Medaille College MBA-621 Operations Management Case Study #2

Donner Company
3/8/2 6

Amr A!!as
Problem Definition
The three-year old Donner Company has positioned itself well within both the small volume, customized (contract) printed circuit boards market as well as the large volume, generic (captive) printed circuit boards market !arge electronic firms ("T#T, $%&) produced their components in captive shops, while smaller sized companies, or when large and small 'uantities of simple technology or fast turn-around prototype boards were re'uired, these re'uests usually are fulfilled by contract shops (ith )*+ competitors in the ,- alone, and a market that is volatile, Donner.s ability to anticipate and resolve design problems and prototype techni'ues enabled it to maintain its competitive edge /owever, this competitive edge has been compromised by poor ontime delivery and high rate of product return, in addition to planning and manufacturing problems that caused bottlenecks, shifting bottlenecks and improper utilization of labor These problems began

to hamper the overall performance of the firm, and management started evaluating the company.s position and different strategic policies 0ollowing is detailed analysis and recommendations by evaluating the current conditions of the company, particularly the following areas1

2perational and strategic implications of company direction !abor utilization &aterials Capacity $nformation flow 3valuating the following performance criteria1 4uality,

5roductivity and Delivery 0ollowing detailed analysis of data, process flow and inventory strategies, my recommendations will be focused on the following opportunities1 6 Changing strategy from current position to one which concentrates on producing only small 'uantities of fast turn-around -&2%Cs 7 Changing strategy from current position to one which concentrates on producing only large 'uantities of simple technology boards 8 Changing strategy from current position to one which concentrates on producing large # small 'uantities of simple technology boards, through the use of two separate production lines

Company Objectives and Overview of Problems:

(ith a company that is managed primarily by engineers, Donner.s core competency was, obviously, its engineering e9pertise, and it produced specialized circuit boards known as :soldermask over bare copper; (-&2%C) boards Donner positioned itself to manufacture these

boards to small and large electronic firms and management envisioned it as one of the industry leaders /owever, in order to achieve this ob<ective, perhaps Donner needed a management that is more business oriented rather than being managed by engineers who don.t necessarily possess the :business sense; to run a firm Donner employed 77 production employees, managed by = senior e9ecutives chart 5lease refer to e"#i!it 1 for Donner.s organizational This is considered to be a ma<or 2perators were cross-trained and able to perform different

functions in different departments

advantage for a company to have> the ability to deploy employees to perform different functions in different areas (as needed) /owever, it seemed that there was a lack of effective communication strategy within the organization, as information did not flow properly within the different departments and workers often interrupted their work to discuss issues with the supervisor, deliver completed panels or secure more work from other work stations (low hanging fruits) David 0laherty, shop supervisor, is responsible for all aspects of the manufacturing processes from the time he received the order and blueprint until the order has been completed and shipped 0laherty is in charge of preparing work schedules, which occurred several days after the raw material has arrived from the vendor (most orders reached him = days after customers. bids had been accepted, which included the time needed by purchasing to locate the raw material at a low price ? 6 ? 7 days on average) 0laherty spent much of his time planning and determining how to move <obs ahead of others and how to shift workers from one operation to another (to meet une9pected customers. changes to specifications and to meet the deadlines for rush orders) 5lease refer to the information flow chart ( e"#i!it 2) and the order process flow chart (e"#i!it 3)

Donner promised its customers 8 weeks delivery on orders of 6+++ boards or less, and * weeks on orders larger than 6+++ boards orders (orders of A boards or less) were delivered after = days Donner operated at a plant that was carefully chosen by management to minimize installation costs, preserved the life of e9pensive machinery and isolated the operation.s diverse environment nor the graphic e'uipment e9hibited any signs of corrosion was fully utilized, by installing an 6A++ s' ft addition was due to be completed by Dovember, 6BA) Donner.s management had to implement policies that, in addition to manufacturing, had to be cost effective, as Donner was not able to attract outside capital (cited earlier1 managed primarily by engineers, not necessarily business oriented) "nalyzing Donner.s current situations, it is evident that the company is suffering from several problems relating to its manufacturing, labor, 'uality and delivery 0ollowing is a highlight and a brief analysis of each of Donner.s problems1 1$ Operating pro!lems% &anagement could not manage the production bottlenecks effectively 3ach order was different, as per each customer.s specifications -ince there is no set 'uality policy in place, some raw material may be defective (hen operators are working on a specific pro<ect, they may re'uire additional raw material (which takes about 6 ? 7 days to locate, then additional days to be delivered to Donner) This causes "fter being in the same location for a year and a half, neither the machines $n fact, by 2ctober 6BAC, Donner began to e9pand their current location, which This addition @ush

interruptions to the production cycle at one operation, which in turn causes a production bottleneck at the ne9t operation 2ften times, some customers make modifications to the original specs and ask for changes in production This means that the operators have to stop working on a certain pro<ect and await new instructions from management once they receive the new specs from the customers 2nce again, this causes a production bottleneck and, more seriously, starts to shift the bottleneck to another operation process 0urthermore, rush orders represented a problem to Donner company promised = days delivery to customers The

