Partnering for Change--Part 2

Cummins Inc. designs, manufactures, distributes, and services engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions, and electrical power generation systems. Cummins serves customers in more than 160 countries through its network of 550 company-owned and independent distributor facilities and more than 5,000 dealer locations. Cummins reported a net income of $739 million on sales of $13.05 billion in 2007.

 

Editor’s note: This is the second in a two-part series looking at how companies can share best practices such as Six Sigma across the supply chain. The first part of this series, which focused on heavy-duty truck manufacturer PACCAR, appeared in Quality Digest’s October 2008 issue. You can view that article online at www.qualitydigest.com/magazine/2008/oct/article/partnering-change-part-1.html.

If you’re in the mood for a really great read about a fascinating quality- centric U.S. manufacturer, check out The Engine That Could: 75 Years of Values-Driven Change at Cummins Engine Company (Jeffrey L. Cruikshank and David B. Sicilia, Harvard Business School Press, 1997). This breezy and informative book details the founding and rapid expansion of Cummins, a Columbus, Indiana-based company that designs, manufacturers, sells, and services diesel engines and related technology around the globe. The central tenet of the book (even being referenced in the title) is Cummins’ oft-demonstrated ability to successfully adapt to an ever-changing business environment that included the Great Depression, several wars, and an increasingly global customer base and supply chain.

In the late 1990s, however, Cummins was facing perhaps the darkest hour of its existence. Business was slowing and the rules of the game in the engine-manufacturing business were changing quickly. Foreign competition was eating away at Cummins’ margins and financial stability, customer and supplier relations were frayed, and management was desperate for a means of implementing quality improvement across the enterprise. Sales were still substantial--more than $6.5 billion in 2000--but net profits were a relatively slim $14 million. Cummins faced a bleak future if something substantial didn’t change in the operational core of the company.

Today, Cummins has achieved a turnaround of remarkable proportions. Sales and profits are up, cash flow is strong, and the company is succeeding in a competitive international environment that continuously presents more and greater challenges. How did they do it?

Leadership commitment

Fortunately for Cummins during its period of crisis, the right man was coming into the right job at the right time: Tim Solso was appointed chairman and CEO of the company in January 2000. At that point, Solso had been with the company for nearly 30 years, steadily working his way up the Cummins hierarchy, mostly on the operations side of the business.

Solso recognized that the company of which had just taken control needed to change the way in which it did business, and that change needed to happen as quickly as possible. He and key members of the management team began to consider radically different ways of achieving process improvement. One of their first moves was to look at successful companies at either end of the Cummins supply chain. Two presented themselves--Eaton Corp., a supplier of superchargers, valves, and other key components in the manufacture of engines; and PACCAR, a major Cummins customer that builds heavy-duty diesel trucks under industry-leading nameplates such as Peterbilt and Kenworth. Eaton and PACCAR had one important element in common--both were proponents of a high-impact quality improvement methodology called Six Sigma.

George Strodtbeck, executive director of corporate quality and COS (i.e., the Cummins Operating System, which includes Six Sigma) is a longtime quality improvement professional with Cummins and other major U.S. companies, such as Pepsi-Cola. He’s a self-professed “nuts and bolts guy” who made operational many of Solso’s mandates. “Both Eaton and PACCAR talked to him [Solso] about Six Sigma and the difference that it was making in their businesses,” recalls Strodtbeck. “Managers at Eaton and PACCAR recommended Six Sigma as something that he should consider as one of the planks of his new improvement work.”

These companies and Cummins, already intimately linked through years of customer-supplier relations, were about to get even closer. Taking the advice of Eaton, PACCAR, and other benchmarked organizations, such as General Electric, to heart, Cummins adapted the Six Sigma methodology in 2000. When it did, the company found great philosophical common ground (from a process improvement standpoint) with its supply chain partners. Intractable problems that once were raised by and confined to small management silos at Cummins were now solved by a much broader define, measure, analyze, improve, and control approach. Many times, those solutions were found in conjunction with supply chain partners. In a deeply integrated manufacturing process such as Cummins’, a problem at any link in the supply chain ultimately affects everyone. By embracing Six Sigma like their supplier, Eaton, and their customer, PACCAR, Cummins could now talk the same language of problem definition and more easily find solutions.

Once Solso and the rest of the Cummins management team decided to make the commitment to Six Sigma, they embraced the methodology completely. Solso himself attended Green Belt training, worked on a project, and earned his belt. In April 2002, he established the Chairman’s Six Sigma Quality Awards, which went a long way toward embedding Six Sigma as the organization’s cultural language of quality improvement. This level of support from Solso has been the driving factor that has made Six Sigma work at Cummins.

“I’m often asked if this can start at a lower level and bubble up to the executive suite, and I don’t think it can, simply because it’s just way too hard, “ says Strodtbeck. “The CEO, or certainly his number one lieutenant, has to lead this. If they don’t lead it, it can’t succeed.”

Tim Solso’s commitment to Six Sigma and Cummins’ outstanding performance with the methodology led to his being named as 2007 Six Sigma CEO of the Year by WCBF. It’s an honor that is well-deserved, for he leads by example. Solso personally reviews the status of various projects, speaks frequently with Cummins Master Black Belts, and closely analyzes various Six Sigma tools. He’s become a hand-on agent for change and continuous improvement within Cummins.

