Cost / Quality Analyst Certification Program

AKOYA Cost Management Analytics and Purchasing

Overview
Wednesday August 23, 2006

Finding new answers in business

 Cost Analyst / Quality Analyst Program

Cost / Quality session will run 5 - 8 or 8:30 pm and Leadership sessions will run 5- 7 pm
Proposed Curriculum Priority Who Program Session Class Time
1 - High Certification Date Estimate
(min)

Introduction (Cost Analyst 1 Guha / Gary / Cost 6/14/06 180

Certification Program, GSM - 30 min, Ron / Atul
Cost Management - MCR - 60 min
(cost reduction) and NPI - 60 min (cost
avoidance, target management) Exam -
30 min (15 min exam/ 15 min review)
Leadership Series Merle arranging 6/21/06 120
Zone offense, QIS 1 Gary Quality 6/28/06 150
Leadership Series Merle arranging 7/5/06 120
Idea Generation - AVIDS (mini, 1 Ron / Atul Cost 7/12/06 150
walkaround, classroom, M.E.
approach) Quoted demand vs Actual
demand, Idea management, tracking,
supervisor review meetings - Model
Year transition volume planning
Leadership Series Merle arranging 7/19/06 120

APQP/PPAP, Failure Mode Effects 1 Gary / Darren Quality 7/26/06 180

Analysis / Process, Design, Failsafe

Leadership Series Merle arranging 8/2/06 120

HVC / Lognet / CMP/ GMCT / QIS 1 Ron / Atul Cost / Quality 8/9/06 120
/CDIM / DCC
Leadership Series Mearle arranging 8/16/06 120
AKOYA and “Should Cost” workshops, 1 Sundeep / Cost 8/23/06 180
(cost curves, cost/lb, comparables), Wayne Bell /
Purchasing process – LCC, RFQ, Ron
Supplier development, QCLDM

Leadership Series Merle arranging 8/30/06 120

AGENDA

• AKOYA ‘Should Cost”

– Overview
– AKOYA Cost Management Analytics
Demo
– Workshop Approach / Results
– CMA Development
• Purchasing and Strategic Sourcing
 Client Scenario

• Client has a cost over run problem in a

New Product Program

• Designs have not been frozen

• Purchasing has many prove design prices

• Management is having a hard time forecasting the

production cost of the product

• Engineering and Purchasing communicate in a serial

process rather than a collaborative process
AKOYA - Cost Management Analytics
December 15, 2005

Caterpillar: Confidential Green

Vision for Cost Management Analytics (CMA)
 Akoya is a business intelligence software company formed as an
independent company in August 2004 to commercialize the technology
for broader market

 The initial CMA process was developed and validated at Caterpillar.

Caterpillar is a strategic partner and investor in Akoya.

 Current, by-hand Feature Based Analysis is too crude…Costimator is too

manpower intensive…AKOYA is trying to create that middle ground to help focus
Cat’s resources and determine actions

 The CMA Advantage:

 Faster execution (user-hours and calendar time)
 Greater parts coverage with fewer resources
 Data driven, statistically driven
 Easy to use
 Identifies potential root causes

Caterpillar: Confidential Green

 Cost Management Analytics Overview
Define Measure Analyze Improve

Cost Reduction
Purchasing D Opportunities
ata Lo
Data (PDW) ading
Rules Design Factor
CMA
Analysis
Demand CMA Data Mining
Data Loading Rules
Data Data Mart Algorithms Supplier Fit
Feature Analysis

Engineering Extraction Pricing Factor

CAD/CAM Process Analysis

Analytic Work
Products

Cross Functional Team: Determine Root Cause, Best Path to Resolution/Cost Savings

Caterpillar: Confidential Green

 Product Evolution

Collaborate with key

Design Changes for
Suppliers for Cost
Cost Reduction
Reduction
CMA
Opportunistic Savings Savings from
from Price Revisions and Strategic Sourcing for
Consolidation Optimal Fit

Existing Existing
RFP/RFQ Sourcing
Process Process
 Future of CMA Within Caterpillar
 The vision for CMA is to make the program available to all customers - - to get it on people’s
desks as a proactive, easy to use tool to lead cross functional teams in the right direction
 Identify outliers, and research the root cause
 Positions Cat for NPI - help understand the cost drivers
 Opportunity identifier for 6 Sigma projects
 Initial rollout will be in project form

