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Captstone Project Tm699 By Craig Jones Final Draft

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This project was the topic of my capstone project for my Masters in Technology Management.

This project was the topic of my capstone project for my Masters in Technology Management.


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  • 1. Caterpillar New Warranty Expense Project Marshall University College of Information Technology and Engineering M.S. in Technology Management with emphasis in Manufacturing Systems Craig Jones 135 Caroline Circle Hurricane, WV 25526 901263172 (304) 545-3048 cjones@walker-cat.com Advisor: Dr. Eldon Larsen
  • 2. ABSTRACT The New Caterpillar Warranty Expense Project focuses on reducing warranty expenses for Walker Machinery, a Caterpillar heavy machinery dealer. The problem statement for the project is as follows: Reducing warranty expense without compromising customer satisfaction will have a material impact on improving Walker Machinery profit after direct expenses. Warranty expenses have been trending upward since 1997 and reached $X million dollars year-end 2006. Annualizing January 2007 month end expenses indicates the upward trend will continue. The large amount of warranty residual dollars indicates that new process with greater financial accountability is needed. The key issues to be addressed that affect warranty expense were warranty administration, warranty residuals, warranty premiums, warranty selection, Caterpillar machine quality, and warranty accounting. The problem was addressed using 6 Sigma DMAIC (Define, Measure, Analyze, Improve and Control) methodology. 6 Sigma is a process improvement methodology that focuses improving processes to meet critical business and customer requirements. Using DMAIC, a business problem is translated into a statistical problem. A statistical solution is formulated and then translated into a business solution. The lack of continuous data in a transactional business often reduces the capacity in which statistics can be used to arrive at business solutions. However, in the case of warranty expense, continuous data is available from years of warranty invoices, claims, and settlements. The results proved that while warranty expense was not the alarming problem that we originally believed it to be, there was still much room for improvement, as there usually is with any business process. Recommendations for improvements fall largely into two categories: training and reporting. Training improvements focus on consistent processes for warranty administration across the company’s 8 branches. Processes were drawn on to-be process maps and standard operating procedures were written and posted on the company intranet. The scope of the training includes all service and sales personnel at all 8 branches. Recommendations for reporting improvements focus on aligning expenses and revenues using an accrued liability method of accounting. Prior to the project, warranty was accounted for on a cash basis. Other mentionable recommendations for reporting include a cost/benefit analysis of warranty to aid in extended warranty selection. Evaluating the success of this project will not be possible until training has been completed and all reporting recommendations executed. Upon implementation of all recommendations, data will be collected for a 6-month period and compared to historical control data. Evaluation results will be stated as a percentage of machine list price, in order to compensate for inflation. I believe that this was a very necessary and worthwhile project. I expect significant and sustainable savings. Key words: 6 Sigma, Six Sigma, DMAIC, Caterpillar, warranty, accrued liability, training, reporting. 2
  • 3. ACKNOWLEDGEMENTS Thanks be to God for the many blessings he has bestowed upon me. With God, all things are possible. I would like to thank Dr. Eldon Larsen for mentoring me throughout my master’s studies. Dr. Larsen was consistently there for me professionally and personally. I am a more effective 6 Sigma Black Belt because of Dr. Larsen’s council and instruction. I would like to thank my wife, Shenan Jones, for her patience, support, and extra time spent caring for our family and home while I have been away at work, school, and 6 Sigma training. I would like to thank my parents, Bob and Doris Jones, for instilling in me the value of education. I would not have been able to attain my undergraduate degree without their persistence and financial support. I would also like to thank my parents for raising me in a loving, Christian home. I would like to thank Walker Machinery for believing in me enough to award me a scholarship to pay for my graduate education expenses. I appreciate their generosity and investment in my personal and career development. 3
  • 4. TABLE OF CONTENTS Introduction…………………………………………………………………………………………………………………..5 Literature Review………………………………………………………………………………………………………….9 Research Methods……………………………………………………………………………………………………….10 Results………………………………………………………………………………………………………………………...11 Define………………………………………………………………………………………………………………11 Measure……………………………………………………………………………………………………….…17 Analyze………………………………………………………………………………………………………….…30 Improve…………………………………………………………………………………………………………….31 Discussion…………………………………………………………………………………………………………………….35 Conclusions and Recommendations……………………………………………………………………………..37 Appendices……………………………………………………………………………………………………………………40 Appendix A: Project Charter………………………………………………………………………………40 Appendix B: DMAIC Project Plan………………………………………………………………………..41 Appendix C: Stakeholder Summary/Communications Plan………………………………..42 Appendix D: Voice of the Customer……………………………………………………………………43 Appendix E: Voice of the Business………………………………………………………………………44 Appendix F: Sales Department As-Is Process Map………………………………………………45 Appendix G: Service Department As-Is Process Map………………………………………….46 Appendix H: Suppliers, Inputs, Process, Outputs, and Customers (SIPOC)………….47 Appendix I: Measurement Plan…………………………………………………………………………..48 Appendix J: Service Repair Work Order Form……………………………………………………..49 Appendix K: Fishbone Diagram…………………………………………………………………………..50 Appendix L: Root Cause Ranking…………………………………………………………………………51 Appendix M: Sales Department To-Be Process Map…………………………………………...54 Appendix N: Service Department To-Be Process Map………………………………………....55 Appendix O: Improvement Implementation Project Plan…………………………………….56 References………………………………………………………………………………………………………………………57 4
  • 5. INTRODUCTION Walker Machinery is a Caterpillar heavy machine dealer, servicing most of West Virginia and portions of Southern Ohio, catering mostly to surface mining coal companies. As a Caterpillar dealer, Walker Machinery is obligated to provide its customers with warranty service as outlined by Caterpillar warranty guidelines. Walker Machinery files claims with Caterpillar for reimbursement for warranty service, but Caterpillar does not reimburse 100% of Walker Machinery’s expenses. For the purposes of this paper, warranty expense is defined as the difference between Walker Machinery’s actual expenses and what Caterpillar will reimburse plus the cost of extended premium enrollments. Caterpillar warranty guidelines obligate the dealer to perform repairs that are a result of defects in parts or workmanship for a period of 6 to 12 months, depending on the family of machine. Caterpillar will reimburse the dealer for parts, but the dealer is responsible for associated labor expenses, with the exception of safety-related updates, predelivery, and set-up. Caterpillar does not reimburse the dealer for travel time and mileage expenses. Caterpillar warranty guidelines do not specifically state that the dealer is responsible for travel time and mileage expenses, but Walker Machinery elects to absorb travel time and mileage expenses under the standard warranty period to be competitive with rival machine manufacturers. Warranty expenses have a direct correlation to new machine sales. Because of the cyclical nature of the coal business, warranty expense varies significantly from year to year. Because Walker Machinery realizes warranty expenses on a cash basis, warranty expenses and new machine sales revenues are not proportionally aligned in a given accounting 5
  • 6. period. For example, going into a new machine sales trough after two years of record machine sales will greatly exaggerate warranty expense as a percentage of new machine sales. The generally accepted accounting principles (GAAP) for warranty state that warranty expenses should be accrued in the same accounting period as sales revenue. For example, a machine is sold for $1M and warranty expenses are estimated at $10,000. In the same accounting period, the Sales Department warranty expense account should be debited $10,000 and an accrued liability account should be credited $10,000 to cover future warranty expenses. Walker Machinery has not conformed to this principle because they did not have a reliable means of estimating warranty liabilities. Warranty work orders are invoiced by Walker Machinery’s Service Department. The Warranty Department files warranty claims with Caterpillar. Warranty expense is debited as a direct expense to the Sales Department’s operating statement. The Sales Department feels that warranty expense is higher than it should be because of lack of warranty expense management and accountability. The foundation of this argument is that the Sales Department absorbs the costs of warranty expense but does not have control over managing the departments that administer warranty repairs and warranty claims. The Sales Department suggests that the Service Department does not manage warranty work orders as closely as they do revenue work orders. The Sales Department would like to pay the Service Department a flat-rate amount to cover all warranty expenses when a new machine is sold so that the management of warranty expense is under the control of the department that manages warranty repairs and claims. 6
  • 7. In order to validate the suggestion of the sales department that warranty work orders and revenue work orders are treated differently, I performed an analysis of variance to compare warranty and revenue work order totals to remove and install an engine on a D11 track-type tractor. The null hypothesis (Ho) was that warranty work orders and revenue work orders are treated the same. The alternative hypothesis (Ha ) was that warranty work order and revenue work orders are treated differently. While the mean warranty work order was 5% more than a revenue job, the analysis returned a P value of 0.679, thus suggesting to accept the null hypothesis that warranty work orders and revenue work orders are treated the same. A visual representation of warranty versus revenue hours indicates that the work orders are treated similarly (see Figure 1). Boxplot of HOURS by WO 180 160 140 120 100 HOURS 80 60 40 20 0 REVENUE WARRANTY WO Figure 1 7
  • 8. Warranty expense is a difficult project because it touches so many key business areas in the company: sales, service, warranty, and accounting. Walker Machinery has considered changing the manner in which warranty expense is administered and accounted for in the past, but plans have never come to fruition. Early drafts of the project charter were scoped around merely converting to accrued liability, but the project was later scoped to include decreasing warranty expense overall. The hope was that 6 Sigma could take a global project such as warranty expense and achieve something that could not be done by conventional means. 8
