per field Work Order to complete the job.

Field Trips per Work Order = (Total Field Trips / Total Field WO’s Closed)

Financial Asset Productivity – “See WIP in Days”

Firm Quote – quote to customer for work to be performed for one price (parts and labor) based on a standard repair before failure job, plus add-ons for additional contingent parts and labor; it provides an up-front cost that the customer will expect to pay for the job.

First Labor – date at which labor begins to accrue on the Work Order.

First Labor to Last Labor – reflects the average number of days that pass between the first labor and the last labor.

First Labor to Last Labor = (Elapsed Days from First Labor to Last Labor / # of WO’s closed)

Flat Rate – pricing for work to be performed for one price (parts and labor) based on standard jobs and published pricing to complete a specified repair; except for exchange assembly rebuild and contracted with customer, it provides an up-front cost that the customer will expect to pay for the job.

Flat Rate Service Sales % of Revenue Service Sales - reflects, as a percentage, the flat rate service sales of the Revenue service sales dollars for the reporting period.

Flat Rate Service Sales % = (Flat Rate Service Sales $ / Revenue Service Sales $) * 100

Flat Rate Service Sales % of Total Service Sales - reflects, as a percentage, the flat rate service sales of the total service sales dollars for the reporting period.

Flat Rate Service Sales % = (Flat Rate Service Sales $ / Total Service Sales $) * 100

Gross Profit - total service sales minus the cost of sales.

Gross Profit % - reflects, as a percentage, the gross profit of the total service sales dollars for the reporting period.

Gross Profit % = (Gross Profit / Total Service Sales) * 100

Hours Paid – hours paid to employees that include Billable Hours and Expense Hours.

Hours Worked – hours worked by employees that include Billable Hours and Expense Hours.

Hours Worked on Standard – the actual number of hours worked to complete a DBS standard job.

Incentive Program - a program that rewards employees for achieving specified performance standards or targets.

Interdepartmental labor hours - hours of labor charged to other departments at the dealership.

Interdepartmental Parts – is the parts sold (at cost) to other departments within the dealership.

Invoice Exceeds Quote % – reflects, as a percentage, the number of times that the final invoice exceeds the customer quote for the reporting period.

Invoice Exceeds Quote % = (# of WO’s that exceed Firm Quote / # of Firm Quoted WO’s) * 100

ISO 16/13, 18/15, etc. - fluid particle count standards defined by the International Standards Organization. These standards are used to establish the cleanliness level of fluids.

Key Performance Indicators (KPIs) - factors identified to evaluate services provided and their effect on the dealer performance.

Last Labor – date at which labor stops accruing on the Work Order.

Last Labor to Work Order Close – reflects the average number of days that pass between the last labor date and the work order close date.

Last Labor to Work Order Close = (Elapsed days from Last Labor to WO Close / # of WO’s Closed)

Line Item Returned % (Parts) – measures the number of part line items per work order returned to the parts department.

Line Items Returned % = (# of Line Items Returned / # of Line Items Ordered) * 100

Market segmentation – Defining significant markets served so that the efforts of the organization can be better targeted to customer needs.

NPI (New Product Introduction) protective parts stock - parts stocked by the dealer to support a new product entering the dealer's territory.

Organizational structure - the reporting structure of a work group or dealership.

Overhaul Management Guide (OMG) - software that Caterpillar developed as a guide for overhaul scheduling based on planned indicators (service meter hours, fuel consumed, etc.).

Overtime – paid hours over and above regular working hours.

Overtime % – reflects, as a percentage, the total number of overtime hours worked within a reporting period.

Overtime % = (Overtime Hrs / Hrs Paid) * 100

Parts Integrator - a Dealer Business System tool that allows parts identified in SIS to be electronically processed for a parts order.

Parts service percentage - percentage of parts (by line item) supplied from dealer's inventory or the distribution network.

Percent of Available Business (PTOS DCAL) - Dealer Customer Acceptance Level for Cat products % of genuine Cat parts sourced from the local or ‘home’ dealer.

