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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
Fast Facts
$1.8bn cash flow 2009 Revenue: $11.2B
NYSE $25B market cap. 22 p/e Employees: 45,000
Sales by Region:
18 consecutive years of Free Cash Flow greater than Net North America: 51%
income Europe: 23%
APAC: 17%
ROW: 9%
Stock Symbol NYSE: DHR
Danaher Strategic Platforms

A large portfolio of operationally Environmental

efficient businesses, with industry


leading brands, strong growth and
high margins. Medical Technologies

Electronic Testing

Mechanics Hand Tools


Medical Professional Industrial Tools &
Technologies Instrumentation Technologies 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
Kaizen then Standardize!
Days 3 & 4: Implement improvement ideas
Day 5: Standardize new process, report-out
K
S
K
IMPROVEMENT
S
K
S
K
S

K K K K
K

TIME
Where Do We Begin?
How To Get Started?

STRATEGIC POLICY
PLAN DEPLOYMENT
DAILY
FOCUS FOR
What game are MANAGEMENT OUR KAIZEN
we playing? KPIs EVENTS
How do we win? VALUE
STREAM
MAPPING
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
ToBuild SustainableCompetitive
BuildSustainable CompetitiveAdvantage
Advantage

Strategic
Strategic
Objective
Objectiveisis
Improvement

Policy Achieved!
Achieved!
Deployment
KAIZEN
Policy
Deployment
KAIZEN
Policy
Daily
Deployment Daily Mgmt
KAIZEN
Daily Mgmt
Daily Daily Mgmt
Mgmt Mgmt
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

Daily
Management
Front Line
Associates
(KPIs)

% of time spent
Far
How



Working captital from $12M to $8M




OTD from 75% to 89%



Operating profit from 6% to 9%

Grow revenue from $12M to $28M

Objectives
Breakthrough
Annual Policy

Improve OTD from 75% to 93%


 Implement sales funnel process
 Develop rapid prototype process
Implement a forecasting process

 Grow revenue from $12M to $80M

Working capital from $12M to $9M


Implement a two bin kanban process

Expand operating profit from 6% to 15%


Develop low cost region sourcing capability

3-5 Year
How

Priorities

What
Top Level Improvement

Breakthrough Objectives
Improve
Target to


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%

How Much


Tom - Sales Manager



 

Karen - Customer Service Manager




Cory - VP Engineering
 


Kelly - Purchasing Manager

Ted - VP HR
Who



Resources

Robin - VP Operations
 Primary Responsibility

Andrew - President
 Secondary Responsibility
PD Matrix
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 arent 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 short-
term 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 wont know how to achieve

4. PD targets should always exceed budgets, maintain that stretch

5. Todays breakthrough is tomorrows 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. Dont 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-98

Mar-99

Mar-01

Mar-02

Mar-03

Mar-04

Mar-06
Mar-97

Mar-00

Mar-05

Mar-07

Mar-08

Mar-09

Mar-10
Mar-96
Mar-90

Mar-91

Mar-92

Mar-95
Mar-93

Mar-94

CNBCs 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

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