!ooking at the

bigger picture in this situation, we have a company that is being pressured by sudden interruptions (of production), not meeting its ontime delivery, suffers from bottlenecks at almost every stage of production yet continues to promise = days delivery on rush orders This means that, no matter what, rush orders are a priority (Donner faced pressure from its competitors concerning the fulfillment of rush orders) $f raw material is needed for rush orders, it is obtained from the e9isting inventory, which is originally bought to fulfill large orders This causes possible shortages in inventory, which means that Donner.s purchasing has to locate and purchase additional material (a process that takes 7 days) The result is possibly stopping an operation process until new raw material is obtained, which also means down time for the operators (down time at one process, hence a bottleneck at a specific process) employee) and had no re<ect rate not suffer from any :hemorrhage; 2$ &rodu'ti(ity pro!lems% /owever, Donner e9perienced no $n fact, that was one area that did problems with rush orders (these orders were completed by one senior

"s a result of the operating problems, it is normal to predict, and e9pect, productivity problems (ith fre'uent down times and order changes, management cited the fact that machines are idle for longer than e9pected $n addition, standard labor time for each process (as $n depicted in e"#i!it )-A) did not reflect accurate time at Donner itself, rather it was based upon industry standards and competitors. addition, Donner.s operation is se'uential in nature, however

management is faced with a decision whether to use manual labor (for drilling and punch press) or to use the CDC machine for the same purpose $t is evident that management did not prepare a breakeven analysis to be able to ob<ectively determine which method to use with which kind of order 0urthermore, the se'uential process flow currently utilized at Donner can cause a significant idle time for workers alleviate this problem and save time on production cycle time "s my analysis will show, a parallel flow of operations, at certain points, may

3$ *uality pro!lems% Donner did not implement effective 'uality control measures to inspect the raw material or work in progress Donner depended on the The result was the individual operators. e9perience to perform informal e9amination as the operation shifted from one process to the ne9t increase rate of product return The company.s re<ect rate in

-eptember alone amounted to )E, of which 6E was a total loss and CE re'uired re-works because the end products did not meet the customers. specifications Clearly, re-works resulted in pulling operators from their current <obs to begin re-works on the returned boards, which in turn caused lack of productivity and bottlenecks )$ Deli(ery pro!lems%

-imilar to the current se'uential manufacturing policy at Donner, it is no surprise to note the delivery problems %ecause all these processes are interconnected, and especially because of the high rate of returns and re-works, Donner failed to meet is delivery dates (A days late in -eptember) %ecause re-works re'uired pulling operators away from their current functions, deadlines were not met (due to delays in manufacturing and finishing work in progress)> Donner continued to suffer from the inability to meet its delivery dates /owever, rush orders were not affected and the company continued to promise = days delivery for such orders (this also caused bottlenecks and shifting bottlenecks as rush orders were treated with special status, raw materials and workers were simmered to satisfy these orders) 0inally, the new sales manager for Donner, !loyd -earby, noted his concerns that Donner.s sales may not e9ceed F7& in sales (in 6BAA) if it continued to :bleed; from its 'uality (returns and re-works) and delivery problems /owever, both !loyd and the president believed that Donner should continue bidding for low volume orders and improve their 'uality standards, and believed this should stop the :bleed; and possibly push Donner towards F8& in sales "ll these troubles resulted in financial problems that manifested itself in reduced sales in -eptember and threatened Donner.s e9istence in the marketplace

Data Analysis:
Donner provided several e9hibits to demonstrate the following areas of its operation1

5rofit and !oss -tandard 5rocess 0low $nventory

0ollowing is an analysis of each area1 &ro+it and ,oss -e"#i!it ./%

0rom the 5#! report we can identify few key points1 Donner is, despite the manufacturing problems, profitable e9ceeded the preceding two years $n fact,

from Ganuary 6BA) to -eptember 6BA), Donner.s profit before ta9 /owever, if we analyzed each month in 6BA), it is obvious there is a negative trend from Ganuary till Guly, and another negative trend from "ugust till -eptember1

Monthly Sales Trend - 1987

$16.00 $14.00 $12.00 $10.00 Sales (USD) $8.00 $6.00 $4.00 $2.00 $0.00 Jan - Jul 1987 Jul-87 Months Aug-87 Sep-87

$t is clear that there was a sharp drop in profits from "ugust till -eptember (total of F66 ) million loss Hdrop in net profit) delivery problems occurred in -eptember, 6BA) 0urther analysis of the 5rofit and !oss sheet indicates that there was 76 working days in -eptember, 6BA) who worked A hrs H day shift worked in that month FA),C++ Donner employed 77 employees This amounted to a total of 8CBC hours 0rom the information provided by Donner, most of the manufacturing and

Direct labor amounted to FA )8 per employee

(F87,8++H8CBC hrs) Total fi9ed cost was F8=,6++ and variable cost was "dded in e"#i!it . is a column to depict the different costs per unit (based upon *)C6 units manufactured in -eptember)

Standard &ro'ess 0lo1 -e"#i!its )-A and )-B/%

5erhaps the most important e9hibit provided by Donner to enable us to identify problems and suggest solutions 0rom the information provided in e"#i!it )-A, the following can be identified and calculated1 %reakeven point to decide when to use the automated CDC drill vs manual drill (based upon number of orders) %reakeven point to decide when to use the automated CDC router vs manual punch press (based upon number of orders) $dentify bottlenecks within all areas of manufacturing with special focus on the Dry 0ilm 5hotoresist process (to perform capacity analysis of the D05@ area by assuming order size of A, A+ and A++ boards) 10

