Danaher Business System: Lean Thinking and Strategy

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In 1984, Danaher bought The Jacobs Manufacturing Company (Jake Brake) based out of Bloomfield, Connecticut, from Chicago Pneumatic Corporation. Jake Brake manufactured truck engine brakes. In 1986, George Koenigsaecker (Koenigsaecker) was appointed President of Jake Brake. Jake Brake was a typical example of a company adhering to batch manufacturing. Its inventory turnover was around 2, i.e. just over two times per annum. The company’s products were usually delivered a month after the due date and in batches on a monthly basis. The performance lacuna between Jake Brake’s delivery and its clients’ requirements spurred Koenigsaecker to radically alter the company’s functioning by employing lean production practices...

ELIMINATION OF WASTE
The principles underlying DBS were standardization, measurement, and innovation, all guided by the objective of continuous improvement (Refer to Exhibit III for a pictorial representation of DBS). Explained Morning Star analyst Eric Landry, “It's basically a set of tools that allows Danaher to make whatever widget they are manufacturing at a cost less than most of their competitors. Over the past decade they have (also been moving) DBS into the back office and into sales. It produces a culture where you are never satisfied...

From around 2003 to 2007, takeovers had been responsible for around 66% of Danaher's average yearly sales growth of 20%. Danaher carried out 31 acquisitions from 1995 to 2011, representing 72 percent of its market capitalization as of February 2012. Danaher’s acquisitions enabled the company increase its share price by 15 times during the same time frame. Danaher grew organically by one-fifth per annum, and also took advantage of a constant flux of fresh takeovers financed by the surplus accruing from the lean initiatives at the existing setup. Partly because of the efficiency of its operations, Danaher produced considerable discretionary cash flow...

Since its inception, Danaher had been buying out smaller companies and squeezing out greater efficiencies from them by deploying lean methods with the objective of reducing inventory levels and hastening the pace of production. This it did in great part by scrutinizing and bettering the movement of components and products through its plants. DBS enabled Danaher to take over companies and raise their efficiencies. It helped the company achieve tremendous growth. For instance, from 2001 to 2005, Danaher’s turnover increased at a compounded rate of 16.5%, gross profit at a compounded rate of 18.9%, and net profit at a rate of 22.7%. ...

Some analysts expressed concerns about the increased geopolitical risks that Danaher faced because of its significant global presence. They were also of the view that if there was a rise in oil prices for extended periods of time, Danaher’s operating margins might come down. Experts were skeptical about Danaher’s ability in future to convert larger companies with institutionalized conventions, embedded cultures, and a greater number of employees to its lean manufacturing practices...

Exhibit I: Companies Comprising Danaher's Five Strategic Segments
Exhibit II: Danaher Corporation's Financial Performance (2004-2011)
Exhibit III: The Danaher Business System
Exhibit IV: Key Steps in the Implementation of DBS
Exhibit V: Hoshin Kanri
Exhibit VI: Danaher's Policy Deployment Matrix
Exhibit VII: The Colfax Business System

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