Danaher Corp.: Leaner Machine

Danaher Corp.: Leaner Machine

David Carr

Tom Mathis had the job of taking a “lean” organization and making it even “leaner.”

As vice president of supply chain management at Danaher Sensors and Controls, a division of the $6 billion industrial conglomerate Danaher Corp., Mathis bucked corporate tradition when he proposed adding computerization to a manufacturing process known for achieving efficiency without it.

One of the first U.S. devotees of the lean manufacturing concepts pioneered by Toyota, Danaher doesn’t trust the reordering of parts for its factory floor to the projections of a manufacturing resource planning (MRP) system. Instead, it uses the Japanese “kanban” method of factory floor control, in which an almost-empty parts bin triggers a just-in-time replenishment order.

“Our operations have been divorced from technology intentionally,” Mathis says, because one of the first things kanban experts tell factory operators to do is “unplug the MRP system.” In fact, the controls division uses an MRP system, Mapics, but more to track inventory and orders than to drive the process, on the theory that a computer projection will never be as accurate as a measure of actual consumption.

Since the 1980s, Danaher had been acquiring smaller companies and wringing more efficiency from them by applying lean techniques aimed at driving down inventory levels and speeding up manufacturing, mostly by analyzing and improving the flow of parts and products through its factories. Having achieved these gains without heavy investments in information technology, Danaher had developed a generally conservative attitude toward its adoption.

After joining Danaher in 2002, Mathis concluded he would have to overcome that resistance if he was to achieve goals such as lowering costs by procuring more parts from overseas. Not only would distances and the lead times for parts shipments be greater, but his materials buyers would need to carve time out of their schedules to identify these new suppliers. That meant the purchasing process itself had to become leaner.

That was easier said than done, however, particularly when glitches in the new wireless inventory system derailed operations at Danaher’s factory in Gurnee, Ill.—the site of the first implementation.

The Gurnee plant, a one-story brick building in suburban Chicago, is relatively quiet for a factory, with production organized into cells. There, workers assemble industrial timers, temperature sensors, counters and other controls used by manufacturers of elevators, in-vitro diagnostic tools and an assortment of other products.

Traditionally, when a bin of nuts, bolts, plugs or LED displays was depleted from a factory floor cell, a worker known as a “pacer” retrieved a paper kanban card from the bin. The pacer would then deliver stacks of these cards to the factory’s materials buyers, who would use the supplier, part number and quantity information printed on the card to reorder each item. That’s a lot of work, given that each of the division’s factories uses 30,000 to 40,000 parts.

In the electronic kanban system Mathis decided to move to, the inventory database would go online. The kanban card would provide the bar code used to look up a computerized record. Instead of the card being carried to the purchasing office, the card could stay on the shop floor and the order would be created electronically.

Mostly, Mathis hoped to free up time for his buyers so they could identify new low-cost suppliers and steer business to them.

“The feedback I got from everybody in the group was, ‘I don’t have time to do this. I’m already running flat out just keeping the plant running,'” Mathis says.

First Things First

In good Danaher fashion, Mathis first ran three continuous improvement planning sessions aimed at streamlining the procurement process. But he came away convinced that “we didn’t have the basics in terms of system support.”

He evaluated supply chain management vendors starting in late 2002; by early 2003 he selected SupplyWorks of Bedford, Mass. SupplyWorks offers access to its SupplyWorks MAX system over the Web, operating the servers itself, which would minimize demands on Danaher’s information-technology staff.

For this project, the major task would be to make Mapics exchange data with SupplyWorks. The inventory database would become more important, since the data printed on the kanban cards was being reduced to a bar-code label.

But the benefit of that change was that cards wouldn’t have to be reprinted when details like the part supplier or the quantity to be kept in each bin changed. The new information would be updated directly in the database.

Just eliminating the time spent updating kanban cards and replacing lost ones would free up 28 minutes per day for Gurnee’s staff, Mathis determined. For the pilot project, he developed a series of these measures of “non-productive time,” which added up to 105 hours per week or 90% of their time. Through automation, he aimed to reduce the time spent on routine tasks and expand the time available for strategic efforts.

The SupplyWorks pilot in Gurnee was limited to a portion of the parts inventory, but results were encouraging. In a January 2004 Webcast presentation for SupplyWorks, Mathis cited a 75.6% reduction in the time buyers spent on the “waste” activities he had identified.

The results since the system was fully implemented in Gurnee last June haven’t been quite as dramatic. Mathis says the actual efficiency achieved as of the end of 2004 was about 57%—a reduction from 105 hours to 45 hours per week of non-productive work. While he sees the project as a success, he and others acknowledge it hit some snags.

Laura Hanna, manager of purchasing, shipping and receiving for the Gurnee facility, talks in the future tense when discussing the benefits of the SupplyWorks system, which went into production in June 2004 and has since been deployed to factories in Fultonville, N.Y., Lancaster, S.C., and Elizabethtown, N.C. “Hopefully, all the pain we’ve gone through is going to pay off for the other [Danaher] sites,” she says.