-tandard labor time for an order size of 6, A and 7++ boards

0ollowing is an analysis of each area1 -ince Donner purchased a CDC machine at FA+,+++ to perform the drilling and router functions, and also since these processes can be performed manually, it is important to decide which orders can be scheduled on the CDC machine and manually This is achieved by $t is important to performing a breakeven analysis of each function

note that the set up time for each process is fi9ed no matter the order size The run time is variable and changes per order size Calculations of the breakeven points (please refer to e"#i!it 6 for complete calculation of breakeven points), for CDC or manual drill and for CDC or manual profile processes show the following results1

Drill process1

0or orders of 6 units or less, manual drill should be utilized as it will incur fewer costs (and less overall time to process) and for orders over C units the CDC drill should be utilized because the cost will be less than if manual is used, as well as time to process 5rofile process1 boards, manual punch press should be utilized as

0or orders below 2

it will take less time and incur fewer costs, and for orders above 7++ boards the CDC router should be utilized for the same reasons

11

2"#i!it )-A can also be used to identify bottlenecks within Donner.s standard process, particularly surrounding the capacity of the dry 0ilm 5hotoresist area $t is critical to realize the true capacity to prevent $f, for e9ample, the ma9imum number bottlenecks and work-overload

of boards that the D05@ area can handle (due to the set up and run time involved in the process) is 6++, then Donner should realize that order size that passes through the drilling process should not e9ceed 6++ units (to match the D05@ capacity) $f the order sized is more than 6++ (hence, more than the ma9imum capacity that the D05@ area can handle), a bottleneck is created and possibly shifted throughout the entire manufacturing process $n addition, since the D05@ area consists of several functions, it is important to be aware of the ma9imum capacity (as per order size) to prevent bottlenecks within the D05@ area 39ceeding ma9imum capacity will have a direct 2f course, the negative impact on 'uality and on-time delivery (two problems that Donner was already suffering from in -eptember) bottleneck will change from one area of the D05@ to the other, depending on the order size and the time involved in each process 0ollowing is a table illustrating the results of an analysis of the D05@ area to determine the ma9imum daily capacity for order sizes of A, A+ and A++ units (assuming normal A hours working days ? =A+ minutes)1 2rder size 8 D05@ area 5anel 5rep )8A = *=A* C 6*8C+ 8 8

12

!aminate # 39pose

6)= =

BC+

6)==

Develop

6B+ +A

6)== A

BC++

5lease refer to e"#i!it 3 for complete calculation methods used to determine D05@ daily capacities To translate these numbers into facts, it is clear that in order to avoid bottlenecks for an order size of A boards, the number of boards that can be processed per day can not e9ceed 6)= = boards (by taking the least number of boards for each of the three stages of D05@, as it reflects the ma9imum daily capacity of orders processed) $f total boards did not e9ceed 6)= =, this is, at least, a guarantee that Donner should not e9perience bottlenecks at the D05@ area, as well as at other areas of manufacturing, for an order size of A boards The same is applied to the daily capacity for an order size of A+ boards The ma9imum daily capacity for the D05@ area is BC+ boards, 0or an order of A++ units, the ma9imum daily capacity based upon an order size of A+ "ny increase in order size will result in a bottleneck for the D05@ area is 6)== boards without bottlenecks $t is clear then that based upon the order size, the daily capacity for the D05@ area changes The larger the order size, the more capacity the area can handle, however that capacity should not e9ceed the highlighted figures %ottlenecks can cause work to pile at another stage of the process, which will impact the entire manufacturing

13

process as a whole, which is a ma<or factor in creating on-time delivery and 'uality problems $n addition, the larger the order size, the less e9pensive unit price is This is a simple application of economies of scale, which should enable Donner to continue to compete in this volatile market and maintain its competitive edge for the long term Donner suffered from a productivity problem, as noted by the 5resident of the firm, as well as the new sales manager (e"#i!it )-A) did not reflect the true labor time at Donner $n -eptember 6BA), there was a total of 8CBC hours worked ( e"#i!it .), however the standard process flow for -eptember ( e"#i!it )-A) showed a total actual hours worked of 6*86 hours This means that there was a total of 76C* hours that were considered either as down time or idle (non-revenue producing), hence1 unproductive (*BE of idle time), yet paid for by Donner This also means the following1 76C* hrs H 76 days in -eptember I 6+8 total hours wasted every working day 6+8 hours H 77 employee I * hours that are wasted by each employee every day, which is J of the working day This simply means that each employee worked an actual 8 hours on a normal A hours working day Dot only does this affect productivity, but Donner paid FA )8 per employee for A hours a day (each employee cost Donner FCB A= H day), yet they only worked for 8 hours (revenue generating production) This amounts to a loss of F=8 C* per day, per employee (FCB A= F7C 6B) Calculate this loss by 77 employees, and it is clear that Donner wasted money on wages for hours either not worked or worked %oth indicated that the labor time in the standard process flow chart

14

without generating revenue, that amounted to FBC+ 8 every working day, and F7+,6CC 8 a monthK 0urthermore, the standard labor time increases with the order size 5lease refer to e"#i!its 84 5 and 1 respectively1 2rder size !abor time &anual CDC 6 board (e9hibit )) A boards (e9hibit A) 7++ boards (e9hibit B) -standard pro'ess +lo1 area/ for complete calculations of labor time for 6, A and 7++ orders