  • 9. LITERATURE REVIEW Warranty expense is not an issue that is unique to Walker Machinery. Most Caterpillar dealers have conducted 6 Sigma warranty expense projects. Caterpillar has developed an online knowledge network for dealers to share their project findings, improvements, and results. I found several useful Knowledge Network entries on the topic of warranty expense. I discovered a Black Belt from South Carolina, Lee Rafford, who was working on a similar warranty expense project. I knew Rafford from 6 Sigma Black Belt training and regional Caterpillar dealer meetings. We have contacted each other several times by phone and email to compare ideas, findings, and frustrations. I referenced Caterpillar 6 Sigma training materials to ensure that I was following the Caterpillar 6 Sigma recipe throughout the project. Caterpillar provides Black Belts all 6 Sigma training presentations, examples, and problems on a CD-ROM called Virtual Coach. Virtual Coach also includes Green Belt training presentations for just-in-time project team training. Black Belts conduct all Green Belt project team training at Walker Machinery. Details on generally accepted accounting principles (GAAP) for warranty were researched at the Federal Accounting Standards Advisory Board’s website (FASAB) and AuditNet’s website. 9
  • 10. RESEARCH METHODS Historical data was extracted from Walker Machinery’s AS400 based Dealer Business System (DBS) using Sequel for AS400 (SQL). Walker Machinery has been using DBS since 1999. DBS contains all warranty invoices, claim amounts, and settlement amounts for all warranty work orders performed since the conversion to DBS in 1999. SQL queries were coded by Robert Packtor, Information Services AS400 Manager and Yellow Belt, Blake Lilly, Warranty Manager and Green Belt, and me. Practical data analysis was performed using Microsoft Excel. I examined any blank entries or outliers, looking for special cause. I validated the SQL download data with DBS user interface data. I also validated the SQL download data with a third-party designed Microsoft Access Walker Machinery warranty database. Graphical data analysis was performed using Minitab. Minitab is a powerful statistical analysis tool that makes constructing detailed graphs very easy. I created many useful Pareto charts, bar charts, and boxplots using Minitab for this project. Analytical data analysis was also performed using Minitab. Minitab can handle everything from simple linear regression to Taguchi designs of experiments. I used Minitab to calculate means, medians, and perform an analysis of variance (ANOVA). Qualitative data was gathered by interviewing key sales, service, warranty, and accounting personnel who work the warranty process on a daily basis. Interviews and team meetings were translated into the voice of the customer (VOC), voice of the business (VOB), as-is process maps, fishbone diagram, and to-be process maps. 10
  • 11. RESULTS Define As with any 6 Sigma project, the team began by defining the problem. Very succinctly, the problem was that the company was spending too much money on warranty; in 2006, we spent over $X. The project charter detailed the business case, opportunity statement (or problem statement), goal statement, project scope, project plan, and team selection. Project Charter (see Appendix A): The Project Charter is referred to as a “living document” because it is often changed and updated during the early stages of the project. It is better to make broad changes to the Project Charter early in the project. The Project Charter is the document that defines the problem, scope, and the goals of the project. The Business Case was as follows: Walker Machinery Co. currently incurs significant costs in warranty that impact the direct expense lines of the Sales Department operating statement. Growth of machine deliveries over the last few years means these costs will continue for the next two to three years. These costs will also roll into years of lower projected unit sales pushing warranty and policy expense higher as a percentage of current sales. The Opportunity Statement was as follows: Reducing warranty expense without compromising customer satisfaction will have a material impact on improving Walker Machinery’s profit after direct expenses. Warranty expenses have been trending upward since 1997 and reached $X by year-end 2006. Annualizing 11
  • 12. January 2007 month end expenses indicates the upward trend will continue. The large amount of warranty residual dollars indicates that new process with greater financial accountability is needed. The goal statement identified the following key areas that contribute to warranty expense: 1. Warranty administration: from the first call to the service department from the customer. 2. Warranty residual: the difference between actual warranty invoices less reimbursement from Caterpillar. 3. Warranty premiums, defined as the expense of extended warranty enrollment to Caterpillar Insurance. 4. Warranty selection and coverage, to ensure that our customers and our Rental Services department are determining when it would be best to self-insure and which extended coverage to purchase when insuring with Caterpillar. 5. Caterpillar machine quality, while outside of our direct control, could reduce warranty expense if problems could be detected early, communicated throughout the company, and quality issues mitigated or eliminated before the machine fails in the field. 6. Warranty accounting was also identified as a key area, not because it was believed to be able to save money in and of itself, but because there was a clear opportunity to better match the company’s revenues and expenses by recognizing the total expense of the warranty at the time of sale, or enrollment 12
  • 13. in to rental fleet by converting from a cash-basis method of accounting to an accrued liability method of accounting. Project Scope: The project was originally scoped to include the entire $X of warranty expense, including every warranty expense account across every business division. New Caterpillar machine warranty expenses were broken down into 12 different accounts across 3 divisions: Machinery, Rental and Engine. By constructing a Pareto chart, it was evident that nearly 80% of warranty expense was being charged to 2 accounts, new Caterpillar extended warranty and new Caterpillar warranty, respectively (see Figure 2). Both of these accounts belong to our Machinery division. The project sponsor agreed to scope the project to include only these 2 accounts. Pareto Chart of New CAT Warranty Dollars by Account 100 80 Percent 60 40 20 0 Account T L er EX C AT PS P BC P CC E PO th T Y Y W T O W T T CA NE AN AN NE CA W TY R RR TY ED NE AN AR A AN US Y W W R T R TY AN AR AR AN R W W R AR AR W W Percent 50.0 29.7 9.4 3.3 2.5 1.9 3.2 Cum % 50.0 79.6 89.1 92.4 94.9 96.8 100.0 Figure 2 13
  • 14. Project Plan (see Appendix B): The project was officially kicked off on April 30th, 2007. An aggressive timeline was set and the project was targeted for completion by August 8th, 2007. Although an aggressive timeline is set for every Walker Machinery 6 Sigma Project, time is usually the most flexible of the triple constraints; there are few managers who will actually allow their appointed Green Belts to devote 20% of their time to a project, as the Caterpillar 6 Sigma recipe suggests. It is our primary goal for every project to have breakaway results with a secondary emphasis on investing minimal capital. Team Selection: Mike Walker, CFO, was chosen as the Project Sponsor. Mr. Walker has had prior experience in warranty as the VP of product support. Michael Taylor, Central Office Manager, is the Process Owner. Green Belts on the project were Blake Lilly, Warranty Manager; Eric Click, Controller; Randy Trump, Coal Division Sales Manager; and James Milam, Logan Branch Manager. I was the Black Belt chosen to manage the project. My project sponsor was very supportive and has a high-level influence at Walker Machinery. My Green Belts are all high-performing managers, representing each key business area that touches warranty expense. If the warranty expense process can be improved at Walker Machinery, this was the team to do it. Stakeholder Summary and Communications Plan (see Appendix C): Typically two separate documents by the Caterpillar 6 Sigma recipe, I have combined the Stakeholder Summary and Communications plan into one document. This high-profile project included key stakeholders such as the company’s Owners, Controller, Vice President of Sales, Vice President of Service, Central Services Manager, Warranty Manager, and Branch Parts and Service Managers. The Stakeholder Summary indicates each key stakeholder’s level of 14
  • 15. impact, level of influence, current position, and reaction to change. The Stakeholder Summary also indicates who is responsible for managing each key stakeholder. The Communications Plan indicates the method and frequency of contact between the key stakeholders and the persons in charge of managing the key stakeholders. Voice of the Customer (see Appendix D): Another often-used 6 Sigma define tool is the Voice of the Customer, or VOC. The Voice of the Customer takes the customer’s concerns and translates them into critical customer requirements, or CCR’s. Critical customer requirements are quantifiable and are specific things necessary to fulfill a customer’s needs. Customer concerns for this project included rapid response to warranty failures, minimal repair expenses while a machine is under warranty, production, and fair value. These concerns translated into critical customer requirements of 4 to 8 hour response time, fair treatment regardless of black-and-white warranty terms, quick and cost effective warranty processing, and good communication. Voice of the Business (see Appendix E): Voice of the Business, or VOB, is similar to Voice of the Customer. It translates the concerns of the business and translates them into critical business requirements, or CBR’s. Critical business requirements of this project included minimizing our warranty expense, retaining our current customers, and attracting new customers. These concerns translated into sending the right mechanic to the job with the right parts the first time, knowing what is covered and what is not covered under warranty, holding customer’s accountable for abuse, and building a good relationship with the customer. 15