PTOS DCAL = (summarized sales (rolling 12-months)) / Opportunity

Opportunity = Equipment Population * Cost/Hour by Model * Hours Usage by Product Family * Equipment Age

Summarized sales - all sales to revenue customers (those customers with a PACC (Parts Customer Class) equal to 1) that the dealer brings into PTOS. Also, although non-revenue customers and their sales dollars are not automatically brought into PTOS, the dealer can include these customers if he chooses.

Physical Asset Recovery – net revenue recovered from specific service assets (service truck & service work area) for the reporting period.

Physical Asset Recovery (Shop) = (Total Service Sales (Shop) / Size of Shop in Square Feet)

Physical Asset Recovery (Field) = ((Total Service Sales (Field) - Vehicle Expense) / # of Vehicles)

Physical Asset Utilization - percentage of time the asset (service truck & service work area) is utilized to reduced revenue.

Physical Asset Utilization (Shop) = (Billable Hrs Invoiced (Shop) / Size of Shop in Square Feet)

Physical Asset Utilization (Field) = (Billable Hrs Invoiced (Field) / # of Vehicles)

PIP (Product Improvement Program) - a program established to eliminate a suspected safety hazard, potentially costly repairs, or to remove suspected improper parts stock or dealer tools from dealers parts inventory.

Product Problem Management Process – the formal process for early problem identification, communication to Caterpillar, and mutual management of product problems.

Profit after Direct Expense – dollars left from Total Service Sales less Cost of Sales and Direct Expenses

Profit after Direct Expense % - reflect, as a percentage, the Profit after Direct Expense (PADE) of total service sales dollars for the reporting period.

Profit after Direct Expense % = (Profit after Direct Expense $ / Total Service Sales $) * 100

Promised date - the date that the dealer promises the customer that the work order repairs will be started or completed.

Promised date adherence % – measures the percentage of times the commitment to complete work by a specific date is met.

Promised date adherence %=(#of WO’s done on or before Promise Date/#of WO’s with Promise Dates)*100

Promise Date GAP analysis – measures the average number of days that pass between the promise date and the date of last labor (calendar days).

Promise Date GAP analysis = (Elapsed Days from Last Labor to Promise Date / # of WO’s with Promise Date)

PSP (Product Support Program) - a program that provides customers and dealers additional warranty support for known product problems beyond the standard warranty period.

PTOS DCAL – “See Percent of Available Business”

Quotes Rejected % - percentage of Firm Quotes rejected by customers resulting in lost work.

Quotes Rejected % = (Rejected Firm Quotes / Total Firm Quotes) * 100

Repair area utilization study - a study that measures how efficiently and effectively available service repair space in the service shop is utilized. Used to evaluate the possible need to expand or reassign assets.

Repair options – a process to provide customers with choices on the level of repair to be completed.

Response time - the length of time that elapses from the receipt of the customer call to the time the technician arrives to begin the repair.

Revenue labor hours - all labor hours worked by technicians that will be invoiced to external customers.

Revenue Service Parts – is the parts sold (at cost) to the service department that are invoiced to external customers.

Revenue Service Sales – is the selling price of work done by the service department to be invoiced to the external customer, includes Time & Material and Flat Rated jobs.

Rework Hours – hours that are performed more than once do to poor workmanship and/or material defects.

Rework Hours % – reflects, as a percentage, the number of rework hours of the total hours.

# of Reworked Hours % = (# of Reworked Hours / # of Hours) * 100

Scrap barrel analysis - an analysis of worn parts discarded during repair to determine the quality of the dealer's parts reuse decisions.

Service expense rework - the cost charged to the service department for work performed due to reasons of defective workmanship. A good measurement of the quality of workmanship and the amount of work that is done right the first time.

Settled Claims dollars recovered – dollars that have been received as part of a settlement from warranty and/or policy, product improvement or safety work carried out by the dealer.

SIMS (Service Information Management Systems) - a failure reporting data base at Caterpillar that provides data for use by product groups to measure product health and quantify the cost impact of product modifications.

SIS (Service Information System) - a computer-based system for delivery of service information.

Skills inventory - a list of an individual's competencies. Typically used to identify training needs and capabilities.

SžOžS^SM – a proprietary process used by Caterpillar dealers to monitor the impact of maintenance programs, application and operational factors on product health. The dealer SOS Analyst utilizes label input, lab data, local knowledge and an arsenal of support resources to provide users proactive operating cost reduction recommendations

SžOžS^SM DCAL - a percentage of samples actually processed from Caterpillar prime product vs. the potential samples available.