C 8B hrs 66 6C hrs

66 *) hrs 66 A* hrs

6*8 *B hrs 8+ C) "s

$t is clear that the labor time increases with the order size

previously noted, the breakeven point for the drilling process is C boards, and the breakeven point for the profile process is 7++ boards @eviewing the table above, for an order size of 6 board, it is more cost effective for Donner to utilize an entirely manual procedure, as it takes about C =+ hrs to finish an order and have it ready to be shipped "s the order size increases (for e9ample, 7++ boards), it is clear that it is past the breakeven point and therefore takes less time to be processed utilizing CDC drill and router rather than manual processing $n addition, Donner is now faced with several options to better utilize its labor 0or e9ample1 for order size of A boards, Donner may choose To illustrate, please re+er to e"#i!its 84 5 and to utilize manual drill combined with CDC router, or CDC drill with manual punch press 1 - proposed strategies areas%

15

$t is clear from the calculations that if the order size is 6 board, it is still cost and time effective to utilize an entirely manual process (standard labor time for an entire manual processing is C 8B hrs), however once the order size increases to A boards ( e"#i!it 5 6 proposed strategy), it is less time consuming for Donner to utilize CDC drill L manual punch press, rather than an entirely manual or automated process (labor time for the proposed strategy ? CDC drill L punch press - is reduced to 6+ 7* hrs) 0or order size of e9actly 7++ boards, Donner should utilize CDC drill and may choose between punch press or CDC router (as 7++ boards is the breakeven point at which CDC drill must be utilized for time and cost effectiveness, and both punch press and CDC router take the same amount of time ? 7*+ minutes) !abor time is reduced to 8+ C) 6 proposed strategy) hrs with the proposed strategy (e"#i!it 1

0or orders above 7++ units, it is more efficient for Donner to implement a process than utilizes both CDC drill and router to ensure less labor time, less manufacturing lead time and better utilization of their resources The following table illustrates the proposed strategy and labor time.s savings for orders of A and 7++ boards1

-trateg y CDC drill L 5unch 5ress &anual drill L CDC @outer

3ntirely manual

3ntirely CDC

16

2rder size A boards (e"#i!it 5 ? standard # proposed) 7++ boards (e"#i!it 1 ? standard # proposed) 8+ C) hrs 6*8 *B hrs 6*8 *B hrs 8+ C) hrs 1 $2. #rs 68 6) hrs 66 *) hrs 66 A* hrs

$f the order size is above 7++ (for e9ample, 7*+ boards), then the labor time is 8* *) hours when CDC is used for drilling and profiling (entirely automated process), which is less than the time taken when manual processes are utilized situations second The breakeven points play a big role in these This poses a suggestion that if Donner decided to focus on machine, particularly if they followed a parallel

large volume orders (over 7++ boards)> it may be beneficial to buy a CDC manufacturing process (detail e9planation of this process will follow in the recommendation section) "s mentioned earlier, when Donner received an order and the bid had been accepted by the customer, it took about 7 days for purchasing to locate the raw material at a low price $t also took about = days from that moment until 0laherty (shop -upervisor) received the order and prepared the blueprints, scheduled work orders and allocated proper resources 2"#i!it 11 demonstrates the actual order sizes for the 0urther analysis of the inventory strategy month of -eptember, 6BA)

17

followed by Donner is depicted in e"#i!it 12, which is the stock of each raw material ordered by Donner throughout -eptember $t is suggested that Donner should carry some inventory to minimize the lead time from the moment the bid is accepted until it reaches 0laherty To determine which raw material Donner should carry $f Donner followed a strategy that depends on the strategy followed

focuses on small orders only, it makes sense to carry over a percentage of the commonly used raw material for such orders (suggested 7+E, which follows the A+H7+ rule) where A+E of these orders were below 6++ boards orders were for orders above 6++ boards To illustrate1 in 2nly 7+E of these -eptember, Donner received a total of C+ orders from customers, $f Donner decided to focus

on small orders (i e orders of less than 6++ boards), then it would make sense to carry about 7+E the following raw materials1 stock codes ", %, C, D, 3, 0 and possibly M as well $f Donner decided to focus on orders of 6++ boards and above, then the following stock codes should be carried by the firm1 ", D and possibly & "s mentioned earlier, stocking some of these raw materials should minimize manufacturing lead time as the firm will not be at the mercy of locating the entire amount once an order is received $n addition, 0laherty will not have to wait for = days to begin planning for each pro<ect $t is worth mentioning that despite the fact that A+E of orders received from customers in -eptember were for small volume boards, B+E of the total number of circuit boards manufactured was for orders of 6++ boards or more -eptember This means that large volume orders represented the largest portion of total number of boards made by Donner for This may play a role when Donner decides whether to focus on large or small volume orders, and whether it can afford to lose the customer base for each type of orders if they decided to drop one