  • 16. Process Maps (see Appendices F and G): The first iteration of the Process Map was a mess. The team discovered quickly that warranty is a global process that touches nearly every operational area of the company. The second attempt at mapping the warranty process included one functional deployment, or “swim lane,” process map for the Sales Department warranty process and one for Service Department warranty process. The Sales Department warranty process begins with the negotiation of the sale with the customer and ends with the enrollment into warranty with Caterpillar. The Service Department warranty process begins with a customer’s machine failing under warranty and ends with the machine being repaired and put back into service. SIPOC (Suppliers, Inputs, Process, Outputs, and Customers – see Appendix H): With such a massive process, it was not surprising to have numerous suppliers, inputs, outputs, and customers. Suppliers include Caterpillar Insurance, Walker Warranty Department, Walker Sales Department, and Walker Service Department. Inputs include new machine sales, new machines requiring warranty service, communication (knowing the problem with the machine, or troubleshooting on the phone), education (what is covered and not covered under warranty terms), and an understanding of how to administer warranty. Outputs include warranty letters to the customer and Walker Parts and Service Sales Representatives, machine being repaired with minimal impact to the customer, and peace of mind that risk has been minimized. Customers include large mining product, or LMP, customers, Core machine customers, and the Walker Sales Department rental operation Gap Analysis: The Gap Analysis depicts the gap between current performance and desired performance. The project team originally agreed to state the gap as follows: 16
  • 17. ( P + R ) – C = Gap P = Cost of extended premiums R = Warranty residuals (warranty invoices less warranty settlements) C = Cost that is recovered when machines are sold. We found right away that our accounting and invoicing methods did not lend themselves to easily calculating the gap; costs of extended premiums and warranty residuals were lumped together in the New Cat Extended Warranty account and the cost of warranty that is recovered when a machine is sold is not listed as a separate line item on sales invoices. We later determined that this was not a good measure to determine performance because we could simply “solve the problem” by passing the expenses of warranty costs onto the customer. We felt that a better way of measuring the gap was as follows: CW1 – CW2 = Gap CW1 = Current cost of warranty as a % of machine cost CW2 = Target warranty cost of warranty as a % of machine cost Measure If there is a phase where a Walker Machinery 6 Sigma project can be halted in its tracks, it is the measure phase. We have few precious Information Systems resources who have the time or the understanding of business processes to query our equipment management systems to get measurement data for project teams. There are a few people in our company who are Sequel-trained process experts, but their time is usually consumed 17
  • 18. by demands from their immediate supervisors. We have experimented with training 6 Sigma Black Belts in Sequel, but it is a difficult skill to master without having the opportunity to use it on at least a weekly basis. Our most recent solution to provide Black Belts with data was to make it the responsibility of the Master Black Belt to learn Sequel and be the data resource for all Black Belts. Measure Plan (see Appendix I): The purpose of the measure phase is to translate a business problem into a statistical problem. Taking into consideration the cause variables from the goal statement, the voice of the customer, and the voice of the business, the team determined what to measure, how to measure, and who would do the measuring. Warranty Administration: The team wanted to measure the performance of warranty administration at Walker Machinery from the first phone call to the service department requesting service to the time that a warranty claim is filed. For this task, the team decided that James Milam, Green Belt and Logan Branch Manager, and Michael Taylor, Process Owner and Central Services Manager, would visit every service department in the company and interview service managers, service clerks, and service technicians. From these interviews, Milam and Taylor were able to contribute to the construction of a to-be process map that detailed best service and warranty administration practices. Another key deliverable that came from these interviews was an electronic uniform service repair work order form (see Appendix J). The purpose of this report is to guide the service coordinator through every necessary step for completing a work order while giving the warranty department the detailed information that they need in order to file warrant claims. 18
  • 19. A recurring theme from key stakeholders was that there was no accountability built into the warranty process at Walker Machinery. The team felt that if we were going to build accountability into the process that we first had to clearly define the process and train people so that they understood the process and how their input affects the process (see Figure 3). The Interdependence of Process, Training, and Accountability Figure 3 Warranty Residuals: Warranty residual is broken down into four components: parts, labor, miscellaneous, and travel. Warranty residual is difficult to understand because there are several ways to measure residual (see Figure 5): 1. Warranty invoiced less warranty claimed. 2. Warranty claimed less warranty credited. 3. Warranty invoiced less warranty credited. 19
  • 20. We were mostly interested in warranty invoiced less warranty credited, as this is the net cost to the company. To further complicate matters: 1. Parts residuals are inflated because warranty parts are invoiced at a higher price than Caterpillar will reimburse. 2. Labor residual varies based on machine hours; Caterpillar will only pay labor on new machine warranty claims if the failure occurs in the first 250 hours of operation. Labor residual varies by extended coverage based on the terms of the extended warranty premium that was purchased. 3. Miscellaneous and travel expenses are rarely reimbursed. 4. Industry benchmarks vary widely because of the variation of machine sales, machine application. 5. Industry benchmarks metrics are for claimed to credited residual, which does not give a clear indication of a dealer’s true expenses; a dealer may elect to claim a higher percentage of their actual invoice in hopes to recover a larger percentage of total dollars or may elect to claim only what they are certain they will be reimbursed for in hopes to get a good scorecard. Therefore, it is difficult to determine how “good” or “bad” we are doing versus the industry. The team determined that detailed reports would be required to manage warranty expense. The team recommended a report to track warranty expense for every machine actively enrolled in warranty. The team also recommended a historical report to indicate average warranty expense for machines that have completed their warranty life cycle. Further recommendations included an exception report that will include all warranty 20
  • 21. work orders in which the residual exceeds a given percentage for a given warranty code. This exception report will be reviewed by the Warranty Manager and a sales department representative. If the service department cannot justify the expense of the repair, then a portion of the residual will be charged back to that branch store’s direct expenses. For example, if the exception report indicates that a branch service department spends 10 labor-hours performing a job that Caterpillar will only reimburse for 5 labor-hours and the Warranty Manager and sales department representative notice that the Service Technician recorded on the service report that he was working in the field on the side of a mountain in a foot of snow then the Warranty manager may pursue Caterpillar for the additional labor. If, on the other hand, a service department travels to a job 4 times and spends 10 labor- hours to replace a water pump that should only require a maximum of 2 trips to the job and 2-labor hours to replace and has no valid reason for the overages, the branch service department’s direct expenses may be debited for the overage. The Branch Manager must approve the charges, but the Product Support Vice President may approve the charge if the Branch Manager is unresponsive to the request. Warranty Premiums: Warranty premium purchases accounted for over one-third of 2006 warranty expenses. Warranty premium purchases had risen dramatically in 2006 due to a change in Caterpillar’s warranty product offering: Caterpillar used to offer a coverage called Value Assurance, or VA. Value assurance was available at no cost to the dealer – there were only 2 catches: 1. The dealer had to enroll for coverage within 30-days of the machine delivery date. 2. The coverage did reimburse for any labor. 21
  • 22. In 2006, VA coverage was discontinued, making Caterpillar Insurance the only other available alternative (see Figure 4). Caterpillar Insurance was very costly to Walker Machinery in 2006, while the benefits of labor reimbursement would not be fully realized until mid 2007 (see Figures 5 and 6). This exaggerated warranty expenses on the 2006 general ledger due to accounting for warranty on a cash basis. In all fairness, overall warranty expenses would likely normalize by 2007 or 2008, due in no part to this project. Number of Extended Warranty Premiums 500 Claim Prefix New Used 400 VA 300 Count 200 100 0 Claim Year 2001 2002 2003 2004 2005 2006 Figure 4 Warranty Residual Percentages Parts Labor Misc Total Invoiced to Claimed Residual 11.71% 65.46% 64.22% 40.19% Claimed to Credited Residual 7.83% 24.41% 40.29% 14.16% Invoiced to Credited Residual 18.62% 73.90% 78.63% 48.66% Figure 5 22
  • 23. Cost of Extended Warranty Premiums DOLLARS 2001 2002 2003 2004 2005 2006 Claim Year Figure 6 Warranty Selection: In order to determine if extended warranty premiums, on average, are a good buy for the customer and for the company, we measured the net benefit of warranty premiums as follows: WS1 – PP1 = NB WS = Total of warranty settlements paid on expired extended premiums PP = Warranty premium purchase price NB = Net benefit of extended warranty premium The measurements proved that on average extended warranty enrollments have a negative benefit. On average the cost of the extended premium outweighs the total settlement dollars reimbursed by Caterpillar for warranty repairs (see Figure 7). This was 23
  • 24. not a surprising discovery, given that Caterpillar Insurance is a profit generating division of Caterpillar. Caterpillar Insurance is just that: insurance. Net Benefit of Extended Warranty Premiums (All Models) 0 95 % C onfidence Inte rv als Mean Median 0 Figure 7 It is understandable that a customer who owns one machine, or even a small fleet of machines, may view insurance as a value-added product because it transitions the risk of paying for expensive repairs from himself to the manufacturer, just as collision insurance on an automobile policy protects a consumer from paying for expensive repairs or total loss in the event of a crash. From the perspective of a Caterpillar dealer, though, with a machine service population of hundreds of machines, it could be argued that self-insurance or selective insurance may be a better option, depending on the owner’s tolerance to risk. In order to make recommendations for selective insurance, we measured the net benefit of extended warranty by model (see Figure 8). The net benefit of extended warranty is the 24