 Currently working with GP Castings Group (under Ron Conklin) to evaluate

approximately
$700M spend in 24 families.
 Allows Akoya to see more conditions and improve models
 Creates initial knowledge base for Cat around castings (cost drivers, effective suppliers, cost-
adverse design conditions)

 Plan to do similar work on other segments (forgings – 4 th Q, fabrications, hydraulics) in 2006

 Currently exploring ways to use CMA models for cost analysis during design
 Akoya to work with 2007 engine castings (Mike Menke’s team) on CMA pilot
 Should be developing design-for-cost applications for CMA by the end of 2006
AGENDA

• AKOYA ‘Should Cost”

– Overview
– AKOYA Cost Management Analytics
Demo
– Workshop Approach / Results
– CMA Development
• Purchasing
AKOYA CMA TOOL
AGENDA

• AKOYA ‘Should Cost”

– Overview
– AKOYA Cost Management Analytics
Demo
– Workshop Approach / Results
– CMA Development
• Purchasing
 AKOYA CMA Workshop Opportunity

• AKOYA ‘Should Cost” Workshop Benefits

• Results

• Process

• Prioritization (best fit of up to 50 comparable PN’s)

• Sample Agenda, Attendees

• Next Steps
 AKOYA CMA Opportunity – Benefits

• Multiple sources of “Should Cost” information by PN

organized, prioritized and presented

• “Blue Ribbon” Panel of Purchasing, Engineering,

Business Resources and Management experts

• Group consensus of “Should Cost” for each PN for

Purchasing to pursue

• Fast coverage of PN’s (about 40 per workshop)

• Action items defined and assigned for follow-up

and tracking
 AKOYA “Should Cost” Idea Opportunity Workshop

Date: 8/17/06 (8 am – 2 pm CST) VV 175

Purpose: Review:
• 45 La Fayette PN’s in AKOYA

Approach: • Review selected PN’s using

- AKOYA data,
- Roger Dailey Spreadsheet tools, Emdl list for 2007
- Engineering and Purchasing expertise,
- Pro-E drawing
- Prioritization table
- Agree on “should cost” by PN and identify cost savings actions
• Call other resources for input as needed

Agenda 8 am Introductions, Process

1:45 pm Actions / Summary
2 pm Adjourn
 Workshop Overview
Pre-Workshop Analysis and
Data Gathering
1. Purchasing Cost Curves
2. CMA Should Cost analysis
3. Best Fit Lower cost
comparable
4. Latest Price and Demand
projections from various
sources
5. Bottoms up cost rebuild
(product team engr.)
6. CMA Supplier Analysis
7. Replaced part analysis
8. 2006 to 2007 transition
volumes
WORKSHOP:- Process
• Subjective perspective,
• Insight on Suppliers,
• Parts, demand,
• Should cost +
• Review of pre-workshop
data using tracking
dashboard
Workshop Product
1. Candidates for Re-quote
2. High Confidence Should Cost
3. Follow up Action Items
• New Quotes needed/volumes
• Design Changes
• Material Changes
• Revised estimates
• Other Ideas
 Akoya CMA Opportunity Workshop Process

Preparation

Akoya PN’s Actions

Loaded / Run
Purchasing
Actions Savings/
Roger Dailey Corrections
Spreadsheet
“Should Cost” Engineering Review Quoted PN
Workshop Actions Costs
Pro-E Drawings
/ Pictures ppt
Bus Res
Update with Actions
VLAND
data for
2007 PN’s
Purchasing Potential PN
Engineering cost reductions
Bus Res or corrections
Mgmt
Facilitators Opportunity
Resources
 AKOYA CMA Opportunity Workshop Checklist

Preparation

• Identify candidate list of PN’s

• Get vLand cost / demand / replacement parts update
• Update in workshop database
• Perform analysis against Akoya
• Identify best comparable part based on Nelson’s criteria
• Run RDS cost curves for PN’s
• Identify if any previous workshop analysis rules can be used
• Identify PN’s for requoting
• Identify similar PN’s that supersede previous PN versions
• Run Pro-E pictures and put in ppt
• Prep room, projectors and other materials

Workshop Follow-up

• Tabulate savings and flag PN’s as analyzed in workshop database

• Identify action items and make assignments to Purchasing, Engineering
• Communicate to cost leads and Phil’s Doughan’s 2007 NPI tracking
spreadsheet
• Prepare summary slide
• Communicate vLAND updates to Business Resources
• Identify similar PN’s that supersede previous PN versions
 Workshop Ground Rules