18

$t is clear however that Donner needs to carry some inventory (regardless of their strategy) "ssuming a monthly cost of 7E (cost of carrying inventory), and assuming that Donner carried over some inventory from "ugust (to show total impact on total cost and cost per unit), we note the following1 @e-reviewing e"#i!it . (5#! summary), the cost of materials in -eptember was F=7,C++ $f Donner carried inventory from "ugust, then we add an additional 7E to -eptember.s materials cost1 F=7,C++ 9 7E I FA*7, which means that the new cost of materials for -eptember will be e'ual to F=8,=*7 depicted on e"#i!it 13$ The new calculations are $t is apparent that by adding the additional

cost of carrying inventory, total cost of materials becomes higher, which also means that the cost of materials per unit is increased from F) 8B to F) *= This also has a direct effect on total variable cost (increased from FA) C+ to FAA =*), as well as total net profit before ta9, which is reduced from F8 6& to F7 7*& Certainly, adding another cost, as the cost of carrying inventory, will have an effect on the bottom line> however it may be a strategy Donner prefers to implement to reduce lead times and enable the manufacturing process to begin sooner, given that there are no bottlenecks or any other problems within the manufacturing process You have to spend money to make money, especially if you are planning for long term existence. The appropriate volume of inventory Donner needs to carry can be determined by utilizing the A+H7+ rule, which means that (by looking into -eptember.s orders) Donner may choose to carry 7+E inventory of the most commonly ordered raw materials (A+E of total volume of each core raw material)

19

7e'ommendations %ased upon my analysis of Donner.s current situation and problems, the following are recommendations that $ deem as appropriate for the company.s survival1 7e'ommendation #1% C#ange strategy +rom 'urrent position to one 1#i'#

'on'entrates on produ'ing only small 8uantities o+ +ast turnaround SMOBCs$ Currently, Donner is fulfilling low-volume (6++ or less), high-volume (more than 6++) and e9pedited (A or less) -&2%C orders "lthough diversification of a product line is sometimes a desirable business strategy to pursue, there are several compelling reasons for Donner to concentrate on fulfilling one type of order, namely those that are lowvolume and fast turn-around1 0irst, e9celling at its core competency as a manufacturer of -&2%Cs is the primary reason Donner has managed to not only survive, but to flourish in this highly competitive and volatile industry (consisting of appro9imately )*+ firms in the , - alone) Donner has successfully maintained its competitive edge by asserting itself as a leader and enhancing various manufacturing processes and e'uipment -econd, by continuing to serve the specific market segment of small 'uantities of fast turn-around -&2%Cs, the firm will not be re'uired to seek out new customers or to develop a new core competency (either activity is burdened with uncertainty, time-consuming and additional

20

costs) $n short, the firm could continue to supply large and prestigious firms such as $%&, "T#T or Digital 3'uipment in addition to the smaller electronics firms> thus allowing Donner to target all manufacturers in the electronics industry (for low-order volumes) Third, senior management has cited the firm.s ability to anticipate and resolve problems encountered during the design and production of small volumes of -&2%Cs as one of its strengths and distinguishing features when compared to the competition Coupled with management.s desire to continue fulfilling low-volume orders (where they e9perienced no problems with re<ects or on-time delivery), the firm should pursue a policy of serving this market segment with vigour since it possesses both the e9perience and confidence to assure a high degree of success 0inally, although only a three-year old firm, its profits have grown consistently year-on-year, as shown in following graph1

21

Donner Company Net Pro it !e ore Ta"

$33,500

35000 30000 25000 20000 15000 Sales in USD 10000 5000 0 -5000 -10000 Year Sales 1985 -$6,900 1 1985 -$6,900 2 1986 $2,100 Year 3 1987 $33,500 1986 1987 $2,100 Year Sales

$t is interesting to note that they have already e9ceeded last year.s earnings in the first nine months of this year (6BA)) -uch financial facts are further evidence that the firm is clearly well positioned in the industry of producing small 'uantities of fast turn-around -&2%Cs, while avoiding the possible problems that are associated with largevolume orders (i e bottlenecks, sudden changes to the designs by customers, which may result in long idle time)

Operational and Strategi' 9mpli'ations $f the firm decides to pursue a policy of producing only small volumes of 'uick turn-around boards, it will en<oy productivity gains, better labor utilization and improved 'uality assurance, which will make Donner a more competitive and efficient firm %elow are listed the impacts, positive and negative, which will be e9perienced in specific areas of the firm.s operations in the pursuit of this strategy1 22

Materials

Currently, raw materials are being :simmered; by those who are fulfilling e9pedited orders, namely by "rthur Dief -uch a practice may consistently lead to an order remaining as a (ork in 5rogress (($5) order, in the firm.s manufacturing stream for longer than necessary ($5 are further delayed as it awaits another shipment of raw materials that were originally ac'uired for its use but now consumed by the :rush; orders 0ulfilling only small-volume, 'uick turn-around orders would re'uire the firm to either hold larger inventories of raw materials or to ac'uire materials in a more timely fashion, but would decrease the probability of this inefficient process from continuing to hamper the entire manufacturing process ,a!or utili:ation% (hen a

The :simmering; of materials also has the added disadvantage of increasing the amount of labor re'uired to produce a board costs ($5 is interrupted by an e9pedited order, it may incur additional set-up $n addition, workers then remain idle until the machine heHshe Therefore, small 'uantity orders should alleviate such a was using is made available again (after the rush order has been completed) problem since all orders being filled by the firm will be of similar size and have similar delivery dates, thus eliminating the :special status; given to rush orders and reducing the idle time, which amplifies workers. productivity Capa'ity%

The ability of the firm to increase its production capacity is being hampered by the :shifting bottleneck;, which appears throughout various stages of the manufacturing process without any particular