  • 25. total of all warranty settlements minus the cost of the warranty premium. Most models, on average, had a negative extended warranty net benefit. 740 off-highway truck warranties provided the least benefit; every truck sampled had a negative net benefit. Nearly every D10 track type tractor extended warranty had a negative net benefit. On the other hand, 992 wheel loaders net warranty benefit was close to zero and had the greatest variance of all models. Extended Warranty Benefit by Model Net Benefit (Dollars) 0 14H 318 320 321 322 330 345 517 525 740 777 938 980 992 D10 D11 D6 D8 D9 Machine Model Figure 8 Caterpillar Machine Quality: In order to eliminate or mitigate Caterpillar machine quality issues it is imperative to identify recurring problems so that problematic machines can be monitored and repaired before they fail in the field. For example, our Logan branch had identified a recurring problem with D10T steering clutches failing in the field under warranty. They learned to identify characteristics of a machine nearing failure and took 25
  • 26. preventative measures to correct the problem before failure. Any suspicion could be confirmed by taking hydraulic oil sample from the steering clutch housing. If the hydraulic oil sample returned lab results indicating a high concentration of iron and copper, it was highly likely that the machine would soon fail in the field. The Logan branch would then “kidney lube” the machine to remove the iron and copper particles from the steering clutch housing, contact Caterpillar to notify them of the impending failure, obtain approval from Caterpillar’s technical group to perform preventative repairs, and repair the machine before failure, saving the customer several hours of downtime and saving Walker Machinery and Caterpillar thousands of dollars. Our Belle branch identified a problem with weak radiator guards on small track-type tractors. The guards were made of thin gauge metal louvers that would not protect the radiator from intrusions from sticks or other debris. It was very common for new rental fleet tractors to have punctured radiators within the first few months of service. Our Walker Weld Shop designed and retrofitted brand new tractors with heavy-duty drilled plate radiator guards that could not be penetrated by any intrusions. Spending a little bit of money on radiator guards saved the company thousands of dollars of radiators. In order to mitigate or eliminate Caterpillar machine quality issues, flaws must be identified as soon as possible. Process and product improvements must be communicated to Caterpillar and all Walker Machinery branches as soon as possible; spreading word of the problems and fixes will multiply the benefits. We decided to incorporate this improvement with our New Product Introduction 6 Sigma Project. The New Product Introduction team is composed of our best and brightest Technical Communicators, Service personnel and Sales 26
  • 27. personnel. This team had already developed a system of communication for distributing product repair and marketing information to the entire company. As a means to identify problematic machines using facts and data, a report was developed that indicates warranty residual costs as a percentage of machine list price (see Figure 9). Models such as the 345 excavator, 777 truck, and D10 track-type tractor show having the highest average warranty residual as a percentage of their list price, thus indicating that they are problematic machines. Problematic machines are less reliable, require more repairs, and therefore increase warranty expense. Boxplot of Warranty Residual as a % of lis vs Compat Model 0.09 Warranty Residual as a % of list price 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00 H 2 0 30 45 2 5 77 8 5 89 93 3 0 38 66 80 88 9 2 10 11 D5 D6 D8 D9 16 3 3 3 5 7 7 7 7 9 9 9 9 9 9 D D Compat Model Figure 9 Warranty Accounting: Converting from a cash-basis accounting method to an accrued liability method of accounting is not a simple task. Walker Machinery auditors have 27
  • 28. urged Walker Machinery to accrue warranty liabilities in the past, but were dismissed because there was no known way of determining how much the liability should be. In the measure phase Eric Click, Green Belt and Controller, worked with our auditors to see what impact the change in accounting principle would have on the company. He found that a change in accounting principle would necessitate restating our financials for the last two accounting periods. Restating our financials would put a notice on our credit bureau describing the restatement as a “correction of an accounting error.” In order to restate our financials, we had to determine what liabilities should have been accrued at the end of the last two accounting periods and at the date of conversion. Determining 2006 and 2007 year-end warranty liabilities required our Information Services department to order backup tapes of data from the end of the last two accounting periods from Caterpillar. Using these data sets, we queried machines with active warranties as of the end of each accounting period and subtracted their warranty residuals from the average residual of like models: AV1 – AC1 = AL AV = Average liability by model AC = Actual residual by serial number for machines enrolled in warranty AL = Accrued liability In order to maintain an accrued liability system, many reports would be required. A report to estimate warranty liability for every model would be required so that when a machine is sold or put into rental fleet the amount to credit the accrued liability account would be known. A system would also have to be developed in order to debit the Sales 28
  • 29. Department’s direct expense account and credit the accrued liability account at the point of sale or conversion from new inventory to rental fleet. Another report would be required to track a machine’s warranty expense while actively enrolled to ensure that estimated liabilities are, on average, adequate and to identify any machines that have far exceeded, or are on track to far exceed, their estimated liability. Finally, a report would be required to reconcile the accrued liability account every time a machine’s warranty expires. If the actual warranty expense during active warranty period exceeds the estimated accrued liability then the Sales Department’s direct expense account will be debited and the accrued liability account credited the difference. If the actual warranty expense during active warranty period is less than the estimated accrued liability then the Sales Department’s direct expense account will be credited and the accrued liability account debited the difference. The final hurdle for conversion to accrued liability would involve convincing the owners of the company to convert. Click believed that ownership might be unwilling to convert due to our credit bureau describing the restatement as a “correction of an accounting error.” The team believed, though, that even if the owners decided not to convert that the project would not be killed. While better matching expenses to revenues would be beneficial to the company, it would not, in and of itself, decrease our actual warranty expenses. 29
  • 30. Analyze Cause and Effect Diagram (see Appendix K). : At the heart of the analyze phase is the cause and effect diagram, also referred to as the fishbone or Ishikawa diagram. 6 Sigma drives toward process improvements by eliminating or mitigating root causes of the problem. If the aim were to simply mask the symptoms of the problem, then the symptoms will likely persist or resurface because the root cause of the problem would still exist. By clearly stating the problem and asking “why” 3 to 5 times, potential root causes will be revealed. The most traditional cause and effect diagrams begin by stating the problem and branching off into 6 generic areas (6 M’s) where potential root causes may exist: measurement, man, Mother Nature, machine, method, and materials. I have taken this approach on projects when the problem statement has a small scope of 1 or 2 key measurements that are being explored. I will sometimes construct multiple cause and effect diagrams for each key measurement using the 6 M’s. For projects such as this one where the goal statement references many areas of measurement, I use each “X” from the goal statement in place of the 6 M’s. The team brainstorms potential root causes for each branch of the cause and effect diagram, taking into consideration each of the 6 M’s. The cause and effect diagram uncovered potential root causes that the team categorized into the following groups: 1. Training A. Process B. Communication 30
  • 31. 2. Reporting Root Cause Ranking (see Appendix L): Each potential root cause was listed on a root cause ranking form which team members judged on the following criteria: 1. Occurrence: How often does this happen? 2. Priority: How much impact does the root cause have on our goal? 3. Influence: How much control do we have over the root cause? The potential root causes were then sorted from highest to lowest. The team brainstormed improvement ideas that would eliminate or mitigate the root causes. Ideas generated from this brainstorming session would later be discussed in more detail and be made into formal improvement recommendations to be presented to the Project Sponsor and Key Stakeholders. Improve In the improve phase, all of the information from the previous phases are filtered into detailed improvement suggestions. The team developed detailed improvements that addressed needed training and reporting issues that would eliminate or mitigate root causes that drive warranty expense. Training: Training improvements were designed to broaden the scope of warranty training. Prior to this project, formal warranty training was administered only to a select group of managers as a module of Supervisor Training and Education for Product Support program (STEPS). The curriculum was actually quite good and gave a very good foundation of what warranty is, what it covered, and how to determine warranty coverage. The 31
  • 32. training even included details on how to properly complete service reports. The team concluded that training all employees who were involved in the warranty process would be necessary because education and clear expectations must precede accountability. Because Walker Machinery had no written warranty processes prior to this project, the training lacked specific how-to’s that would provide a uniform method of handling warranty from call to claim. The team worked created to-be sales and service process maps (see Appendices M and N) based on best practices gleaned from interviews during the measure phase and improvement ideas from the analyze phase. The to-be processes were given more detail and clarity through written standard operating procedures. The new and improved warranty training will incorporate training to these process maps and standard operating procedures. The team felt that it was important to have diverse training sessions with employees from every operational area represented. This would give the opportunity to communicate each employee’s responsibility in the process and how it effects the next person in the process. This general session would be brief and at a high level. More detailed training would be necessary for Service Coordinators, as they have an enormous responsibility in determining warranty coverage on a daily basis. Untrained Service Coordinators who promise warranty coverage when it does not apply has the potential for considerably raising warranty expenses for the dealer. Company-wide training would also raise awareness of warranty expense. The team discovered that many well-meaning employees were under the misconception that warranty work orders were reimbursed 100% by Caterpillar. Past experience has proven 32
