Danaher Business System Elliott Major: VP Operations Kollmorgen

Danaher Business System Elliott Major: VP Operations Kollmorgen

Danaher Overview A global, diversified manufacturing corporation dedicated to continuous improvement and customer satisfaction Revenue 16% CAGR, four fold growth 1999-2009 Operating Profit 18% CAGR EPS 20% CAGR $1.8bn cash flow NYSE $25B market cap. 22 p/e 18 consecutive years of Free Cash Flow greater than Net income Fast Facts 2009 Revenue: $11.2B Employees: 45,000 Sales by Region: North America: 51% Europe: 23% APAC: 17% ROW: 9% Stock Symbol NYSE: DHR

Danaher Strategic Platforms A large portfolio of operationally efficient businesses, with industry leading brands, strong growth and high margins. Medical Technologies Environmental Electronic Testing Mechanics Hand Tools Medical Technologies Professional Instrumentation Industrial Technologies Tools & Components Focused Niche Businesses Product Identification Motion

DANAHER BUSINESS SYSTEM Manufacturing Purchasing Sales Administration Customer Service Design Marketing The foundation of all Danaher businesses

Kaizen Kaizen \ki-zen\ A continuous improvement mindset. Everything that we do today can be improved. Kaizen has no end. A team-based continuous improvement process. Utilizes DBS tools to quickly eliminate waste and standardize the resulting sequence of operations. Typical Kaizen event is an improvement opportunity identified by policy deployment Day 1: 1 to 2 hours of training Day 2: Study current situation, brainstorm Days 3 & 4: Implement improvement ideas Day 5: Standardize new process, report-out IMPROVEMENT Kaizen then Standardize! K S K S K S K S K K K K K TIME

Where Do We Begin? How To Get Started? STRATEGIC PLAN What game are we playing? How do we win? POLICY DEPLOYMENT DAILY MANAGEMENT KPI s VALUE STREAM MAPPING FOCUS FOR OUR KAIZEN EVENTS

What is Policy Deployment? A process that facilitates the creation of : Results-Oriented Business Processes With Sustained Improvement That Result In Sustained Competitive Advantage in Quality, Delivery, Cost and Innovation Policy deployment is how we execute our strategic plan

Why Use Policy Deployment? To To Build Sustainable Competitive Advantage Improvement Daily Mgmt Policy Deployment KAIZEN Daily Mgmt Policy Deployment KAIZEN Daily Mgmt Policy Deployment KAIZEN Daily Mgmt Daily Mgmt Strategic Strategic Objective Objective is is Achieved! Achieved! Year 0 Year 1 Year 2 Year 3 Year 4

What Does Policy Deployment Mean To Leaders? How Should You Spend Your Time? Key Leaders Breakthrough (PD) Kaizen Front Line Associates Daily Management (KPIs) % of time spent

PD Matrix Implement a two bin kanban process Implement a forecasting process Develop low cost region sourcing capability Develop rapid prototype process Implement sales funnel process Working captital from $12M to $8M OTD from 75% to 89% Operating profit from 6% to 9% Grow revenue from $12M to $28M Increase avg # of sales calls per month per FSE from 15 to 30 Increase # of prototypes orders from 40 to 90 Increase new production orders from $3M to $7M Avg # of days to quote from 27 to 7 Avg # of days to deliver prototype from 39 to 5 % of material cost from LCR supplier from 0-18% # of lines shipped to customer request from 75% to 88% % of A & B parts on kanban from 0-30% Tom - Sales Manager Karen - Customer Service Manager Cory - VP Engineering Kelly - Purchasing Manager Ted - VP HR Robin - VP Operations How Far How Top Level Improvement Priorities Annual Policy Breakthrough Objectives Grow revenue from $12M to $80M 3-5 Year Breakthrough Objectives Target to Improve Resources Expand operating profit from 6% to 15% Primary Responsibility Improve OTD from 75% to 93% Secondary Responsibility Working capital from $12M to $9M Andrew - President What How Much Who

What Is A 3-5 Year Breakthrough? Represents SIGNIFICANT change in PROCESS improvement, as seen through the eyes of the customer Requires the organization to stretch itself Usually, no standard or system exists for this level of breakthrough Can be characterized as a Big Win Q Improve grade of service for call center from 72% to 99% in 3 years D Improve OTD to customer request date from 80% to 98% in 3 years C Increase operating profit 25% in 3 years I Grow product line A sales +300% in 3 years Aim High Because Customers demand it (continually rising expectations) Competitors aren t standing still Requires you to change paradigms Less is more: focus on critical few

What Is An Annual Breakthrough? Represents HOW FAR you need to improve in first year to meet 3-5 year breakthrough objective Rule of thumb is 30-50% of your 3-5 year target in the first year Avoid the hockey stick Annual breakthroughs exceed budget targets Q Improve Grade of Service for Call Center from 80% to 92% D Improve OTD to customer request date from 80% to 91%C C Improve gross margin by 15%to fund growth I Grow product line A +125% Balance stretch vs. strain

What Is A Top Level Improvement Priority? Process oriented Should lead to the creation of sustainable, results-oriented processes not shortterm tasks Focused Meets Current or Emerging Customer Needs Limited to the Critical Few Measurable Process must be something that can be measured But not a Measure itself Q Implement Standard Work and Daily Management in Call Center D Lean Conversion of Targeted Global Sites C Implement material sourcing process to drive gross margin I Drive Accelerated Product Development Process for Co-Developed Products Answers the question How do we accomplish our annual breakthrough objective?

What Is A Target To Improve? Can be broken down into monthly progress increments Exceeds budget targets Measures results, rather than action plan milestones Is easy to calculate and communicate Q Improve phone answer speed from 45sec to 20sec by 12/31 D Past Due from 4 days to 0.5 day by 06/30 C GM from 23.5% to 32.3% by 12/31 I Drive product line A sales of $8M by EOY Measures of effectiveness of the process: how much & by when

PD Reminders 1. PD drives implementation of the strategy 2. PD is not the same as Daily Management 3. PD is for breakthroughs you won t know how to achieve 4. PD targets should always exceed budgets, maintain that stretch 5. Today s breakthrough is tomorrow s KPI 6. PD drives processes, not project management 7. Quality, not Quantity. You are asking an organization to do difficult and important work. Calibration is key. Have to focus on the critical few. Don t bite off too much.

20 YEAR TSR DHR vs. S&P 500 DHR S&P 500 DHR +4,295% S&P 500 +425% Difference +3,870% Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 CNBC s highest performing stock in past 20 years (1989-2009) with 2,500% growth

Further reading on PD: Hoshin Kanri Industry Week (October 2007): Strategic Deployment: How To Think Like Toyota Manufacturing Engineering (Mar 2006) Strategy Deployment: Linking Lean to Business Strategy Quality Digest (May 1997): Strategic Planning With the Hoshin Process Hoshin Kanri - The Strategic Approach to Continuous Improvement by David Hutchins, Gower publishing, 2008 Hoshin Kanri for the Lean Enterprise: Developing Competitive Capabilities and Managing Profit by Thomas L. Jackson, Productivity Press, 2006