• One PN by material spec and family

• One conversation at a time
• Consensus estimate by team
• Each person’s perspective is valuable
• For each PN, review and consider:
• Compiled application data
• RDS cost curve, RDS sheet, Cost / kg
• AKOYA comparable PN’s, should cost
• PRO-E drawings (or EPIX drawing)
• Latest quote available
• 2006 to 2007 transition volumes spreadsheet
• EDS or MEC excel sheet (RDS Emdl sheet)
 AKOYA CMA Opportunity – Best Fit Comparable

• Best Fit Comparable is useful in finding a comparable (usually in the same family
and material) that is at a lower price point. This can be used as evidence with
supplier and gives a good idea of what is achievable in terms of driving the costs
down.
• Criteria for selecting Best Fit Comparable
1. Annual Demand < 80% of part demand
2. Finished wt within +/- 30% of part wt.
3. Design fit rank > 70 (from CMA analysis)
4. Meets 1-3 and has the least price of all other similar comparables
 AKOYA “Should Cost” Opportunity Workshop-Attendees

2 Engineers/Management MEC Engineering

4 Engineers/Management Lafayette Engineering

6 Purchasing/Managmet MEC / Lafeyette Purchasing

Brent Lindstrom AKOYA

Sundeep Maini, Rohit Bhatt, Ron Sutter CGN

Other Engineers as needed Call into meeting or by phone

Other Buyers as needed Call into meeting or by phone

 AKOYA Idea Workshop – Other Potential Groups
Estimated Group (NPI – Not in Production) Contact
PN’s to
Review
1 25 Cooling Design Center Kent Bates
2 40 Vee Engines Barry Belshaw
3 70 Application Iron Russ Cotton
4 40 Lafayette C175 Mike Patty
5 ? New Product Brian Law
6 30 2007 – C9 Phil Doughan
7 80 2007 – All 2007 Castings Phil Doughan
Approx PN’s Group (Current Product) Contact
1 40 All Mossville Castings Jim Dallmeyer
2 40 All Lafayette Castings Craig Kroeger
3 ? All Perkins Engines Brian Law
4 20 All Cooling Design Center Kent Bates
AKOYA CMA Opportunity Workshop – Timeline

5/1/2006 - 5/21/2006 5/22/2006 - 5/26/2006

3 Week data Gathering/Pre Workshop Analysis Action Items dispersal. Handover to cost leads.

5/22
Daylong Workshop
 Workshop Data Column Format – Color Coding

CHANGE_VERSION_NUMBER
ENGINE_TYPE_CODE

QTY_PER_ENGINE
MATERIAL_CODE

SUPPLIER_NAME
FAMILY_NAME

PART_NAME
PART_NUM
MATERIAL

C18 HOUSINGS GRAY IRON 1E0018 1875420 HOUSING-FRONT 4 FULTON INDUSTRIES,

1 INC

3406C HOUSINGS GRAY IRON 1E0018 1084744 HOUSING-FLYWHEEL 5 CBS BORING & MACHINE
1 COMPANY INC
C-12 ELBOWS ALUMINUM 1E1540F 2178946 ELBOW 0 CAST TECHNOLOGIES
1 INC
 Workshop Data Column Format – Color Coding

RDS_PART_PRICE_USD (May/13/2006)

COMPARABLE_ANNUAL_DEMAND
COMPARABLE_PRICE_PER_KG

RDS LOGNET ANNUAL DEMAND

RDS SHOULD COST (CURVE)

QUOTED_ANNUAL_DEMAND
COMPARABLE_PART_NAME

AKOYA_ANNUAL_DEMAND
COMPARABLE_PART_NUM
COMPARABLE_SUPPLIER

AKOYA_SHOULD_COST

COMPARABLE_WT_KG
COMAPRABLE_PRICE

FINISHED_WT_KG

PRICE_PER_KG

(13/May/2006)
FIT_RATING
CBS BORING & MACHINE
2123686COMPANY
HOUSING-FLY
INC $ 292.31 $ 164.39 $ 79.88 $ 162.24 80 42.338 33.801 $ 7.08 $ 2.36 4,632 5,168 4,408 5,000

GIESSEREI ST LEON
2050749
ROT HOUSING-PISTON$ 188.16 $ 161.37 $ 173.02 $ 311.50 76 81.225 62.800 $ 2.32 $ 2.76 4,980 5,403 216 500
QUALITY METAL PRODUCTS,
2428267 ELBOW
INC $ 18.93 $ 11.94 $ 10.34 $ 12.41 92 0.705 0.567 $ 26.21 $ 18.23 15,744 ##### 84 800
REQUOTE