  • 33. what get’s measured gets managed, so part of the training will be sharing warranty expense and trends with all employees. Training a work force of over 700 employees would not be an easy feat. The team proposed a train-the-trainer approach to reach all sales and service personnel throughout the company. This method would this be the most rapid way of training such a large number of people. The plan was for the warranty manager to train key service and sales personnel at every branch. A prerequisite for this training would be successful completion of Caterpillar University’s online warranty training module. Once all key service and sales personnel had been trained, they would train all service and sales personnel in their respective branches. Another benefit for this method of training is that it forces key service and sales personnel to become process experts. Key service and sales personnel would have to have a deep level of understanding of the materials in order to teach them to all service and sales personnel. Reporting: Reporting improvements were designed to indicate historical warranty expense in order to predict future warranty liabilities. The reporting would track changes in historical warranty expense by model. There was a team appointed to review historical warranty expense on a yearly basis and adjust estimates as necessary. A similar report was recommended to track estimated warranty expense versus to-date warranty expenses for machines actively enrolled in warranty. Reporting improvements were designed to estimate warranty liability at the point of sale or conversion into rental fleet. Standard warranty expense would be stated as a percentage of dealer cost by machine model. Extended warranty would be stated as a 33
  • 34. percentage of the premium enrollment cost. Carter Machinery, our neighboring dealer to the South, uses 30% of the premium as a rule of thumb for estimating residual liabilities for Caterpillar Insurance extended warranties.. It stands to reason that Caterpillar Insurance extended warranty premiums are a direct reflection of the estimated machine reliability and cost of warranty repairs. Reporting improvements were also designed to track estimated warranty expense versus actual warranty expense so that the accrued liability account could be reconciled on a machine-by-machine basis as their warranties expire. The team determined that the ideal time to reconcile the accrued liability account would be 6 months after the warranty has expired, to allow time for all warranty invoices to be release, all warranty claims to be filed, and all warranty settlements to be applied. Reporting improvements were recommended to track the cost/benefit of warranty types by machine model to aid in warranty selection. It is doubtful that Walker Machinery would be willing to take the risk of self-insuring their entire service population of machines. 34
  • 35. DISCUSSION OF RESULTS The New Caterpillar Warranty Expense Project is officially at the beginning of the control phase. The first step of the control phase is implementing the team’s improvement ideas. The STEPS training curriculum has been modified for training the initial 5 waves of trainers, to-be process maps have been created (see Appendices M and N) and detailed standard operating procedures have been drafted. To-be process maps and standard operating procedures have been uploaded to the company intranet’s standard operating procedure library. We fully expect for warranty expense to decrease because of raised awareness, standardized processes, and accountability throughout the company. Many hours have been invested into determining the dollar amount for restating the company’s financials for accrued liability. Though in theory a simple process, the lack of historical data for Caterpillar Insurance warranties, hundreds of warranty type codes, and inconsistent or nonexistent model compatibility codes complicate the process. I have coded a Sequel to estimate warranty liabilities by machine serial number and warranty type code. The report calculates the to-date residual warranty expenses for each machine actively enrolled in warranty. The report also calculates an estimate of total liabilities by serial number prefix and warranty type code, by model number and warranty type code, and by extended premium cost and warranty type code. I have coded the Sequel to select the best estimate based on the number of historical records that comprise each average. Finally, the report calculates the estimated accrued warranty liability for each machine by subtracting actual to-date residual warranty expenses from the best-estimated total liability. The sum of these totals equals the current estimate of warranty liability. 35
  • 36. I have come to the conclusion that 6 Sigma projects are really 2 projects in one. The first project is going through define, analyze, improve, and control to determine the root causes of the problem and what should be done to eliminate or mitigate them. The second project is the implementation of the recommended improvements. It is impossible to put together a reasonable timeline for the second project until the scope of improvements is known. What I have decided to do for every 6 Sigma project from now on is to make a project plan for the first project then make a project plan for the second project after the improvement ideas have been approved (see Appendix O). The second project is a more traditional project management project because we already know what we want to do, we just have to get it done. 36
  • 37. CONCLUSIONS AND RECOMMENDATOINS While warranty expense has an impact on Walker Machinery’s profit after direct expenses, it was not as dire a problem as we believed before the start of the project. Because of the interaction between accounting for warranty on a cash basis and the discontinuation of Value Assurance warranties, warranty expenses were over exaggerated at year-end 2006. Even if we would not have endeavored on this project, warranty expenses would have normalized once we began reaping the full benefits of lower labor residuals from Caterpillar Insurance warranties. The team’s recommendations to reduce warranty expenses were as follows: 1. Warranty administration: Train all persons involved with warranty. The team has developed a training curriculum based on the Walker STEPS warranty-training curriculum that will be administered to all employees who are involved with warranty sales, repairs and administration. The training goes beyond the STEPS curriculum by incorporating best practices, process maps, and standard operating procedures for determining warranty coverage and completing warranty related paperwork. 2. Warranty residual: Create an exception report for all warranty settlements with more than a 20% residual. This report will be reviewed by the Warranty Manager, Sales Manager, and Service Manager on a monthly basis. If the residual cannot be justified, then a portion of the overage will be charged back to the branch who performed the warranty repairs. This process will encourage accountability for warranty expenses at the branch level. 37
  • 38. 3. Warranty premiums: I recommend that the executive committee consider self- insuring warranty expense. The facts and data overwhelmingly show that, on average, extended warranty premium purchases cost more than the settlements we receive from Caterpillar Insurance. In order for Caterpillar Insurance to continue being a profitable division, they will ensure that extended warranty premiums prices, on average, exceed the settlements that they pay back to dealers. In order to divert some of the risk of self-insuring, I recommend purchasing stop-loss insurance. 4. Warranty selection and coverage: Create an ongoing automated report that will aid in the cost/benefit analysis of extended warranty premiums. The Walker Machinery New Product Introduction team will analyze the report and make recommendations to the Sales Department based on their findings. 5. Caterpillar machine quality: Create an ongoing automated report that will indicate the reliability of machines. Walker Machinery Technical Coordinators will analyze this report to determine models that should be targeted for in-house product improvements. All branches that develop product or process improvements will communicate the solutions to the Technical Coordinators so that they can communicate the information to the rest of the company. 6. Warranty accounting: Convert from a cash basis method of accounting to an accrued liability method of accounting. Create an automated monthly report that estimates the company’s warranty liabilities. Reconcile the accrued liability account and warranty expense accounts on a monthly basis. 38
  • 39. It is likely that further examination self-insurance will become a stand-alone project. There are significant potential benefits and risks that accompany self-insuring a fleet of machines, especially with the questionable quality of newly released Caterpillar products. It would be unwise to make a decision to self-insure without fully understanding the extent of risk and what measures may be taken to limit such risk. 39
  • 40. Caterpillar New Machine Warranty Expense BUSINESS CASE OPPORTUNITY STATEMENT Reducing warranty expense without compromising customer satisfaction will have a Walker Machinery Co. currently incurs significant costs in warranty that impact the material impact on improving Walker Machinery profit after direct expenses. direct expense lines of the Sales Department operating statement. Growth of machine Warranty expenses have been trending upward since 1997 and reached $X million deliveries over the last few years means these costs will continue for the next two dollars year end 2006. Annualizing January 2007 month end expenses indicates the to three years. These costs will also roll into years of lower projected unit sales upward trend will continue. The large amount of warranty residual dollars pushing warranty and policy expense higher as a percentage of current sales. indicates new process with greater financial accountability is needed. GOAL STATEMENT PROJECT SCOPE Y1 = f(X1+X2+X3+. . .) Include New Caterpillar Machine Warranty Costs Y1= Warranty Expense Large Mining Products X1= Warranty Administration - Call to Claim X2= Warranty Accounting X3= Warranty Residual X4= Warranty Premiums X5= Warranty Coverage/Selection Exclude BCP and CCE (can be replicated to these lines later) X6= New CAT Machine Quality Policy , PIP's, PSP's X7= X8= Additional Goals X9= X10= PROJECT PLAN TEAM SELECTION PROJECT OPENING 2-May-2007 Process Owner Mike Taylor Project Sponsor Mike Walker Define Gateway 11-Jun-2007 Black Belt Craig Jones Measure Gateway 18-Sep-2007 Responsibilities Analyze/Improve Gatew 22-Jan-2008 Green Belt Blake Lilly Control Gateway 2-May-2008 Green Belt Eric Click Green Belt Randy Trump Green Belt James Milam PROJECT COMPLETION 2-May-2008 Six Sigma Operations, Cecil I. Walker Machinery Co. 2005
