Donner Case Study - MBA 621.pdf

7/25/2019 Donner Case Study - MBA 621.pdf

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Medaille College

MBA-621

Operations Management

Case Study #2

Donner Company

3/8/2006

mr bbas


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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. Large electronic

firms (AT&T, IBM) produced their components in captive shops, while smaller

sized companies, or when large and small quantities of simple technology or fast

turn-around prototype boards were required, these requests usually are fulfilled

by contract shops.

With 750 competitors in the US alone, and a market that is volatile, Donners

ability to anticipate and resolve design problems and prototype techniques

enabled it to maintain its competitive edge. However, this competitive edge has

been compromised by poor on-time 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 companys position and different strategic policies.

Following is detailed analysis and recommendations by evaluating the current

conditions of the company, particularly the following areas:

Operational and strategic implications of company direction

Labor utilization

Materials

Capacity Information flow

Evaluating the following performance criteria: Quality, Productivity and

Delivery.


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Following detailed analysis of data, process flow and inventory strategies, my

recommendations will be focused on the following opportunities:

1. Changing strategy from current position to one which concentrates on

producing only small quantities of fast turn-around SMOBCs.


producing only large quantities of simple technology boards.


producing large & small quantities of simple technology boards, through the

use of two separate production lines.

Company Objectives and Overview of Problems:

With a company that is managed primarily by engineers, Donners core

competency was, obviously, its engineering expertise, and it producedspecialized circuit boards known as soldermask over bare copper (SMOBC)

boards. Donner positioned itself to manufacture these boards to small and large

electronic firms and management envisioned it as one of the industry leaders.

However, in order to achieve this objective, perhaps Donner needed a

management that is more business oriented rather than being managed by

engineers who dont necessarily possess the business sense to run a firm.

Donner employed 22 production employees, managed by 4 senior executives.

Please refer to exhibit 1 for Donners organizational chart. Operators were cross-

trained and able to perform different functions in different departments. This is

considered to be a major advantage for a company to have; the ability to deploy

employees to perform different functions in different areas (as needed).


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However, 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 Flaherty, 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. Flaherty is in charge of preparing

work schedules, which occurred several days after the raw material has arrived

from the vendor (most orders reached him 4 days after customers bids had been

accepted, which included the time needed by purchasing to locate the raw

material at a low price 1 2 days on average). Flaherty spent much of his time

planning and determining how to move jobs ahead of others and how to shift

workers from one operation to another (to meet unexpected customers changes

to specifications and to meet the deadlines for rush orders). Please refer to the

information flow chart (exhibit 2) and the order process flow chart (exhibit 3).

Donner promised its customers 3 weeks delivery on orders of 1000 boards orless, and 5 weeks on orders larger than 1000 boards. Rush orders (orders of 8

boards or less) were delivered after 4 days.

Donner operated at a plant that was carefully chosen by management to

minimize installation costs, preserved the life of expensive machinery and

isolated the operations diverse environment. After being in the same location

for a year and a half, neither the machines nor the graphic equipment exhibited

any signs of corrosion. In fact, by October 1986, Donner began to expand their

current location, which was fully utilized, by installing an 1800 sq ft addition.

This addition was due to be completed by November, 1987.


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Donners 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 earlier: managed primarily by engineers, not necessarily business

oriented).

Analyzing Donners current situations, it is evident that the company is suffering

from several problems relating to its manufacturing, labor, quality and delivery.

Following is a highlight and a brief analysis of each of Donners problems:

1.

Operating problems:

Management could not manage the production bottlenecks effectively. Each

order was different, as per each customers specifications. Since there is no set

quality policy in place, some raw material may be defective. When operators are

working on a specific project, they may require additional raw material (which

takes about 1 2 days to locate, then additional days to be delivered to Donner).

This causes interruptions to the production cycle at one operation, which in turn

causes a production bottleneck at the next operation.

Often 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 project and await new instructions from management once they

receive the new specs from the customers. Once again, this causes a production

bottleneck and, more seriously, starts to shift the bottleneck to another operation

process.

