Feature Story

MANAGING BENEFIT COSTS: HOW CATERPILLAR'S 6 SIGMA PROGRAM RESULTED IN SIGNIFICANT SAVINGS

Paragon Relocation Resources provides international and domestic employee relocation support for Caterpillar Inc. For more than 75 years, Peoria, IL-based Caterpillar, Inc. (NYSE: CAT) has been building the world's infrastructure. With 2002 sales and revenue of more than $20 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.

The company had been using multiple suppliers in moving household goods and shipments were booked out of multiple locations. In an effort to determine if the company could achieve service quality improvements and cost savings for expatriates and transferees worldwide by consolidating to one global service provider, Caterpillar formed a 6 Sigma Global Household Goods Team. Experts from Paragon Decision Resources, Inc.(www.pdr.com) were invited to participate. The goal was to create a unified, consistent approach that would improve methodologies.

In brief, 6 Sigma is a measure of quality that strives for near perfection. It uses a set of strategies, statistics and methods to improve the processes that Caterpillar uses to do everything from designing to manufacturing to product; from marketing products and services to providing business information to the company's internal and external customers. In 2003, Paragon Decision Resources also became a 6 Sigma company.

Three Paragon executives worked with the Caterpillar led 6 Sigma Team to research, develop and create its household goods shipping contract. Paragon assisted with preparing, reviewing and analyzing bids, contracting, determining shipment variables from location to location anywhere worldwide, and monitoring savings from the supplier.

One of the key tools used was a 46-question benchmarking survey to leading worldwide freight forwarders. Categories included Service Capabilities, Cost Containment, Quality Assurance, Insurance Claims, Use of Technology, Volume/Experience, and Storage. Some sample questions included:

What is the most recent innovation you have implemented to reduce costs?
What is the most effective cost containment innovation you have ever implemented?
Do you have quality certifications-ISO, 6 Sigma, etc.?
What's your average time to settle a claim?
What is the premium charge to client?
Do you have web site household goods tracking and reporting for customers?
Do you have customized web sites for specific clients?
Where is your closest storage facility to Peoria?

The benchmarking and bid process allowed Caterpillar to further implement performance service requirements. The data gleaned from the survey was reviewed and analyzed and a list of candidates were chosen to bid actual pricing scenarios. A global service provider was eventually selected.

And the net results? In less than a year, Caterpillar is already realizing significant annual savings and the results are expected to increase as the program continues to evolve. By utilizing the expertise and resources of a strategic partner such as Paragon, and continuing to implement the 6 Sigma methodologies for the program, Caterpillar is seeing a positive bottom-line impact in quality improvements, cost savings, growth benefits and efficiencies. The company has also recently implemented a domestic version of the program and expects similar benefits.

Return to: 2004 Feature Stories