In addition to being the trailblazer, Gurnee turned out to have the worst environment for radio interference of the four factories. The other sites, perhaps because of their higher ceilings, seemed to provide a better match for wireless networking than the squat Gurnee building.

Spotty wireless coverage and an unproven piece of handheld computer software from SupplyWorks brought the project at the Gurnee plant to a low point. When the connection failed in the middle of a data upload from one of the handheld computers carried by the pacers, data would be lost, Hanna says.

The pacers then had to retrace their steps, again scanning the cards to find empty bins. This happened several times, undermining the notion that the new system saved time and labor, according to Hanna.

SupplyWorks responded with an update to the handheld computer software that warned the pacers when an upload was interrupted and prompted them to try again. Rick Zarbo, a SupplyWorks consultant to Danaher, says the software wasn’t losing data, but its screen didn’t provide workers with enough clues about what to do when a wireless connection was interrupted. “We made it much more visible to them,” he says.

That didn’t make the wireless connectivity problems go away. The handheld computers could also be placed into a cradle to upload their data, but that meant Hanna and her staff would be getting the information in batches rather than continual updates from the floor.

Mathis is hoping that some of these issues will be solved by substituting industrial-strength handhelds from Symbol Technologies for the Hewlett-Packard units originally deployed. The Symbol devices have stronger radio reception, which ought to help solve Gurnee’s wireless networking complaints, according to Zarbo, who planned to begin introducing them to Gurnee in May. Mathis says he so far plans to keep using the HPs at the other factories, where they have produced fewer complaints.

The application lets buyers create, modify and track “blanket orders,” or templates for orders, from pre-selected suppliers that will be placed automatically, based on empty parts bins reported electronically by the pacers. Parts suppliers can log in to the system to retrieve new orders or report a shipment. The system also generates alerts that can be sent to an e-mail account or pager.

But Hanna found the system tended to drown suppliers in unnecessary alerts. For example, the system prompts suppliers to file an advanced shipping notification, a document that tells the recipient of a shipment when it should arrive. Some regular suppliers, such as Arrow Electronics, were getting reminders after parts were waiting on Danaher’s receiving dock. SupplyWorks refined its product to allow customers to adjust when alerts are sent.

Hanna also had to adjust to getting application changes from an external vendor, which involved more negotiation than working with Danaher’s technology staff. SupplyWorks wanted to minimize customization and focus on improvements that multiple customers would find useful.

Although SupplyWorks has other large customers, such as Ingersoll-Rand, the vendor sometimes seemed to be out of its depth, says Molly Robinson, a former Gurnee materials manager who consulted on the project as a liaison with the software firm. “They seem energetic, but when we present them with a problem, it’s often something they haven’t seen before,” Robinson says. “That is somewhat scary.”

Mathis says he deliberately picked a relatively small vendor, believing he would get more attention to his requirements than he ever would have from a large packaged software vendor. He also estimates he paid about half what a comparable product from an ERP vendor would have cost.

“Expectations were high, and maybe that’s my fault because I’ve had to sell this thing,” Mathis explains, but he is seeing results and expects to see more as the system is refined. By early 2005, the electronic kanban process was being followed for Gurnee’s major suppliers, representing about 11% of the parts inventory and 44% of the spending on components. Materials costs are down about 10%, he says.

Bill Swanton, vice president at Boston-based AMR Research, says SupplyWorks offers one of the few standalone supplier portal products available to manufacturers who want to tie in one or more existing systems, rather than spend millions on an upgrade to an ERP suite that includes a supplier portal as one module.

Implementing SupplyWorks is less labor intensive than creating a custom supplier portal atop a general-purpose Web application server, Swanton says, but tailoring it to a specific manufacturer is still not simple: “It shouldn’t have surprised them if it took a while to work that out.”

Danaher Corp. Base Case

Headquarters: 2099 Pennsylvania Ave., Washington, DC 20006

Phone: (202) 828-0850

Business: The sensors and controls division of Danaher Corp. makes devices for controlling industrial processes, such as timers, counters and temperature sensors.

Chief Information Officer: Joe Beery

Project Manager: Tom Mathis, vice president of supply chain management for the controls division.

Financials in 2004: $6.8 billion in sales for parent company Danaher Corp., with net earnings of $746 million. Danaher Sensors and Controls had sales of about $400 million.

Challenge: Allow manufacturing materials buyers to spend more time negotiating with suppliers, instead of chasing down parts.

BASELINE GOALS:

Cut “unproductive” time spent on expedited orders for out-of-stock parts by at least 57%, from 105 to 45 hours in at least one plant.

Eliminate the need to replace or update inventory tracking cards, saving about 30 minutes a day per manufacturing plant.

Increase turnover of inventory to 30 times per year in 2005, up from 20 in 2004, in at least one manufacturing plant.>

Copyright © 2005 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.