5/6/2014 Power Generation Business Unit Break Out Session: US Supplier Conference Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 2 5/6/2014 Cummins Confidential 1 5/6/2014 Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 3 5/6/2014 Cummins Confidential Introductions Cummins Attendees: – Gary LaFine – Purchasing Director, Americas Region – Mike Trueblood – Purchasing Director, Strategic Sourcing – Richard Wright – Purchasing Director, EMEA Region – Paul Wilson – Supply Quality Director – Mohammed Mohiuddin – Supply Quality Leader, Americas Region – Christine Jacobson – Purchasing Leader, Fridley, MN – Ricardo Hernandez – Purchasing Leader, San Luis Potisi, Mexico 4 5/6/2014 Cummins Confidential 2 5/6/2014 Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 5 5/6/2014 Cummins Confidential Business Update Business Structure / Products Review Performance Metrics – Financial Performance – Market Demand Explain our Overall Strategy Our Future Outlook Our Strategy for Working with Supplier Partners 6 5/6/2014 Cummins Confidential 3 5/6/2014 Lines of Business U.S. Specific Power Products 7 Power Systems Power Solutions Generator Technologies Cummins Confidential TRENDS: SALES, GM%, & EBIT% Target Gross Margins 8 5/6/2014 Cummins Confidential 4 5/6/2014 Our Strategy Deliver the value to our stakeholders – Market Driven supply chains which: • Match lead-times with customer requirements • Deliver on time, every time • Provide lowest cost solutions – Responsive and reactive to market fluctuations Partner with suppliers to create best value – Engagement in new product developments early – Collaborative approach to identify optimal solutions – Develop an integrated supply chain model 9 5/6/2014 Cummins Confidential Accelerated Growth We are confident in the long term growth potential of Cummins Power Generation Market forces are in our favor in the long run – Many markets we serve declined significantly 2008-2009 and have not yet fully recovered – New markets are developing and we are positioned to gain – We have solid positions in many key market segments We are investing heavily in future growth to expand our markets and improve our competitiveness – New product lines – Improved product lines (power density) 10 5/6/2014 Cummins Confidential 5 5/6/2014 Our Future Growth Plans Half of our growth will be through market recovery and gaining share Half of our projected growth is based on our strategic investments 9,000 6,000 1,050 325 339 6,269 1,355 3,200 1. 2. 3. 4. 3,000 $M New / Repositioned Gensets New1375 Military Gensets New Large Gensets Emissions Leading Products - 11 Cummins Confidential Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 12 5/6/2014 Cummins Confidential 6 5/6/2014 1. Cummins New Product Development (NPD) System The New Product Development System 13 Current Product Planning VPI PPT Cummins Confidential 1. Cummins New Product Development (NPD) System The New Product Development System Focus of Discussion Current Product VPI VPI 14 Planning PPT Cummins Confidential 7 5/6/2014 VPI Definition 2. Value Package Introduction (VPI) Overview VPI (Value Package Introduction) is the process by which we define, design, develop and introduce high quality Value Packages for our Customers which: – Yield comparative advantage – Are delivered on time, at target costs and reliability – Continuously improve the process to reduce cycle time and cost 15 Cummins Confidential 2. Value Package Introduction (VPI) Overview VPI Process – Key Purchasing Tasks PUR0 Confirm Sourcing Strategy – Identify Suppliers – Supplier Risk Assessment process begins PUR1 Engage Suppliers – RFQs, Supplier Selection – Supplier Risk Assessment revised – Initiate APQP – PUR2-4 Ready Suppliers – Complete Commercial work (Letter of Intent, Supply Agreements as needed) – Complete Source Releases, PPAP and APQP PUR5-6 Validate Supplier Readiness – Execute Safe Launch 16 Cummins Confidential 8 5/6/2014 3. Integration of Sourcing Strategies within VPI Program Specific Sourcing Strategy JV Sourcing Strategies (if applicable) CMI Sourcing Strategies Suppler Program Objectives and VPP Performance Feedback Program Specific Sourcing