Making it work

Cummins is not a company that takes half measures on anything--and Six Sigma is no different. The methodology is a part of everything that the company does. At the beginning, Six Sigma at Cummins revolved around projects for which there were clear-cut statistical data, where the results were easily measured in terms of time or dollars saved. In those days, the fruits of Cummins’ Black Belts’ labors were both low-hanging and ripe. Today, Six Sigma is the way that the company answers a question--any question. Cummins employs enterprise risk Six Sigma, community-focused Six Sigma, technology development for Six Sigma, design for Six Sigma, and a multitude of other varieties and flavors of the methodology to suit the various needs of this complex enterprise, which include four distinct and complementary business units: engines, power generation, components, and distribution.

Given the way that company managers were brought to the methodology, it makes sense that a number of Six Sigma projects revolve around work being done with customers. For example, Cummins has recently engaged in a pair of $4 million projects. One of these projects, undertaken to define cleanliness improvements, was performed in conjunction with Chrysler, manufacturer of the Dodge Ram truck, which uses Cummins’ midrange B-series engine. Another involves working with PACCAR on spec rationalization and order requirement visibility.

Supplier projects are ubiquitous as well. Approximately three years ago, the company developed the in-house guidebook, “The Cummins Critical Supplier Six Sigma Process,” in which managers identified the company’s top 92 suppliers. As part of this process, contracts with these firms began to include the requirement that they demonstrate Six Sigma capability. In other words, the company began to mandate that, if you’re a critical supplier to Cummins, you’ve got to understand how to solve problems and improve processes using Six Sigma. This was an excellent way to quickly get everyone on the same page when talking about quality improvement, both throughout the enterprise and across the supply chain.

When it comes to launching supplier projects, Cummins has taken a similarly forward-thinking approach. “We began by holding supplier launches, where we might have 10 or 15 supplier belts in a launch and we’d teach them Six Sigma individually,” says Strodtbeck. “Then, as time went along, we discovered that the better approach was to work with an individual supplier, identify a project that was going to have an impact on our quality, and co-belt. In other words, we would have a Cummins belt and a supplier belt going through the training together, and we would provide the support from our Master Black Belt, so you’d have a belt on either side of the line helping to work on the project, and that has proven to be a pretty strong way to get at this.”

Results that speak for themselves

“The company has saved more than $2 billion through its Six Sigma programs since 2000, but the value of Six Sigma goes well beyond the monetary savings and quality improvements,” says Dana Vogt, general manager of heavy duty operations within Cummins’ engine business unit. “Six Sigma also has changed the way that employees approach their work across all parts of the business.”

Vogt, in fact, is a perfect example of type of the incremental benefits that Cummins has experienced through Six Sigma. Leadership development is the long-term lifeblood of any organization, especially companies in U.S. manufacturing today. Cummins has made a habit of taking talented people such as Vogt, giving them Black Belt training, and then rotating them out of the Six Sigma program and back into key management positions within the company, usually all within a two-year time frame. In this way, the process-improvement mindset of Six Sigma becomes more deeply ingrained into the way that the company does business. At Cummins, Black Belts are not an elite caste separated from the day-to-day concerns of running the business--they are leaders who use their training first on specific projects, and then for the general improvement of the company.

In calling attention to these improvements, Vogt points out two examples of Six Sigma in action at his plant. “One of our most important projects focused on assembly line capacity,” he says. “Through the use of a very dynamic Six Sigma team and the historical data we were able to increase our capacity by 40 percent over a four-month period without adding resources or spending capital money. As a second example, we used Six Sigma tools to improve our safety rate with the plant. By looking at historical accident data in unique ways, we were able to discover areas that required additional attention, and as a result reduced our injury rate to nearly zero.”

The benefits to the supply chain are apparent as well--better, clearer communication being one. “Just as there is value in having a common language across a company the size of Cummins, having common approaches between customers and suppliers makes it far easier to work on problems,” says Strodtbeck. “If they can speak your language, it makes them want to work with you more. So you begin to break down the barriers that tend to exist between suppliers and their customers.”

Many of the Cummins suppliers are big organizations with their own dedicated quality departments, but others are tiny. Those smaller companies have gained a tremendous amount of value from committing to Six Sigma and working with Cummins, because they simply don’t have the bandwidth to run their own projects. In these smaller companies, where people are often doing multiple jobs already, it’s next to impossible to take someone away from their normal responsibilities to train and work as a Black Belt, much less a Master Black Belt. Cummins’ support in identifying problems, launching projects, and lending “feet on the ground” assistance is therefore of the utmost importance.

Coming full circle

Without the support of Cummins, it’s doubtful that many of the company’s smaller suppliers would be able to get to the root of quality problems and achieve improvement--and if its suppliers can’t get better, then Cummins can’t get better, either. Helping its partners improve is certainly the right thing to do, but sharing best practices across the supply chain is not just about being a good corporate citizen. It’s really all about moving forward together as a team to achieve excellence and competitive advantage.

As PACCAR and Eaton shared their knowledge with Cummins, now Cummins passes that knowledge on as well, adding its own spin and embedding the culture of Six Sigma ever deeper into the supply chain. Many Cummins suppliers are doubtless bringing the methodology to their suppliers, further spreading the message that working together and using a common language of improvement is of paramount importance in today’s challenging manufacturing environment. The cycle is continuous, like quality improvement itself. Lessons learned become lessons taught, and companies up and down the supply chain change and thrive because of it. There’s no better gift that one partner can give to another.

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