Editor’s note: This is the first in a two-part series looking at how companies can share best practices such as Six Sigma across the supply chain. The second part of this series, focusing on PACCAR supplier Cummins Engine Co., will appear in an upcoming issue of Quality Digest .

Few U.S. manufacturers embrace the challenges and opportunities of quality improvement in quite the same way as PACCAR of Bellevue, Washington. The company, which designs, manufactures, and distributes high-quality commercial vehicles under the Peterbilt, Kenworth, and DAF nameplates, has flourished through periods of vast change during its more than 103-year history. The world of manufacturing is changing more quickly now than ever before, as the advent of global sourcing provides a competitive advantage to original equipment manufacturers (OEMs) that can partner with others outside their own walls while maintaining quality leadership.

The cultural language of improvement for PACCAR is lean Six Sigma, and the highest levels of the company’s upper management pursue efficiency and quality with an impressive amount of zeal. For proof, look no further than CEO Mark Pigott, whose great-grandfather founded the company that eventually became PACCAR in 1905. In recognition of Pigott’s leadership of PACCAR’s lean Six Sigma initiatives, he’s been named the 2008 Six Sigma and Business Process Improvement CEO of the Year by WCBF, an award that he’ll receive at WCBF’s Global Summit this month.

Many U.S. manufacturers are dedicated to improvement and accept that change is the only constant in their world. What sets PACCAR apart, however, is an understanding that improvement does not happen in a vacuum, and that supporting organizations on both sides of the supply chain strengthens the overall enterprise. PACCAR has made a habit of sharing best practices such as Six Sigma with its suppliers, and has launched quality improvement projects even at its dealers’ and customers’ locations. The result is an organizational structure that reinforces quality from the inside out and the outside in.

In a process as complex as heavy-duty truck manufacturing, there are dozens of suppliers that play crucial roles. Spend some time on the line at the Peterbilt plant in Denton, Texas, and you’ll begin to understand just what goes into this enormous undertaking. As trucks in the process of being built wind their way through this 450,000+ square foot facility, materials such as engines, transmissions, paint, axles, tires, and many more are added to the chassis. Shipments are scheduled so that only the parts needed for trucks that are being built are delivered directly to the production line. The organization of the line helps maintain maximum efficiency and has been carefully planned to achieve speed, quality, and safety. PACCAR lean Six Sigma projects have helped develop many of these improvements.

This level of coordination requires a high degree of trust and alignment between PACCAR and the more than 200 suppliers that provide the more than 3,000 parts that all come together in a beautiful new Peterbilt sleeper model. Intricate collaboration of this nature doesn’t happen overnight. It required PACCAR management to have a vision for how to improve and reinvent some of its own processes, and to help PACCAR’s suppliers improve as well. The outcomes are consistent with how PACCAR sets aggressive goals and delivers results.

Internal improvement

PACCAR was an early adopter of lean Six Sigma. The company began investigating the methodology in 1998, when PACCAR hired Helene Mawyer, a General Electric Six Sigma veteran with a Ph.D. in mathematics, to build an in-house program. The program took off quickly at PACCAR.

“By the end of 1998, more than 850 PACCAR employees had been trained in Six Sigma,” writes Alex Groner and Barry Provorse in their book, PACCAR: The Pursuit of Quality (Documentary Media LLC, Fourth Edition, 2005). “By the end of the next year, more than 2,000 company employees had been trained, and PACCAR had begun to offer its Six Sigma expertise to dealers and suppliers.” So, even at this early stage in its implementation, PACCAR management realized that Six Sigma was a program of value that could provide important benefits throughout the supply chain.

At that time, PACCAR’s suppliers had a quality goal to deliver no more than 2,500 PPM--not an uncommon figure in the commercial vehicle market, but one that demonstrated a wealth of potential for a company with the drive, determination, and capability to deliver the highest-quality trucks in the industry. The goal was reduced every year and in 2005 PACCAR established a new goal of 50 PPM--the same level of quality that was expected in the automotive industry. PACCAR suppliers were up to the task and are closing in on the goal.

Leadership from the very top down has made a concerted effort to align improvement across the enterprise through lean Six Sigma. “For PACCAR, everything is about quality,” says Mawyer, a PACCAR vice president. “Our chairman [Pigott] firmly believes that quality and innovation are the core elements of our success.”

To that end, PACCAR offers the prestigious Chairman’s Six Sigma Award, which annually recognizes outstanding achievement by employees in four key areas: quality, revenue/profit generation, productivity and efficiency, and environmental initiatives. Competition for these awards is intense and brings forth tremendous efforts from teams of employees throughout the company. The winners are truly the best of the best, but in the end, PACCAR is the real winner because it benefits from a host of successful projects driven by the friendly competition.

Pigott’s personal commitment to quality has also been put forth quite clearly to all PACCAR employees. In a standard policy bulletin related to quality, Pigott states that the company will provide superior quality and premium value by “Developing and maintaining a shared commitment by all PACCAR employees to continuously improve performance and achieve defect-free processes, products, and services… [and] developing highly skilled employees with industry-leading abilities.”

The company backs up these words with actions. PACCAR’s culture of improvement is continually reinforced through a detailed continuing education program that the company offers to employees as well as dealers and suppliers. The Denton facility is equipped with numerous classrooms and training centers where students receive extensive training not only in manufacturing processes, but also in the analytical skills needed to earn Black Belts, Green Belts, and other certifications. In this way, the company is creating excellence from within on a regular basis.

The results from the company’s lean Six Sigma implementation during the past decade have been impressive. From the launch of Six Sigma activities in 1998, PACCAR estimates that it has saved more than $1.5 billion, trained more than 11,000 employees in the methodology, and launched in excess of 7,600 quality improvement projects.