Strategy 17 Cummins Confidential Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 18 5/6/2014 Cummins Confidential 9 5/6/2014 Target Markets Prime Power Health Care Mining Data Centers 19 5/6/2014 Cummins Confidential Connected and Integrated Systems A clean-sheet, all-Cummins design with the advantage of proven, fully integrated systems Electronic Controls Engine 10 5/6/2014 The New C3000 Genset Family Powered by QSK95 Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 22 5/6/2014 Cummins Confidential 11 5/6/2014 PGBU Agenda Agenda Setting the Scene Mohammed Mohiuddin – America’s Team Introduction – Hand offs – Measures and Why Strategies Paul Wilson – PGBU Strategic Themes – Supply Chain Focus – Supplier Segmentation – Strategic Themes Recap – Call to Action 23 PGBU Setting Scene America’s Team Introduction 24 5/6/2014 Cummins Confidential 12 5/6/2014 PGBU Setting Scene Hand-offs Delivery Partners Cummins End User Customers Supplier Quality Three groups of customers, all important. Supplier Quality has measures for all three groups. End users are the ultimate customers. Suppliers 25 5/6/2014 Cummins Confidential PGBU Setting Scene Measure’s Focus Performance Global Key Measures Units Supplier BIS PPM PPM Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 1276 9177 20965 25124 15416 10267 11113 10032 7959 7959 6366 4242 2645 10939 Supplier PPM PPM No MNC's Qty 900 810 1016 336 1097 684 358 156 730 90 454 391 888 225 535 4380 3900 507 536 480 527 360 298 271 207 256 380 342 298 4462 No SCAR's Qty 193 173 24 13 16 25 19 12 7 7 9 21 10 14 177 Days 30 36 18 24 33 17 22 21 35 21 16 22 25 Live Parts with a PPAP % NA NA NA NA NA 11% 11% 11% 10% 12% 12% 12% NA Supplier Focused Improvements Launched Qty 0 5 2 5 5 5 8 5 5 6 5 3 54 Product/Process audits completed to plan % 2 4 5 5 3 3 3 1 4 5 3 3 41 Six Sigma Projects Completed Qty 0 0 0 0 0 1 0 0 0 1 0 4 6 Supplier OTD % 82% 90% 92% 88% 90% 93% 89% 90% 84% 85% 87% 84% 88% Supplier Cost of Poor Quality $ $ $60,776 $46,096 $42,786 $52,223 $41,033 $78,637 $55,443 $49,330 $35,312 $60,878 $58,671 Average Time to close SCAR's Spills Supplier Disruption Score (SIP) Score 2012 Result Target 1418 $52,557 $633,742 Qty 3 2 0 2 3 3 1 3 4 1 1 2 25 Average No. 144 300 148 132 142 71 57 81 79 104 140 202 133 SIP Program's Launched Qty 0 0 0 0 0 0 0 0 1 0 0 0 1 VPC PPAP's completed Qty NA NA NA NA NA NA NA NA NA NA NA NA NA 26 6 May, 2014 Cummins Confidential 13 5/6/2014 PGBU Setting Scene PGBU Measures The Cost of Quality Spending >$3M* per month fixing our quality issues. 27 *excludes engine warranty Cummins Confidential Think About It... 52% Just over half of what we spend on R&D. 28 Cummins Confidential 14 5/6/2014 PGBU Strategies PGBU Strategies PGBU Quality - 5 Strategic Themes 1. Design for Zero Defects. 2. Relentless Pursuit of Current Product Quality. 3. Deliver Quality Functional Excellence. 4. Total Supply-Chain Quality. 5. Continuously Improve using COS and 6S. 29 Cummins Confidential 4. Total Supply-Chain Quality 30 Capable Application Engineering in the Channel. Continuous Supplier Improvement. Standard and Capable Manufacturing Processes. Capable & Complete Service Coverage. Defect Free Ownership. Cummins Confidential 15 5/6/2014 PGBU Strategies Total Supply-Chain Quality • Full AE capability in the sales channel. • Proactive improvement with suppliers. Suppliers are targeting zero-defects. • • • Critical non-CMI suppliers are 6S capable. Critical processes are identified, capable and standardised. • • Fail-safing of product and process. Issue-free installation and commissioning. • Defect-free ownership. • Quality issues due to misapplication. • Low 6S capability with suppliers. • Variable manufacturing processes. • Service capability gaps. • Quality issues through incorrect user operation/ maintenance. 31 Cummins Confidential PGBU Strategies Supplier Segmentation - The selection A smart model for X-functional supplier engagement which we follow! – It places suppliers into “Segments”: Relationship Value vs Performance - Casting & Machining 2012 100 • Collaborate • Monitor • Escalate • Remediate Collaborate Motivate 80 Relationship Value • Motivate Escalate 90 • Recognise 70 60 50 Remediate 40 30 20 Recognise Monitor 10 30 40 50 60 70 Performance 80 90 100 – So that Risk Management and Growth Opportunity can be balanced and leveraged. 