23

pattern

This phenomenon mainly occurs due to the variation in the Thus, by adapting a small order the :rush; order, the firm.s

order sizes and the unremitting interruption of current work flow (work in progress) in favor of rush orders order size and the concept of volume only policy, which will eliminate both the great difference in manufacturing throughput will improve significantly 9n+ormation 0lo1%

"s shown in e"#i!it 2, David 0laherty, the shop supervisor, has the greatest number of informational in and out flows " high proportion of information, both inter-departmental and inter-firm, has to pass through 0laherty "llowing him to operate effectively and efficiently will have tremendous impact on Donner.s overall performance 0laherty had indicated that due to the sizeable variations in order types, work in progress remain in the manufacturing stream for longer than necessary %y making the order-types as uniform as possible, 0laherty should find it easier to plan resources and share information 0urthermore, carrying inventory of necessary raw materials should alleviate the need for long lead time to plan for work 2++e't o+ suggested strategy on per+orman'e 'riteria% Donner.s management is concerned with the firm.s performance in the following areas1 *uality &rodu'ti(ity 0inan'ial Deli(eries

24

-ince all these items are inter-linked, an improvement in one area will lead to an improvement in all flaws in all of these areas -hould the firm decide to produce only small 'uantities of fast turn-around -&2%Cs, it will be able to fi9 the -ince new employees typically take only appro9imately 8 N months to become proficient in their assigned areas and if the order size is small, managing the orders would be easier -taff could work either individually or in teams to ensure their The orders are of high 'uality and free of errors, from the moment the order is received till the moment it is shipped to the customer productivity and morale of workers should also benefit from this as the floor staff are given more responsibility for assuring their orders efficiently move along the manufacturing process 2n-time delivery will improve as a result and will be more uniform throughout the month, rather than the current unorganized shipping strategy (as illustrated in the chart below)1

25

#al$e o a%t$al shippments in Septem&er' 1987

140000 120000 100000 80000 60000 40000 26339 20000 11118 0 -20000
1-Sep 4-Sep 5-Sep 6-Sep 7-Sep 8-Sep Daily 11118 -1188 4057 1696 2226 8430 11Sep 2395 12Sep -684 13Sep 2560 14Sep 5926 15Sep -147 18Sep 19Sep 20Sep 21Sep 22Sep 2275 25Sep 176 26Sep 27Sep 28Sep 29Sep

124836

80276 71463 69188 63627 53557 36536 28734 30610 28050 5926 2560 2395 -147 -684 13216 10070 5561 3952 2275 36389 40341 44560 71639 70312 62337

#al$e in USD

17909 15683 13987 9930 8430 4057 2226 1696 -1188

17939 176 -1327 -7975

9/ 1

3952 13216 10070 5561

-1327 -7975 17939 44560

u!ula"i#e 11118 9930 13987 15683 17909 26339 28734 28050 30610 36536 36389 40341 53557 63627 69188 71463 71639 70312 62337 80276 124836

Dates Daily Cumulative

"lso favourably affected will be the financial health of the firm since it will be able to bill its customers sooner and will carry smaller inventory of work in progress

7e'ommendation #2% C#ange strategy +rom 'urrent position to one 1#i'# 'on'entrates on produ'ing only large 8uantities o+ simple te'#nology !oards$ Currently, Donner holds a position in both the contract and captive manufacturing markets (hile initially focusing on small 'uantity specialized circuit boards for e9perimental devices and for pilot

26

production runs (proto-types), the e9perience Donner has gained over the last three years would facilitate the firm to concentrate on the large 'uantities of -imple Technology boards This will enable Donner to utilize their current core competency and resources, and focus on gaining new strengths, yielding improved 'uality and on time delivery 0ocusing on the captive market will mean that Donner will be in a position to further support its larger customers (i e $%&, "T#T, etc) with orders larger than 7++ boards (B+E of total orders received in -eptember) Operational ; Strategi' 9mpli'ations ,a!or <tili:ation% "s the chart below

Donner.s current labor use will re'uire changes

shows, significant time is saved per board when using the CDC Drill and @outer (for orders over 7++ boards)> hence no re'uirements for manual drill or punch press 3mployment could be reduced or workers could be re-deployed to work in other areas in the firm (Donner.s management cited the fact that workers are well cross-trained and able to perform different functions throughout the manufacturing process) Septembers Production Data Std Production 2peration &anual Drill CDC Drill -etup(mi n) 6* 7=+ @un (min) + +A + + ++ 2rders *6 B %oards B8C =,A7* -etup (min) )C* 7,6C+ @uns (min) 8),== + B,C*+ Total /ours C8C A 6BC A September Total

27

= The increase in batch size will reduce the time per average board for manufacture and subse'uently reduce labor time $n addition, previous calculations of breakeven points depicted the very fact1 the larger the order size, the less time the process flow looked using the CDC machine, as opposed to manual processes strategy (advantageous for large-volume orders) Capa'ity% %y choosing to manufacture <ust 5erhaps Donner should purchase a second CDC machine to accommodate this new

"s previously mentioned, capacity is dependent on the order size, product mi9 and technology choices the large 'uantity simple technology boards, product mi9 is no longer an issue, the technology is set and order size will always be high, hence producing at a lower average time per board (and low cost by utilizing economies of scale) reoccurrences Materials% $n effect, there should be more The bottlenecks inherent in the current process would be easier to identify and solve, without further