As PACCAR achieved ever-greater production efficiencies and quality improvements, the company came to understand that the greatest results would only occur when it reached across the supply chain to help spread lean Six Sigma to both its suppliers and its dealers. This commitment to its partners has allowed PACCAR to easily share knowledge and expertise and expand improvement into other organizations.

Taking HIKEs

PACCAR management has developed a creative and highly effective way to select and execute projects that are central to the company’s success--the high-impact kaizen event (HIKE). These short programs are designed to provide a burst of activity and fast improvement on a designated project that’s central to the success of the company. Many HIKEs are internal in focus, but, increasingly, many are external to PACCAR as well. Recently, HIKEs at PACCAR dealer locations have improved dealer service and customer satisfaction.

Whether occurring inside the company or with a partner, HIKEs use a common approach. The features include:

• A dedicated team that focuses exclusively on the HIKE while the project is running

• An aggressive mind-set among team members to break down walls and get to the root cause of problems

• A four-week cycle time

• A rigorous and fact-based decision-making approach

• Detailed communications between team members and PACCAR management to track performance and ensure that the highest-visibility opportunities are being effectively addressed

The first step of any HIKE is to put together a charter outlining the objectives, team members, and schedule of events. During this time, a lean Six Sigma HIKE coach sits down with key leaders and stakeholders to set expectations, roles, and responsibilities. “Team selection, communication, and establishing an aggressive attitude up front are vital to hitting the goals,” says Clark McElwain, PACCAR director of Six Sigma, who has overseen numerous HIKEs. “It’s tough to take people away from their regular jobs to work on a HIKE team, but it’s absolutely necessary.”

Supply chain HIKEs such as those at a PACCAR dealer location usually start with a one- or two-day scoping visit to establish baselines, develop a HIKE charter, and bring everyone up to speed on what will occur, including pressures and anxieties that the HIKE team members are likely to experience.

Once buy-in is achieved with the dealer’s management, the HIKE team rolls up its sleeves and gets to work on the problem or problems at hand, which could be anything from tackling inventory bottlenecks to reengineering the dealer’s finance or billing departments. In the following weeks, changes are implemented, results are analyzed, and adjustments are made. During this period, there’s generally a rapid rise in morale and enthusiasm as managers at the dealer’s location see improvements taking hold.

Throughout the process, PACCAR management is kept apprised of the performance of the HIKE and review various reportage, generally transmitted via e-mail. At the conclusion of the four-week HIKE, the dealership is ready to maintain the changes that have been implemented. PACCAR managers will review the performance of the dealership over time to ensure that new processes are being maintained.

Spreading the word

When you speak with members of the PACCAR management team, it’s clear that they “get it”--meaning that they understand how to use all available tools to improve quality. Their commitment to benchmarking offers some insight into this practice. When developing the HIKE concept, PACCAR managers looked closely at Toyota and how that world-class manufacturer implemented kaizen projects. In the initial development phase of their lean Six Sigma efforts, they benchmarked against leading companies in these areas.

When done properly, companies that benchmark extensively come to be benchmarked themselves. PACCAR benchmarks across several industries continually to identify best practices. Another excellent example of this comes from one of PACCAR’s largest and most important suppliers, the Cummins Engine Co. of Columbus, Indiana. Like PACCAR, Cummins has a long and successful history. It has also faced changing markets for its diesel engines, and had the adaptability to achieve almost unbroken success since the 1920s.

However, during the late 1990s, Cummins was barely breaking even. The company was experiencing difficulties competing in an increasingly commoditized international marketplace. Customers such as PACCAR were embracing systems for quality improvement, such as lean Six Sigma, that were changing the rules and expectations for suppliers.

Cummins was hungry to achieve its own breakthrough improvement, and PACCAR was willing to share many of its lean Six Sigma tools and techniques to help that happen. Cummins launched its own Six Sigma program in 2000. Today, using Six Sigma as a common language for quality improvement, the two companies challenge and support each other. C-level managers, particularly Pigott and his Cummins counterpart, Tim Solso, have developed an increasingly close relationship that has served both organizations very well. Due in large measure to its own Six Sigma program, Cummins has achieved excellent results in recent years.

This is the kind of result that PACCAR is looking for in its relations with its suppliers. To date, more than 300 suppliers have been trained by PACCAR in areas such as reliability, warranty, and quality planning; lean functions, such as workplace efficiency and productivity; design for Six Sigma; and the define, measure, analyze, improve, and control steps that form the heart of Six Sigma.

Projects that are worked in conjunction with suppliers sometimes take a different approach than others. A supplier project can be up to a four-month process. PACCAR team members on supplier projects may have expertise in financial analysis, systems operations, or material handling. For a supplier just getting started with the tools of the lean Six Sigma methodology, PACCAR has three main objectives: first, to teach the supplier the tools that it needs to make improvements; second, to jointly select and execute a project with the supplier and deliver bottom-line results; and third, to leave the supplier with the knowledge and capability to conduct future projects on its own.

Putting it all together

PACCAR today is a prime example of a U.S. manufacturer that has made quality its hallmark. The company’s relentless pursuit of higher quality has led to ever-stronger bonds with its suppliers and dealers, both of which have improved as a consequence. It’s not hard to understand that better suppliers mean better parts for PACCAR trucks, and that more efficient dealer service for end-users means happier customers and increased sales volume. PACCAR has focused a great deal of time and energy into these efforts, for one very simple reason: They work.

To say that the manufacturing environment in today’s global marketplace is competitive is an understatement of vast proportions. “Competitive” does not mean impossible, however, and creative, nimble organizations will always find ways to succeed. PACCAR has done so by accepting the continuous challenge to get better--and by challenging its partners just as aggressively. There’s no better recipe for growth and success.