  • 41. New Caterpillar Warranty Expense Project Timeline ID WBS Task Name Duration Start Apr 8 Apr 15 Apr 22 Apr 29 May 6 May 13 May 20 May 27 Jun 3 Jun 10 Jun 17 Jun 24 Jul 1 Jul 8 Jul 15 Jul 22 Jul 29 Aug 5 Aug 12 Aug 19 Aug 26 Sep 2 Sep 9 Sep 16 Sep 23 Sep 30 1 1 Kickoff meeting 1 wk Mon 4/30/07 Kickoff meeting Mike Walker,Eric,Craig,Blake,Randy,James 2 2 Define 5 days Mon 5/7/07 Define 3 2.1 Process map 0.5 wks Mon 5/7/07 Process map Eric,Craig,Randy,Blake,James 4 2.2 Key stakeholder analysis / communication plan 0.5 wks Mon 5/7/07 Key stakeholder analysis / communication plan Craig,Eric,Randy,Blake,James 5 2.3 SIPOC 0.5 wks Wed 5/9/07 SIPOC Craig,Eric,Blake,Randy,James 6 2.4 VOC 0.5 wks Wed 5/9/07 VOC Craig,Eric,James,Randy,Blake 7 2.5 VOB 0.5 wks Wed 5/9/07 VOB Craig,Eric,Blake,James,Randy 8 3 Measure 20 days Mon 5/14/07 Measure 9 3.1 Sequel 1 wk Mon 5/14/07 Sequel Robert,Craig,Tim Larrick 10 3.2 Warranty department data 3 wks Mon 5/14/07 Warranty department data Michael,Blake 11 3.3 Stratify data 0 wks Fri 6/1/07 Stratify data 6/1 12 3.4 Discuss measure findings 0.5 wks Mon 6/11/07 Discuss measure findings Craig,Eric,Blake,James,Randy 13 3.5 Define / Measure gateway 0.5 wks Wed 6/13/07 Define / Measure gateway Craig,Eric,Blake,Mike Walker,Randy,James 14 4 Analyze 12.5 days Mon 6/18/07 Analyze 15 4.1 More IS sequels 1 wk Mon 6/18/07 More IS sequels Robert 16 4.2 More warranty dept data 1 wk Mon 6/18/07 More warranty dept data Michael,Blake 17 4.3 Stratify data 0 wks Fri 6/22/07 Stratify data 6/22 18 4.4 Discuss analyze findings 0.5 wks Mon 6/25/07 Discuss analyze findings Eric,Craig,Blake,Randy,James 19 4.5 Problem statement(s) 0.5 wks Mon 6/25/07 Problem statement(s) Craig,Eric,Blake,Randy,James 20 4.6 Fishbone diagram(s) 0.5 wks Wed 6/27/07 Fishbone diagram(s) Blake,Eric,Craig,Randy,James 21 4.7 Select root causes 0.5 wks Mon 7/2/07 Select root causes Craig,Eric,Blake,Randy,James 22 4.8 Validate root causes 0.5 wks Mon 7/2/07 Validate root causes Craig,Eric,Blake,Randy,James 23 5 Improve 20 days Wed 7/4/07 Improve 24 5.1 Visit Carter and/or Toromont 2 wks Wed 7/4/07 Visit Carter and/or Toromont Craig,Eric,James,Blake,Randy 25 5.2 Brainstorming session 0.5 wks Wed 7/18/07 Brainstorming session Craig,Eric,James,Blake,Randy 26 5.3 Chart improvement ideas 0.5 wks Mon 7/23/07 Chart improvement ideas Craig 27 5.4 Select improvements 0.5 wks Wed 7/25/07 Select improvements Craig,Eric,Randy,Blake,James 28 5.5 To-be process map 0.5 wks Wed 7/25/07 To-be process map Craig,Eric,Blake,Randy,James 29 5.6 Analyze / Improve gate review 0.5 wks Mon 7/30/07 Analyze / Improve gate review Craig,Eric,Blake,Randy,James,Mike Walker 30 6 Control 7.5 days Mon 7/30/07 Control 31 6.1 Implement improvements 0.5 wks Wed 8/1/07 Implement improvements Craig,Eric 32 6.2 Design control plan 0.5 wks Mon 7/30/07 Design control plan Craig,Eric,Blake,Robert 33 6.3 Control Gateway / Turnover meeting 0.5 wks Mon 8/6/07 Control Gateway / Turnover meeting Craig,Eric,Blake,Mike Walker 34 7 Milestones 67.5 days Mon 4/30/07 Milestones 35 7.1 Start 0 days Mon 4/30/07 Start 4/30 36 7.2 End 0 days Wed 8/8/07 End 8/8 Task Progress Summary Rolled Up Critical Task Rolled Up Progress External Tasks Group By Summary Project: New Cat Warranty project plan Date: Sun 3/30/08 Critical Task Milestone Rolled Up Task Rolled Up Milestone Split Project Summary Deadline Page 1
  • 42. Stakeholder Summary / Communication Plan New Warranty Expense Level of Level of Current Reaction to Change: Who is Responsible What will be the Key Stakeholder Impact Influence Position Enthusiast / Follower / Managing This Method and Frequency (H,M,L) (H,M,L) (+,-,?) Change Target Stakeholder ? of Contact? In person, weekly and Mike Walker, Project Sponsor H H + Enthusiast Craig send meeting minutes, gate reviews In person, every other Wayne Coleman, VP of Sales H H + Enthusiast Craig week, gate reviews In person, every other Tim Mclean, VP of Service H H + Enthusiast Craig week, gate reviews Tim, James, Branch Managers Parts and Service Managers H H ? Change Target and Craig Meetings In person at meetings Blake Lilly, Warranty Manager H M + Enthusiast Craig and on the phone/in person/email In person at meetings Michael Taylor, Central Service Craig and Manager H H ? Enthusiast Blake and on the phone/in person/email In person at meetings Eric Click, Controller M H ? Follower Craig and on the phone/in person/email Include at gate Dick and Steve Walker H H + Enthusiast Eric and Craig reviews and monthly in person meetings
  • 43. VOICE OF THE CUSTOMER (VOC) New Warranty Expense Project VOICE OF THE CUSTOMER KEY CUSTOMER ISSUE CRITICAL CUSTOMER REQUIREMENTS (CCRs) What is their concern? What does this really involve? Specific needs necessary to a fulfill a customer's needs. Customer wants to talk to the dealer at the time a problem surfaces and Customers want rapid response to expects a response within 4 to 8 hours on production machines: if they Customer wants minimal down-time on their jobs. warranty failures. call in the morning, service that day - if they call in the afternoon, service by the next morning. Customers want to have minimal repair We do not want to pay for TT&M on repetitive Customer wants satisfaction from the Caterpillar dealer - Customers expenses while machine is under failures. expect dealers to be fair, regardless of black and white warranty terms. warranty. We need to have good processes in place to handle warranty quickly and Customers want production. Rapid response to warranty failures. cost effectively. Customer will buy from our competitors if they are We need to communicate with the customer and Caterpillar to do what is Customer wants fair value not satisfied with our warranty administration right for the customer. Craig Jones, Six Sigma Operations, 2007
  • 44. VOICE OF THE BUSINESS (VOB) New Warranty Expense Project VOICE OF THE BUSINESS KEY BUSINESS ISSUE CRITICAL BUSINESS REQUIREMENTS (CBRs) What is our concern? What does this really involve? Specific needs necessary to a successful business operation. We want to fix the machine right the first time we We need to send the right mechanic(s) with the right part(s) to the job go to the job the first time. There are product problems form Caterpillar. Knowing what is covered We want to minimize our warranty We want Caterpillar to cover the bulk of our and what is not covered by warranty - hold customers accountable for expenses. warranty repairs abuse. We need to tell the customer when the machine should be downed and Customer may cause non-warrantable damage by insist that they park the machine until we can respond - they need to using the machine when it should be downed. know that they may be held accountable for failure if they continue operating the machine. Build a good relationship with they customer - communicate with the We want to retain our current We want our customers to feel that they have customer - make sure that we understand what the customer expects on customers and attract new business. been treated fairly. a repair by repair basis. Craig Jones, Six Sigma Operations, 2007
  • 45. New Caterpillar Machine Warranty Sales Department As-Is Process Map Customer Sales Department Accounting Warranty Wants to purchase new Caterpillar machine Price competitive deal? No Yes Quotes sales price to Quotes sales price to customer including 3% EPTW customer with standard to cover extended warranty warranty and no warranty premium and residual. charge. No May discount EPTW and/or Accept deal? negotiate warranty terms. Yes Customer accepts deal. Puts together a New Sales Worksheet to determine net profit, excluding warranty. Customer receives invoice or signs finance agreement. Was warranty cost built Invoices machine. Warranty cost is not listed as a into deal? separate line-item. Yes No Requests warranty enrollment Extended premium is reflected Price makeup matches GL. on the intranet as extra profit on the GL. Writes warranty letter and sends to customer. Customer receives warranty Receives Intranet warranty enrollment letter. request. Does the customer want extended coverage? No Yes Get a quote for extended Set up a standard warranty type coverage on Infocast. and coverage on DBS Assigns a Walker Claim number and submits an extended coverage claim to Caterpillar Set up extended warranty type and coverage in DBS Assigns internal customer number to warranty; W00005 for extended coverage. Account number 60244, Warranty New CAT EXT is Verify that Caterpillar automatically debited the information matches Walker amount of the extended information premium when claim comes back from Caterpillar. Extended warranty premiums in account 60244, New CAT EXT, is shown as a direct expense on the Sales Department’s monthly P&L statement.
  • 46. New Caterpillar Machine Warranty Logan Service As-Is Process Map Customer Service Department Technical Services Warranty Accounting Machine breaks. Calls service department. Gets call from customer What time is call received? Call goes to service Call goes to parts counter coordinator between the hours between 2:00am and 6:00am. of 6:00am and 2:00am. Is person on the phone Parts counter takes customer the job Superintendent name and number. or Maintenance Foreman? Ask to speak with job Superintendent or Parts counter gives customer Maintenance foreman or get name and number to Field their contact information and Service Coordinator call them. Service coordinator questions customer to get all pertinent information (machine make, model, s/n, nature of failure, Super and Foreman names and numbers, job site info, directions, field contact, number) Check with in-house Is this a repetitive No Technical Coordinator (Mike (familiar) failure? Curry) to investigate failure. Yes Service coordinator goes through pre-planning process Yes Is this a repetitive based on customer and (familiar) failure? machine failure information. No Technical Coordinator will go Check DBS to see if is a to job with Field Service warranty repair Mechanic to investigate failure. Calls Warranty department if DBS warranty data does not match customer’s records or customer’s usual warranty purchasing habits. Is repair warranty? Is there special handling (Frazier’s Creek)? Open work order to customer who owns machine (warranty customer number is assigned to warranty segments – each warrantable failure needs to be on a separate segment – TT&M segment open to customer). Orders parts - Puts parts into work order segments based on mode of failure Dispatches Field Service Mechanic Troubleshoots machine on job site. Report on Dealer Service Were modes of failure No Network and Technical as predicted? Services to report failure to Caterpillar Yes Machine is repaired Repair machine. Warranty segments are invoiced to warranty account Receives invoice for non- Is work order broken into Makes claims to Caterpillar Warranty claim relieves warranty repairs and/or travel Closes work order. different warrantable failures (1 claim per warrantable warranty account time and mileage. by segment? Yes failure) No Residual of warranty segment invoice and warranty claim credit appear as a direct Calls service department to expense on the sales determine how many department’s P&L statement warrantable failures and which parts go with which claim.