The need to source raw material on a regular urgent basis should decrease in number substantially control over the raw material stock levels as more time is available to source and locate raw material ( as delivery time for large orders is typically less restrictive) orders 0urthermore, raw material re'uired for large orders should be freed from the continuous :simmering; by rush This being said, a new strategic policy should be applied with relation to the stocking levels of raw materials to satisfy large orders (i e carry certain percentage of inventory as previously e9plained)

28

9n+ormation 0lo1% The

"nalyzing all processes within the company, by far the most fractured and comple9 (and confusing) is the information flow (e"#i!it 2) failing to complete one or two re'uired design specification blueprint at all times throughout the process production line ma<ority of the returned boards were a result of the firm missing or Currently, until an order is shipped, 0laherty keeps the factory order and This indicates that possibly, vital information is not being disseminated throughout the -eptember 6BA).s pre-shipment re<ection rate This information amounted to )E, causing a large amount of rework

flow policy must change from being centered on 0laherty 0laherty.s role should be redefined and restructured to improve the flow of information and communication $n addition, the current process of e9pediting rush orders through the manufacturing process is adversely affecting the rest of the production process and increasing the information over load 0ocusing on only large volume boards should allow for enhancements within information flow

2++e't o+ suggested strategy on per+orman'e 'riteria% " new 4uality strategy should be adopted "rthur Dief (senior worker)

could be used in this role due to his knowledge of the entire manufacturing process and the fact that he had a zero return rate There are various 'uality control strategies that could be implemented throughout the entire manufacturing process to detect (early) and prevent product defects, and to monitor the entire manufacturing process (i e si9 sigma, -5C or T4&) (orkers should be trained to 29

utilize such methods and to utilize new technologies manufacturing process

5roductivity

should be increased due to the decrease in bottlenecks throughout the @egarding the financial performance of Donner, if the sales manager (-earby) can generate the desired sales and focus on the large 'uantity simple technology boards, there should be a marked improvement in Donner.s financial health The on-time delivery should be enhanced significantly due to the company.s new strategic policy of concentrating on the large 'uantity boards, as well as the reduction in product returns and re-works $n summary, by adopting this strategy and focusing on this segment of the market, Donner should be able to compete with those current producers in the :Captive &arket; $t is critical that consistent sales numbers can be achieved $f Donner lost one or two large customers in this specialized and highly competitive market, revenue will seriously be compromised 0urthermore, Donner must be prepared to turn down a significant number of small orders customers have been the These small orders represent a of Donner.s business large portion of the established customer base (A+E)> and those backbone &anagement and workers will need to ad<ust their mentality to focus on larger orders and be willing to avoid those smaller orders

7e'ommendation# 3% C#ange strategy +rom 'urrent position to one 1#i'# 'on'entrates on produ'ing large ; small 8uantities o+ simple te'#nology !oards4 t#roug# t#e use o+ t1o separate produ'tion lines$

30

Currently, Donner is already operating and manufacturing for both segments of the market with considerable success and a solid customer base /owever, in serving both the low # high volume markets, it is becoming increasing evident that the production processes and facilities are under significant stress $t is also clear that the present production facilities have been designed primarily around small order size production (since Donner originally started as a producer for contract markets) "t the same time, Donner is trying to !loyd -earby.s adapt itself, workers and facility to cope with the diversification in product lines (the penetration of :captive markets;) sales forecast looks very promising for the company, yet this will only be realized if the company can achieve faster delivery time, coupled with fewer work in progress and re-works " large part of the problem in meeting these faster delivery times and the increased number of reworks and work in progress appears to be the effects that :rush orders; have on the entire production process (ork in progress (($5) is usually delayed in order to e9pedite these rush orders in a delivery time of four days (ith the additional 6A++-s' feet of factory space available in the near future, it may be the best time make a strategic move to develop two separate production facilities, with two separate product lines This e9tra production line should be designed to meet small volume # rush orders The e9isting production line can then be fully devoted for large volume production purposes and Donner should purchase a second CDC machine and run two separate production lines to accommodate this new strategy (advantageous for large-volume orders) $f two production lines are established, it will simplify the production process and make it more efficient, increase the workers. productivity, improve delivery dates and increase volume of work secured in both

31

the contract and captive markets, thus increasing the overall customer base

Operational ; Strategi' 9mpli'ations ,a!or <tili:ation%

"t the present time, Donner.s workers are only working productively for only 8 hours of their working day and idle (unproductive) for * hours (8CBC total hours in -eptember, however only 6*86 hours are actually worked for the month of -eptember) three main problems1 0irst1 there is considerable time wasted through the fre'uent stop # start manufacturing process directly resulting from rush orders -econd1 inade'uate operational organization of current production facilities Third1 ineffective communication and flow of vital information from 0laherty Through the strategic move of introducing a second production line, it will be feasible to improve productivity from each work, as work should be able to flow continuously through each production line without interruption 0urthermore, adopting a parallel manufacturing process will result in less manufacturing lead time and faster completion of orders, which will enhance on-time delivery $n addition, workers can be deployed more effectively in each production line, as <ob functions will become more defined leading to less confusion and less time wasted as the case in the current manufacturing process This issue stems from