32 5/6/2014 Cummins Confidential 16 5/6/2014 PGBU Strategies Supplier Segmentation Escalate Motivate Collaborate SIP Process APQP Focus VPI Choice Six sigma PPT Work Process Development Supplier Focused Process Monitor 33 5/6/2014 Cummins Confidential PGBU Strategies PGBU Quality - 5 Strategic Themes Design for Manufacture & Assembly Our Supplier Manufacture the majority of our products Speed in Rapid Problem Solving There are problems with parts supplied and with our suppliers we must quickly get to root cause and preventative actions Mitigate quality exposures through capable PPAP Suppliers submit 100’s of PPAP’s per year to PGBU these need to be Right First Time and submitted when requested Continuous Supplier Improvement. This is a expected our suppliers must improve otherwise we cannot improve our supplier are integrated into our supply chain Use 6S/ Cummins Operating System to Improve 6S is the foundation of our continuous improvement strategy improvements in our supply chain are driven using this approach Where The Answer do our supply is theybase impact fit in every this Strategic strategy? Theme! 34 Cummins Confidential 17 5/6/2014 PGBU Strategies Call to Action: Suppliers Improve your understanding of APQP/PPAP why we use and when we use it. Communicate potential changes to SQIE – And ensure you gain permission before making a changes USE the CQMS PPAP to submit documents and communicate changes When things go wrong use effective problem solving to root cause the issue and prevent reoccurrence. Make suggestions to our SQIE team how parts could be produced differently to aid your manufacturing process Create a Continuous Improvement program Do not wait for Cummins to tell you how to improve. 35 Cummins Confidential PGBU Strategies How PGBU Can Help Suppliers Training – PGBU can offer training in the following areas 1. APQP / PPAP /CQMS / Problem Solving / 5 S / FMEA / Control Plans - Many more. “Quality is never an accident; it is always the result of high 2. intention, Participation the and Supplier FocuseditProcess we use sincere in effort skillful execution; also represents the wise choice of alternatives”. auditing bymany SQIE and data analysis to drive improvement actions in your business WILLIAM A. FOSTER, (Igniting the Spirit at Work). 3. SIX Sigma – We can offer a 3 week course to your employee’s this is a selective process and only those suppliers who are considered as motivate/collaborate within the PGBU segmentation will be considered. These opportunities are offered as you are a fundamental part of our supply chain reach out and use this knowledge 36 Cummins Confidential 18 5/6/2014 Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A 37 5/6/2014 Cummins Confidential Our Expectations of Suppliers 38 1. Positioned to grow with us as we grow 2. Passion for continuous improvement 3. Collaborate on innovation and new product development 4. Open with constraints – we don’t like surprises 5. Continuous quality improvement (annual improvements) 6. Enable Market driven Supply Chains 7. Relentless year on year cost reduction focus 8. Aligned with Cummins values for Health, Safety and Environment 9. Capacity is maintained for surge demand 5/6/2014 Cummins Confidential 19 5/6/2014 Your Opportunity Grow with Cummins Power Generation as our traditional markets fully recover Grow as Cummins Power Generation as we gain market share through aggressive growth initiatives Partner with Cummins Power Generation on new product development programs Work with Cummins Power Generation to identify supply chain improvements and new product opportunities where we can both win Invest in capabilities to be more competitive 39 5/6/2014 Cummins Confidential Agenda Introductions Business Update & Future Outlook New Product Update (Overview, Hedgehog) Supplier Quality Focus Our Expectations & Your Opportunities Q&A Thank YOU. 40 5/6/2014 Cummins Confidential 20
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