  • 47. SIPOC DIAGRAM New Warranty Expense Project SUPPLIER INPUT PROCESS OUTPUT CUSTOMER Large Mining Product Warranty letter to the New machine sales customers (end users - customer and PSSR. owners/operators) CAT Insurance Machine is repaired with Core Machine Customers New machines that require minimal impact to the (end users - warranty service customer. owners/operators) Communication - know the Peace of mind that risk has Sales Department rental problem with the machine. been minimized. Walker Warranty Education - what is included in the warranty - are there special terms? Process Understanding - of how to administer warranty. Walker Sales Walker Service Craig Jones, Six Sigma Operations, 2007
  • 48. MEASUREMENT PLAN New Machine Warranty Expense WHAT OTHER WHO WILL WHEN WILL THE HOW WILL THE DATA SHOULD PERFORMANCE DATA SOURCE DEFINITION SAMPLE SIZE COLLECT THE DATA BE DATA BE BE COLLECTED MEASURE AND LOCATION DATA? COLLECTED? COLLECTED? AT THE SAME TIME? To gauge where Warranty claim Warranty biggest monetary All of 2006 Blake Lilly Done Query dollars by model Database impact is possible To gauge where Warranty claim Warranty most warranty All of 2006 Blake Lilly Done Query count by model Database processing occurs To try and identify Warranty claim extreme Warranty dollar ratio by applications and All of 2006 Blake Lilly Query customer possible customer Database machine abuse Claim dollars versus To identify true Pull machine files enrollment dollars Warranty 15 samples by residual from Bobbi Thomas Done and check price in warranty Database dollar class enrollment costs makeup sheet accounts Warranty work orders less Warranty costs to warranty claims Warranty 2002 - 2006 to Blake Lilly Query revenue paid to new Database trend residual machine sales revenue 2000 and 2006 to Warranty job Number of see if there is a amount versus standard, overtime, similar revenue job premium hours, Sequel difference in weak Tim Larrick Done Sequel download and strong revenue amount TT&M, parts years
  • 49. Service Repair Work Order #: PO / Receiver #: Phone call taken by: Time of call: Date: Customer name: Customer number: Customer contact: Final contact: Machine mode: S/N: Warrantable repair?: YES: NO: Hours on machine: Hours on part: CAT participation?: YES: NO: Previous W/O#: Previous counter doc #: PIP / PSP #: Description of failure: Discussed customer YES: portion NOT warrantable? NO: Work order provided to mechanic? YES: NO: Tools / parts prepared? YES: NO: Descriptive explanation of repair? YES: NO: Mechanic dispatched: What communications were made through the repair with the customer? What communications were made through the repair with the service department? Service reports completed and turned in? YES: NO: COD: Credit: SIMS completed on the service report (1st day) YES: NO: COD Authorization Signature: Warrantable parts returned? YES: NO: Parts tagged with part # and W/O #? YES: NO: Cash Amount Credits / cores returned and processed? YES: NO: Check CK# Tooling turned in? YES: NO: CC CC Auth# Other branches involved? YES: NO: branch branch branch CAT involved? YES: NO: Name: Tech group involved? YES: NO: Name: Sales dept involved? YES: NO: Name: Credit department involved? YES: NO: Name: Level of involvement: Failure analysis? YES: NO: Contact: 7 C's document complete? YES: NO: Document in packet? YES: NO: Service Department Authorization to Close: p Clerk Authorization to Close:
  • 50. Caterpillar New Warranty Expense Fishbone Diagram New Cat Warranty Do we have SOS and ISO info? Call to Claim Machine Quality Are we charging the customer Residual Process Corporate Value of Customers The right amount? Machines Do we have proper documentation Impact on Future Business Shipping from In order to make claim? Do we have historical reliability data? Special Handling of Customers Factory with defects Do our employees Are we holding employees Does the amount vary based on Know that warranty Accountable for what they are National Accounts Hours/years? Doesn’t pay ALL of a Responsible for Warranty work order? Early hour failures Do employees know what Is proper info in DBS? Are we putting Things that don’t belong They are responsible for? Takes time and communication In warranty work orders? Not communicated from sales to To convince Caterpillar Are all partners Warranty in a timely fashion Being held accountable? Machine sold is not Repetitive failures Do our employees In stock (don’t have s/n) Delivery date lags Know what should be We tell them its covered Behind sale date In the work order? Maybe when it is not (coordinator, mechanic, sales) Are all parties involved properly trained? Expense of insurance Do employees Do employees How early involved? Know what they are Understand the No training for warranty process Accountable for? Process from Customers expectations CAT machine quality Beginning to end? Understands their responsibility? No standardized process Machines not covered by CAT Insurance Customer involved? Do coordinators know Cannot claim labor after 250 hours Are we fixing What is claimable? Are we asking the customer How early involved? The machine On the first The right questions to Cannot claim travel time and mileage Trip to the job? Troubleshoot before on the job? Caterpillar involvement? Warranty won’t pay for boom trucks Warranty Expense Are we selecting the Right premium Are machines set up properly We don’t know what Before the machine is Coverage to buy Released? On new products Is historical data available Reliability is unknown Is the TC department involved Do not get TT&M if not In warranty selection? Do we know how much Warranty our customers need? Is the customers maintenance Foreman involved or just The purchasing agent? Do we know the customer’s application, Operators habits, how many shifts Are we insuring machines that are reliable Machine will be operated That labor expenses are low or not Insuring machines that are unreliable? Current system is cash-basis Is TC involved? Is service involved? Is warranty involved? Are set-up mechanics involved? Revenues do not match Expenses under current Do we have data? system How informed are our decisions? We do not know what we Can we afford to self insure? Recover from the customer Other Warranty Warranty Coverage Accounting Or Selection
  • 51. Root Cause Rank Potential Solutions Root Potential Root Cause for increased warranty or Ways to Eliminate Cause Details costs. or Mitigate Root Rank Cause Our employees do not understand the warranty Training Broader training - train all people in sales, service, parts and warranty. Get input from 95.89 process from beginning to end. key people in operational areas who are affected. Training, Process Link into NPI project to communicate issues and make recommendations for warranty We do not involve TC, mechanics, or warranty 87.11 selection at new product release time. Link to Warranty Selection 6 Sigma project to department in warranty selection decisions. generate reports on machine reliability and warranty repair history. Employees are not sure what should or should Training, Familiarize employees with warranty bulletins and other warranty guideline information 85.80 not be on warranty work orders Communication and where to find it on Infocast. Service coordinators do not know what is Training Familiarize employees with warranty bulletins and other warranty guideline information 79.44 claimable. and where to find it on Infocast. Employees are unaware that warranty doesn't Training Broader training - train all people in sales, service, parts and warranty. Get input from 74.38 pay 100% of a warranty work order. key people in operational areas who are affected. Employees are not being held accountable for Training, Process Will need to give someone the authority to hold people accountable. Person who holds 74.38 what they put into warranty work orders. people accountable must be supported by upper management. Employees do not know what they are Training, Process Will need to give someone the authority to hold people accountable. Person who holds accountable for in the warranty work order 74.38 people accountable must be supported by upper management. process. We do not have data to help us decide which Reporting issue Develop a sequel and automate a report… Link to Warranty Selection Project. models are reliable or unreliable to aid in 72.25 warranty selection decisions. Communication, Broader training - train all people in sales, service, parts and warranty. Get input from Customer is not involved early in the process 70.00 Process, Training key people in operational areas who are affected. Communication, Broaden warranty offering to customer. Link to Warranty Selection project for rental fleet We do not involve customer maintenance 67.50 Process, Training machines; sequel that shows how many months/hours we keep machines in rental fleet. foreman in warranty selection decisions. There is no standardized warranty process or Process, Training Form for service to complete to make sure all bases are covered. Complete to-be 66.67 training. process maps and SOP's and put on the intranet -- use them in training.
  • 52. Root Cause Rank Potential Solutions Root Potential Root Cause for increased warranty or Ways to Eliminate Cause Details costs. or Mitigate Root Rank Cause We are not asking the customer the Training Broader training - train all people in sales, service, parts and warranty. Get input from right/enough troubleshooting questions on the 60.00 key people in operational areas who are affected. Form to show what is required. phone before going to the jobsite. Training Broader training - train all people in sales, service, parts and warranty. Get input from We do not have proper/enough information in 60.00 key people in operational areas who are affected. Form to show what is required. order to make a claim. Training Broader training - train all people in sales, service, parts and warranty. Get input from Employees do not know what they are expected 60.00 key people in operational areas who are affected. Form to show what is required. to do/provide in the call to claim process. Communication, Branch should get tech services involved. Repetitive issues need to be communicated to Cat is not involved early in the process. 60.00 Process, Training all branches. We do not know how much/what warranty our Communication, Broaden warranty offering to customer. 60.00 customers need. Process, Training There is no reporting system that can easily tell Process, Reporting Come up with business plan that will report recovery. We need a reporting system that us what warranty costs we recover from the 59.38 will show us how much we should recover for machines when they are sold and not customer when machines are sold. discount that amount. Reporting issue Selectively self insure; report to show machine reliability and warranty expenses. We don't want to take the risk of self insuring. 56.25 Current system is cash-basis, so revenues do Process, Reporting Go to accrued liability system. 56.25 not match our expenses. We are not fixing the machine on the first trip to Process, Training Better troubleshooting on the phone before sending the mechanic to the job; train the the jobsite (when it is possible to fix on the first 56.00 coordinator; talk to the right person on the jobsite. trip).