PROVE DESIGN COST

WORKSHOP_SHOULD_COST

WORKSHOP_ANALYZED_IN

WORKSHOP_COMMENTS

COST / ENGINE

COST AVOIDANCE / ENGINE vs

AKOYA SHOULD COST

COST AVOIDANCE / ENGINE vs

COMPARABLE COST

ANALYZED

COST AVOIDANCE / ENGINE vs

WORKSHOP SHOULD COST

% COST AVOIDANCE / ENGINE vs

WORKSHOP SHOULD COST

WORKSHOP CONCLUSION
Workshop Data Column Format – Color Coding

OPPORTUNITY
 AKOYA CMA Workshop Spreadsheet

• Show the AKOYA “Should Cost” Workshop Spreadsheet

 AKOYA Workshops CMA Scorecard Results

2007 Reference Arrangements Cost Avoidance Opportunities

Workshops Summary (08/08/06)*
# of Projects / Cost Avoidance Opportunities Achieved
Annual Cost
Active Avoidance (mil$)
Engine
Analyzed Cancelled
Completed In Process**

C7 HHP & 20 / $593.89 5 / $210.17 3 / $8.58 12 / $371.47 $5.09

LHP

C13 26 / $406.69 13 / $135.64 5 / $34.56 8 / $225.46 $3.82

C15 27 / $458.07 8 / $61.74 9 / $103.75 10 / $229.40 $3.16

Total 73*** / $1458.65 26 / $407.55 17 / $146.89 30 / $826.33 $12.07

59% / 43% yield

Active vs Identified
* Workshop 6 items included
** The $ value represents a 50% confidence level
*** 5 p/n’s are common to C13 & C15

• Other 43 (20 in Workshop 4 + 23 in Workshop 6) cost avoidance opportunities were analyzed for non-
reference arrangements for an estimated value of $1,528.12 ($1,146.53+$381.59)

(Adapters, Bases, Bodies, Bonnets, Brackets, Caps, Covers, Elbows, Housings, Hubs, Manifolds, Oil Pans, Pulleys, Supports)
 AGENDA

• AKOYA ‘Should Cost’

– Overview
– AKOYA Cost Management Analytics
Demo
– Workshop Approach / Results
– CMA Development
• Purchasing
 Walk-Through
Key Featuresof CMA Tool
of Engagement

• Developed in house by CGN for a startup

• On-shore & off-shore teams
• Very cost effective – 10x over Caterpillar
• 3 mo phases: timely and result oriented
• Customer fully engaged
 Key Features
Walk-Through of of
CMAProduct
Tool

• High Performance
• Good segmentation of application layers.
• High utilization of the Database features.
• Model driven
 Walk-Through of of
Key Features CMA Tool
Engagement

• Very collaborative
– Many team recommendation were accepted
as product features and usability
enhancements.
– Worked with customer on setting up IT
operations:
• Help Desk/Support
• Streamline IT processes
– Flexible product features
– Guidance on hosting & vendor mgmt
• Very high customer satisfaction
 Walk-Through of CMALearned
Issues & Lessons Tool
• Working with offshore team
– Skill Gap
– Lack of internal focus – one off project
– Difficult to scale
– Teamwork
– Remote project management
– QA processes
– Vendor mgmt
 Walk-Through of CMALearned
Issues & Lessons Tool

• Lack of a repeatable CGN methodology

supported by tools & templates
• Infrastructure at CGN to support
development
– H/W to host DB etc
– System administration: DB, OS
– Code Control
– Development tools & licenses
AGENDA

• AKOYA ‘Should Cost”

– Overview
– AKOYA Cost Management Analytics
Demo
– Workshop Approach / Results
– CMA Development
• Purchasing
An Introduction to Global Purchasing
8/23/2006

Finding new answers in business.