Furthermore, rush orders represented a problem to Donner. The companypromised 4 days delivery to customers. Looking at the bigger picture in this

situation, we have a company that is being pressured by sudden interruptions (of

production), not meeting its on-time delivery, suffers from bottlenecks at almost

every stage of production yet continues to promise 4 days delivery on rush


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orders. This means that, no matter what, rush orders are a priority (Donner

faced pressure from its competitors concerning the fulfillment of rush orders). If

raw material is needed for rush orders, it is obtained from the existing inventory,

which is originally bought to fulfill large orders. This causes possible shortages

in inventory, which means that Donners purchasing has to locate and purchase

additional material (a process that takes 2 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). However, Donner experienced no problems with rush orders (these

orders were completed by one senior employee) and had no reject rate. In fact,

that was one area that did not suffer from any hemorrhage.

2.

Productivity problems:

As a result of the operating problems, it is normal to predict, and expect,

productivity problems. With frequent down times and order changes,

management cited the fact that machines are idle for longer than expected. In

addition, standard labor time for each process (as depicted in exhibit 4-A) did

not reflect accurate time at Donner itself, rather it was based upon industrystandards and competitors. In addition, Donners operation is sequential in

nature, however management is faced with a decision whether to use manual

labor (for drilling and punch press) or to use the CNC machine for the same

purpose. It is evident that management did not prepare a breakeven analysis to

be able to objectively determine which method to use with which kind of order.

Furthermore, the sequential process flow currently utilized at Donner can cause

a significant idle time for workers. As my analysis will show, a parallel flow ofoperations, at certain points, may alleviate this problem and save time on

production cycle time.


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3.

Quality problems:

Donner did not implement effective quality control measures to inspect the raw

material or work in progress. Donner depended on the individual operators

experience to perform informal examination as the operation shifted from one

process to the next. The result was the increase rate of product return. The

companys reject rate in September alone amounted to 7%, of which 1% was a

total loss and 6% required re-works because the end products did not meet the

customers specifications. Clearly, re-works resulted in pulling operators from

their current jobs to begin re-works on the returned boards, which in turn caused

lack of productivity and bottlenecks.

4.

Delivery problems:

Similar to the current sequential manufacturing policy at Donner, it is no

surprise to note the delivery problems. Because all these processes are

interconnected, and especially because of the high rate of returns and re-works,

Donner failed to meet is delivery dates (8 days late in September). Because re-

works required 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.

However, rush orders were not affected and the company continued to promise

4 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).

Finally, the new sales manager for Donner, Lloyd Searby, noted his concerns that

Donners sales may not exceed $2M in sales (in 1988) if it continued to bleed

from its quality (returns and re-works) and delivery problems. However, both

Lloyd and the president believed that Donner should continue bidding for low


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volume orders and improve their quality standards, and believed this should

stop the bleed and possibly push Donner towards $3M in sales.

All these troubles resulted in financial problems that manifested itself in reduced

sales in September and threatened Donners existence in the marketplace.

Data Analysis:

Donner provided several exhibits to demonstrate the following areas of its

operation:

Profit and Loss

Standard Process Flow

Inventory

Following is an analysis of each area:

Profit and Loss (exhibit 5):

From the P&L report we can identify few key points:

Donner is, despite the manufacturing problems, profitable. In fact, from January

1987 to September 1987, Donners profit before tax exceeded the preceding two

years. However, if we analyzed each month in 1987, it is obvious there is a

negative trend from January till July, and another negative trend from August till

September:


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It is clear that there was a sharp drop in profits from August till September (total

of $11.7 million loss /drop in net profit). From the information provided by

Donner, most of the manufacturing and delivery problems occurred in

September, 1987.

Further analysis of the Profit and Loss sheet indicates that there was 21 working

days in September, 1987. Donner employed 22 employees who worked 8 hrs /

day shift. This amounted to a total of 3696 hours worked in that month. Direct

labor amounted to $8.73 per employee ($32,300/3696 hrs). Total fixed cost was

$34,100 and variable cost was $87,600. Added in exhibit 5is a column to depict

the different costs per unit (based upon 5761 units manufactured in September).


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Standard Process Flow (exhibits 4-A and 4-B):

Perhaps the most important exhibit provided by Donner to enable us to

identify problems and suggest solutions. From the information provided in

exhibit 4-A, the following can be identified and calculated:

Breakeven point to decide when to use the automated CNC drill vs.

manual drill (based upon number of orders)

Breakeven point to decide when to use the automated CNC router vs.

manual punch press (based upon number of orders)

Identify bottlenecks within all areas of manufacturing with special focus

on the Dry Film Photoresist process (to perform capacity analysis of the

DFPR area by assuming order size of 8, 80 and 800 boards)

Standard labor time for an order size of 1, 8 and 200 boards

Following is an analysis of each area:

Since Donner purchased a CNC machine at $80,000 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 CNC machine and

manually. This is achieved by performing a breakeven analysis of each function.