  • 53. Root Cause Rank Potential Solutions Root Potential Root Cause for increased warranty or Ways to Eliminate Cause Details costs. or Mitigate Root Rank Cause Cannot claim travel time and mileage 52.00 We do not get reimbursed for travel time and mileage if a machine is released to the 50.00 customer before it is set up properly We do not have historical reliability data 49.88 National accounts and customers with high 46.22 corporate value get special treatment. Caterpillar insurance premiums are expensive 32.00 because of poor machine quality We do not have SOS and ISO information. 31.11 Machines shipping from the factory with defects. 24.89 Takes time and communication to convince 18.33 Caterpillar that they have quality issues Machine that has been sold to a customer is not in DBS, so warranty work order cannot be 15.00 opened. Warranty won't pay for boom trucks 8.89
  • 54. Caterpillar New Warranty To-Be Process Map For Sales Department Customer Sales Department Accounting Warranty Wants to purchase new Caterpillar machine Price competitive deal? No Yes Quotes sales price to Quotes sales price to customer including machine customer with standard specific standard warranty warranty chare (as a % of charge (as a % of machine machine cost) and no cost) and 130% of premium extended warranty coverage. cost for extended warranty. May discount machine sale No price or warranty coverage – Accept deal? Warranty charges are not negotiable. Yes Customer accepts deal. Puts together a New Sales Worksheet to determine net profit, excluding warranty. Standard warranty charges (as Customer receives invoice or a % of cost) debit Sales signs finance agreement. Invoices machine. Department direct expenses Warranty cost is not listed as a and credit the accrued liability separate line-item. account. Requests warranty enrollment on the intranet Writes warranty letter and sends to customer. Customer receives warranty Receives Intranet warranty enrollment letter. request. Does the customer want extended coverage? No Yes Get a quote for extended Set up a standard warranty type coverage on Infocast. and coverage on DBS Assigns a Walker Claim number and submits an extended coverage claim to Caterpillar Set up extended warranty type and coverage in DBS Account number 60244, Warranty New CAT EXT is Assigns internal customer automatically debited the number to warranty; W00005 amount of the extended for extended coverage. premium when claim comes back from Caterpillar. Extended warranty premiums Verify that Caterpillar in account 60244, New CAT information matches Walker EXT, debits the sales information department direct expenses. An additional 30% of the premium will be debited to the Sales Department direct expenses and credit the accrued liability account.
  • 55. Caterpillar New Warranty To-Be Process Map For All Service Departments Customer Service Department Technical Services Warranty Accounting Machine breaks. Customer calls service Gets call from customer department. Is the Field Service Coordinator YES available? NO Get the company name, contact name, contact Field Service Coordinator number, and nature of call talks to the customer. (machine down, maintenance, etc) and give to Field Service Coordinator. Is person on the phone the job Superintendent or Maintenance Foreman? Ask to speak with job Superintendent or Maintenance foreman or get their contact information and call them. Service coordinator questions customer to get all pertinent information (machine make, model, s/n, nature of failure, Super and Foreman names and numbers, job site info, directions, field contact, number) Input information into Service Work Order Form. Save Service Work Order form in the appropriate shared directory. Check with Technical Is this a repetitive Coordinator to investigate (familiar) failure? NO failure. YES Service coordinator goes through pre-planning process Is this a repetitive based on customer and (familiar) failure? YES machine failure information. No NO Are in-house technical Check DBS to see if is a Resources available? warranty repair YES Calls Warranty department if DBS warranty data does not Technical Coordinator will match customer’s records or troubleshoot machine on job customer’s usual warranty site. purchasing habits. Is repair warranty? Open work order to customer who owns machine (warranty customer number is assigned to warranty segments – each warrantable failure needs to be on a separate segment – TT&M segment open to customer). Orders parts - Puts parts into work order segments based on mode of failure Dispatches Field Service Mechanic Troubleshoots machine on job site. Were modes of failure NO Report on Dealer Service as predicted? Network to Caterpillar YES Machine is repaired Technician repairs machine. NO Receives invoice for non- Technician completes service Is service report warranty repairs and/or travel report. completed correctly? time and mileage. YES Person responsible for Are all boxes on NO unchecked item on Service Service Work Work Order Form completes Order Form Warranty invoice segments work and checks form. Checked? debit accrued liability account. YES Is work order broken into Makes claims to Caterpillar Warranty claim relieves Service Clerk closes work different warrantable failures (1 claim per warrantable accrued liability account order. by segment? Yes failure) account NO Accrued liability account absorbs warranty work order residuals. Accrued liability Re-opens work order, account is reconciled after segments correctly, and re- warranty has expired. closes work order.
  • 56. ID WBS Task Name Duration Start Finish Resource Names Jan 20, '08 Jan 27, '08 Feb 3, '08 Feb 10, '08 Feb 17, '08 Feb 24, '08 Mar 2, '08 Mar 9, '08 Mar 16, '08 Mar 23, '08 Mar 30, '08 S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT F S SMTWT 1 1 Training 51 days Mon 1/21/08 Mon 3/31/08 2 1.1 Complete to-be process maps 1 day Mon 1/21/08 Mon 1/21/08 Craig,James,Randy Craig,James,Randy 3 1.2 Complete standard operating procedures 5 days Mon 1/21/08 Fri 1/25/08 Craig,James,Randy,Blake Craig,James,Randy,Blake 4 1.3 Develop training curriculum 25 days Mon 1/21/08 Fri 2/22/08 5 1.3.1 Develop trainer curriculum 15 days Mon 1/21/08 Fri 2/8/08 Team Team 6 1.3.2 Develop trainee curriculum 5 days Mon 1/21/08 Fri 1/25/08 Team Team 7 1.3.3 Produce "burning platform" video 25 days Mon 1/21/08 Fri 2/22/08 8 1.3.3.1 Communicate with Executive Committee 5 days Mon 1/21/08 Fri 1/25/08 Craig Craig 9 1.3.3.2 Write scripts 15 days Mon 1/28/08 Fri 2/15/08 10 1.3.3.3 Record video 5 days Mon 2/18/08 Fri 2/22/08 11 1.4 Communicate with Branch Managers via phone/email 6 days Mon 1/21/08 Mon 1/28/08 12 1.4.1 Who will be trainers? 5 days Mon 1/21/08 Fri 1/25/08 Craig Craig 13 1.4.2 Who will be trainees? 5 days Mon 1/21/08 Fri 1/25/08 Craig Craig 14 1.4.3 Create training schedule 1 day Mon 1/28/08 Mon 1/28/08 Craig,Blake Craig,Blake 15 1.4.4 Create training roster 1 day Mon 1/28/08 Mon 1/28/08 Craig,Blake Craig,Blake 16 1.5 Administer Training 25 days Mon 2/25/08 Fri 3/28/08 17 1.5.1 Logan 5 days Mon 2/25/08 Fri 2/29/08 Team Team 18 1.5.2 Belle - field service, main shop, engine shop, weld shop 5 days Mon 3/3/08 Fri 3/7/08 Team Team 19 1.5.3 Huntington, Nitro 5 days Mon 3/10/08 Fri 3/14/08 Team Team 20 1.5.4 Beckley - machinery and hydraulic - and Summersville 5 days Mon 3/17/08 Fri 3/21/08 Team Team 21 1.5.5 Parkersburg, Athens, Jackson 5 days Mon 3/24/08 Fri 3/28/08 Team Team 22 1.6 Coordinate with training department 1 day Mon 3/31/08 Mon 3/31/08 23 1.6.1 Who has taken training and who needs training 1 day Mon 3/31/08 Mon 3/31/08 Craig Craig 24 1.6.2 Ensure that new-hires receive training 1 day Mon 3/31/08 Mon 3/31/08 Craig Craig 25 1.6.3 Schedule follow-up training 1 day Mon 3/31/08 Mon 3/31/08 Craig Craig 26 2 Reporting 30 days Mon 1/21/08 Fri 2/29/08 27 2.1 Determine accrued liability for restating financials 5 days Mon 1/21/08 Fri 1/25/08 Craig,Blake,Robert,Eric Craig,Blake,Robert,Eric 28 2.2 Determine liability to accrue for each model as a % of cost 5 days Mon 1/28/08 Fri 2/1/08 Craig,Blake,Robert,Eric Craig,Blake,Robert,Eric 29 2.3 Historical report for yearly assessment of percentages 5 days Mon 2/4/08 Fri 2/8/08 30 2.4 Report to determine accrued liability on a monthly basis 5 days Mon 2/11/08 Fri 2/15/08 Craig,Blake,Robert,Eric Craig,Blake,Robert,Eric 31 2.5 Report to reconcile accrued liability account when warranties expire 5 days Mon 2/18/08 Fri 2/22/08 Craig,Blake,Robert,Eric Craig,Blake,Robert,Eric 32 2.6 Report to gauge success of the project 5 days Mon 2/25/08 Fri 2/29/08 Craig,Blake,Robert,Eric Craig,Blake,Robert,Eric 33 3 Milestones 51 days Sun 1/20/08 Mon 3/31/08 34 3.1 Start 0 days Sun 1/20/08 Sun 1/20/08 1/20 35 3.2 End 0 days Mon 3/31/08 Mon 3/31/08 3/31 Task Milestone Rolled Up Critical Task Split Group By Summary Project: New Warranty Improvement P Critical Task Summary Rolled Up Milestone External Tasks Deadline Date: Sun 3/30/08 Progress Rolled Up Task Rolled Up Progress Project Summary Page 1
  • 57. REFERENCES Caterpillar Knowledge Network (2007). Community: 6 Sigma WW Dealer BB - Projects and Tools (RESTRICTED to Dealer DC/MBB/PS/BB). Retrieved March, 2007, from Caterpillar Knowledge Network Web site: https://kn.cat.com Virtual Coach (2006). DMAIC English V3 [Computer Software Reference], George Group, Incorporated. Federal Accounting Standards Board (2003). Revenue Recognition and Related Issues. Retrieved August, 2007, from Federal Accounting Standards Board’s Web site: http://72.3.243.42/project/12_2003revenuerec.pdf AuditNet (2008). Audit Program Accrued Liabilities and Other Payables. Retrieved August, 2007, from AuditNet’s Web site: http://www.auditnet.org/docs/accrued.txt 57

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