32

"lso, it is clear that the current manufacturing process results in having too many responsibilities lie on the shoulders of very few people (namely1 0laherty) (ith two production lines in operation simultaneously, David 0laherty could be made responsible for the large volume production line, with "rthur Dief (as a senior and e9perienced worker) managing the smaller production line "rthur Dief is, clearly, valuable to Donner from "rthur "lso, new workers could receive their training This strategy will allow Donner to better utilize all

available resources and focus on improving productivity, 'uality, information flow, delivery and, in essence, the bottom line 0urthermore, if Donner adopted this strategy, $ would also recommend applying a parallel process flow as it will result in reduced manufacturing lead time Current process flow is se'uential in nature

"ssume an order size of 7++ boards (where CDC drill will be utilized), the se'uence of the process flow is as follows1

Artwork generation 29 minutes to set up Inspect and sheer 32 5 minutes

!unch too"ing ho"e 22 5 minutes

#$# dri"" set up time 240 minutes

"nalyzing the current process, it is evident that it takes a total of 87= minutes from the time an artwork is generated until CDC drilling 33

commences During such time it is also evident that there is a total of ** minutes of idle time that occurs at the CDC drilling station The worker who is responsible for the CDC drilling is, literally, idle and waiting for the artwork generation, then for the inspect and sheer process, then for the punch tooling hole processes to be completed then he or she would begin the CDC set up (which takes 7=+ minutes) %y applying a parallel process flow, this idle time can be reduced significantly The new process may look as follows1

Art work generation 29 minutes

Inspect and %heer 32 5 minutes

!unch too"ing ho"e 22 5 minutes

#$# dri"" 185 minutes to set up

#$# run 640 minutes

The moment artwork generation is completed, two copies are passed onto both stations1 inspect and sheer as well as the CDC drill, so that the worker responsible for setting up the CDC machine may begin his set up process without waiting (being idle H unproductive) for ** minutes (the time spent on inspect # sheer and punch tooling processes) This amounts to a total of ** minutes saved on production 34

cycle time (87= min vs 7CB min proposed under the parallel process flow) @educed cycle time will translate into better efficiency and productivity, which will add to Donner.s bottom line and improve the on-time delivery process The parallel process flow can be utilized at any stage of the production cycle, regardless of the order size productivity $t is another method to improve $n addition, eliminating any non-value-added processes

from the manufacturing process will improve productivity (i e unnecessary time spent to transfer completed boards to the tanks ? back and forth ? and other low hanging fruits that hamper the overall productivity) Capa'ity%

The capacity of Donner.s current production facility is not being fully realized, as it is not fully optimized for low or high volume circuit board manufacturing %y utilizing two production lines, each can be optimized for their respective production purposes, and potential bottlenecks will be easier to identify and resolve This strategic move should allow Donner to achieve the potential sales volume of F8 million by 6BAA as, predicted by the sales manager Materials%

Donner.s current delivery problems stem from several reasons, including re-works, rush orders and the effect they have on ($5s, and also the inade'uate inventory policy e9isting within the company David 0laherty had acknowledged that he often delayed his scheduling for several days until the raw materials arrived from the vendor "s previously analyzed, it is understandable that it would not be possible to stock all raw materials, but a certain core raw materials should be

35

stocked to avoid valuable days being lost in the present order processing system, as well as to avoid vendors. volatilities The costs incurred by carrying inventory should be realized with sales figures increase, improved 'uality and on-time delivery 9n+ormation 0lo1%

The current information flow within Donner can be described as incredibly inade'uateK "dopting this strategy will succeed only if information flows faster and becomes more readily available Gust as there are bottlenecks in the production process, there are also bottlenecks in the current information system 2rders are taking up to "s four days to reach 0laherty, after the bid has been accepted This e9cessive time period is adding to the e9isting delivery problem previously described, Donner will hold certain levels of inventory of specific raw materials> which will lead to a shorter lead-time of manufacturing and information to 0laherty, as well as to his workers The amount of inventory carried can be determined by the A+H7+ rule, which means that Donner could hold 7+E inventory of core raw materials based upon A+E of their individual order sizes in -eptember (Donner could determine a monthly baseline or, should they elect to, 'uarterly baseline to determine appropriate level of inventory) "lso, by improving information flow and simplifying the process, Donner could become a market leader in the delivery time of its products, as well as in 'uality and fewer product return rates *uality and on-time deli(ery% Currently, there is not one specific /owever,

2nce the new strategic move is adopted by Donner, a new 'uality strategy should also be adopted person responsible for ensuring 'uality standards are met

by implementing highly effective 'uality control measures (si9-sigma,

36

-5C or T4&), this should improve 'uality standards and reduce product returns 5roductivity will also be increased for the same reasons outlined above Concerning Donner.s financial status, the firm can generate more sales figures, as a result of improved productivity and 'uality, and possibly attain the sales figure planned by -earby (F8&) 39penses incurred during this strategic move should be recouped with increased sales The on-time delivery should be increased significantly due to the company.s new strategic policy of having two separate production lines, each independent, with each optimized for their respective production processes This will help alleviate the delay and confusion inherent in the current system

Con'lusion
"fter reviewing Donner.s current strategic plans, it is evident that certain operations of the company are no longer compatible with Donner.s ob<ectives There is a need to change while concentrating on the company.s core competency %y attempting to serve both captive and contract markets, Donner has the opportunity to e9pand its market and customer base, as well as improve productivity, 'uality, financial health, labor utilization and capacity Donner could remain one of the market leaders and maintain its competitive edge "ll these factors will lead to increased sales $t is therefore my conclusion that re'ommendation # 3 is the most appropriate and effective solution to Donner.s current problems

37