 Caterpillar is Global

• Caterpillar products are manufactured in 50 U.S.

facilities and in 65 other locations worldwide
• More than 300 products sold in 200 countries
• Approximately 82,000 employees worldwide
• Marketing offices in 15 cities in 11 countries
• Parts distribution facilities worldwide
• Sales and profits
• 2005 sales and revenues of $36.339 billion
• 2005 record profits $2.85 billion
 Global Purchasing Spend

• Purchase more than $12 billion in direct materials:

materials for everything Caterpillar manufactures
(construction and mining equipment, diesel and natural
gas engines and industrial gas turbines)
• Purchase more than $2.7 billion in indirect materials:
products and services needed to operate our business
(office supplies/equipment, perishable tooling, facility
maintenance, IT hardware/software and more).
• Direct and indirect material costs represent 60% of
Caterpillar’s total costs
 Global Purchasing

• Approximately 1,400 employees located in over 50

facilities around the world, spanning nine time zones
and speaking over 24 languages

• Headquartered in Mossville, IL

• Manage external suppliers relationships to obtain the

best price, quality and availability for the categories

of
material and services we purchase for our business
unit
customers.
 Facts and Figures

• Support more than 500,000 part numbers

• Buy from more than 35,000 suppliers around the world

• Support 28 equipment product lines and 5 Engine and

Power Systems product lines
- Manage purchase of materials that go into more than 300 products,
ranging from construction and mining equipment to diesel and
natural gas engines and industrial turbines
 Our Business

Redefining purchasing: Move from being a transactional business to a

strategic business partner by:
• Building a world-class supply base using 6 Sigma strategic
sourcing
• Building strong relationships with global supply base
• Leveraging suppliers’ knowledge and competencies to
benefit our customers’ business
• Meeting customers’ quality, cost and delivery objectives
• Deploying new supplier quality process
• Shifting from commodity-based buying to category-based
buying
 Identifying enterprise solutions

• Move from decentralized, regional purchasing organizations to one

global organization
- Maximize corporate leverage and minimize number of suppliers
- Simplify and streamline organization and processes, develop
global measuring and tracking

• Create common processes and systems worldwide (i.e. currently 8

different purchasing systems)
- Identify and replicate best practices
- Strive for process excellence and standardization
 What will we deliver?

Advantages we will offer our customers long-term:

• Global leverage, local service excellence
• Process consistency and excellence
• Improved price, quality and availability
• Regional sourcing diversity
- Currency
- Awareness & navigation of geopolitical issues
- Improved response time in emerging markets
- Access to developing countries E-procurement and enhanced
change management
• Reduced warranty costs due to improved quality
• Stronger supplier relationships
 Short-term Initiatives

• Using 6 Sigma, reduce enterprise

inventory by $600M by year end
– Reduce NPI launch holds
– Eliminate quality holds
– Execute Lean Value Stream Transformation
– Finish incomplete builds
– Improve shipping delays
– Reduce in-transit inventory

… and lower dealer inventory levels

 Supplier Relation Scope
Management

Collaborative Supplier Consolidate

Development For
Need to
--SPM elevate our Scale
--6 Sigma game
--VSM/Lean SRMgt Focus

--CPS/MQ 12005 US $ in

Fix the
Billions
Smaller Supplier Spends – Large & Small
$12

$11
$10.2B = 90% Spend = 750 Parents
$10
$9.1B = 80% Spend = 440 Parents

Chaos
$9

$8
Medium Suppliers – Cat Larger % of Bus.
$7

Too many P/Ns

$6

$5

$4
Large Suppliers – Cat Small % of Bus.

Strategic Relationship $3

$2 Too many E/Cs

$1

Too many
1 501 1001 1501 2001 2501 3001 3501 4001 4501 5001 5501 6001

*EO Champions * Represents 90% of GP Managed Direct spend

*Supplier Councils
Schedule Changes
Poor Drawing Quality
*Co-location
Too many suppliers
*Investment Reviews Barriers to
Too many shoppers
achieving
*SRMP ultimate goal Too much source plan non-
compliance
 NPI Process
Best NPI Leads to
Best PRODUCT

Prevent- it organization Fix- it organization

Key Actions: Metrics

- Improved Definition & Governance - NPI Process Conformance Index
- Improved Requirements mgmt - Requirements Management Index
- Concentrate on Quality Elements of NPI - Change Control Index
- APQP Embedded in NPI… - Dashboards
- iPi CPPD Workflow (consistent execution &
member involvement)
- NPI Dashboard
- Training & Knowledge
 How is CGN Helping?

• Providing strategic assistance to accomplish

Critical Success Factors
• Providing subject matter expertise
• Providing out of the box project management
• Providing analysis of key metrics
• Providing communication throughout the
organizational change
Strategic Sourcing
Strategic Sourcing
Velocity
PCC Status
Category Reviews
 CGN & Associates
415 SW Washington St.
Peoria, IL 61602
309-672-6400
www.cgn.net

Tom Nieukirk
Manager
309-472-4458
tnuke@cgn.net