SžOžS^SM Warranty Participation – a percentage of samples actually processed from Caterpillar prime product under extended warranty VS the potential.

SžOžS^SM Customer Retention – a percentage of machines that continue to sample after the extended warranty requirement ends VS the potential.

Standard Jobs – jobs that share a common outline of parts and labor.

Standard Jobs Performance % – reflects, as a percentage, the number of actual hours it takes to complete a segment compared to the number of hours allotted in standard jobs.

Standard Jobs Performance % - (Hours worked on Standard / Standard Job Hours) * 100

Standard Jobs Utilization % – reflects, as a percentage, the number of hours worked on Standard jobs compared to the total number of hours worked.

Standard Jobs Utilization % - (Hours Worked on Standard / Hours Worked) * 100

STW (Service Technician Workbench) - a software platform from which the technician can launch multiple service applications.

Target component rebuild times - Caterpillar defined component rebuild times utilized to measure the efficiency of the dealer rebuild operation. Rebuild times can be found in the "ELRG (Equipment Labor Repair Guidelines) and the Operational Indicators for the Service Operations Indicator Guide (SEBF7023).

Technician Productivity % – reflects, as a percentage, the number of Total Service Hours that are Billable Hours.

Technician Productivity % = (Billable Hrs / Hrs Worked) * 100

Time & Material – pricing for work to be performed (parts and labor) for a specific repair based on the actual amount of time and parts utilized; no up-front cost for the job is provided to the customer.

Total Service Hours – is the total of Revenue Service, Interdepartmental, and Expense hours.

Total Service Sales – is the dollars received from Revenue Service and Interdepartmental invoiced.

Transfer per Work Order – tracks the number of parts, labor and misc. record transfers made per work order.

Transfer Per Work Order = (Total # of Transfers / Total # of WO’s Closed)

Transient models - machines temporarily operating in a dealer's territory that were sold by another dealer.

Trend Analysis Module (TAM) - software that monitors wear analysis trends in the SžOžS program. Typically used to track wear analysis trends for a particular machine to better predict potential problems.

Vehicle Expense - all rental, depreciation, insurance, taxes, operating, maintenance and license expenses for revenue producing trucks.

Work In Process (WIP)

WIP Turnover Ratio - the labor and miscellaneous cost of sale dollars for all open or uninvoiced Work Orders at the end of the reporting period compared to the labor and misc cost of sale dollars on all invoiced Work Orders for the past 12-month period.

Service WIP Turnover (Ratio) = (Labor and misc cost of sale dollars on all invoiced Work Orders for the past 12-months) divided by (Labor and misc cost of sale dollars for all open or uninvoiced Work Orders at month end)

Note: Always use rolling 12-month total invoiced dollars, at cost, instead of multiplying current months invoiced labor hour dollars times 12.

Labor and Miscellaneous Cost of Sale - Direct labor costs, travel expenses, outside purchases, SOS, and transportation expenses.

Example: For the past 12-months the invoiced labor cost of sale dollars for dealer XYZ total $2,453,400 and at month end the labor cost of sale dollars total $191,800.

WIP Turnover (Ratio) = ($2,453,400 / $191,800)

WIP Turnover (Ratio) = 12.8

WIP in Days - measures, in days, the amount of revenue and interdepartmental Work-In-Progress in service.

WIP in Days = (Billable WIP Hrs "times" number of days in the reporting period) divided by

(Billable Hrs Invoiced for the reporting period)

Example: Dealer XYZ had billable WIP hours on March 31 of 1000hrs. For the month of March dealer XYZ invoiced 3000 hrs. There are 31 days in the month of March, which is our reporting period.

WIP in Days = (1000 X 31) / (3000) = 10.3 Days

Work Order Close to Invoice – reflects the average number of days that pass between the Work Order Close date and the Work Order Invoice Close date.

Work order process review - a study of the activities associated with all steps and functions involved in the work order process as a means to improve the processing.

Work order segmentation - predefining a work order into job elements that can be assigned, tracked and analyzed.