It is important to note that the set up time for each process is fixed no matter the

order size. The run time is variable and changes per order size.

Calculations of the breakeven points (please refer to exhibit 6 for complete

calculation of breakeven points), for CNC or manual drill and for CNC or

manual profile processes show the following results:


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Drill process:

For orders of 6units or less, manual drill should be utilized as it will incur fewer

costs (and less overall time to process) and for orders over 6 units the CNC drill

should be utilized because the cost will be less than if manual is used, as well as

time to process.

Profile process:

For orders below 200boards, manual punch press should be utilized as it will

take less time and incur fewer costs, and for orders above 200 boards the CNC

router should be utilized for the same reasons.

Exhibit 4-A can also be used to identify bottlenecks within Donners standard

process, particularly surrounding the capacity of the dry Film Photoresist area. It

is critical to realize the true capacity to prevent bottlenecks and work-overload.

If, for example, the maximum number of boards that the DFPR area can handle

(due to the set up and run time involved in the process) is 100, then Donner

should realize that order size that passes through the drilling process should not

exceed 100 units (to match the DFPR capacity). If the order sized is more than

100 (hence, more than the maximum capacity that the DFPR area can handle), a

bottleneck is created and possibly shifted throughout the entire manufacturing

process. In addition, since the DFPR area consists of several functions, it is

important to be aware of the maximum capacity (as per order size) to prevent

bottlenecks within the DFPR area. Exceeding maximum capacity will have a

direct negative impact on quality and on-time delivery (two problems that

Donner was already suffering from in September). Of course, the bottleneck will

change from one area of the DFPR to the other, depending on the order size and

the time involved in each process.


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Following is a table illustrating the results of an analysis of the DFPR area to

determine the maximum daily capacity for order sizes of 8, 80 and 800 units

(assuming normal 8 hours working days 480 minutes):

Order size

DFPR area

8 80 800

Panel Prep 738.4 5485.6 15360

Laminate &

Expose

174.4 960 1744

Develop 190.08 1744.8 9600

Please refer to exhibit 7 for complete calculation methods used to determine

DFPR daily capacities.

To translate these numbers into facts, it is clear that in order to avoid bottlenecks

for an order size of 8 boards, the number of boards that can be processed per day

can not exceed 174.4 boards (by taking the least number of boards for each of the

three stages of DFPR, as it reflects the maximum daily capacity of orders

processed). If total boards did not exceed 174.4, this is, at least, a guarantee that

Donner should not experience bottlenecks at the DFPR area, as well as at other

areas of manufacturing, for an order size of 8 boards.

The same is applied to the daily capacity for an order size of 80 boards. The

maximum daily capacity for the DFPR area is 960 boards, based upon an order

size of 80. Any increase in order size will result in a bottleneck. For an order of


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800 units, the maximum daily capacity for the DFPR area is 1744 boards without

bottlenecks.

It is clear then that based upon the order size, the daily capacity for the DFPR

area changes. The larger the order size, the more capacity the area can handle,

however that capacity should not exceed the highlighted figures. Bottlenecks

can cause work to pile at another stage of the process, which will impact the

entire manufacturing process as a whole, which is a major factor in creating on-

time delivery and quality problems.

In addition, the larger the order size, the less expensive 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 President of the

firm, as well as the new sales manager. Both indicated that the labor time in the

standard process flow chart (exhibit 4-A) did not reflect the true labor time at

Donner.

In September 1987, there was a total of 3696 hours worked (exhibit 5), however

the standard process flow for September (exhibit 4-A) showed a total actual

hours worked of 1531 hours. This means that there was a total of 2165 hours that

were considered either as down time or idle (non-revenue producing), hence:

unproductive (59% of idle time), yet paid for by Donner. This also means thefollowing:

2165 hrs / 21 days in September = 103 total hours wasted every working day


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103 hours / 22 employee = 5 hours that are wasted by each employee every day,

which is !of the working day. This simply means that each employee worked

an actual 3 hours on a normal 8 hours working day. Not only does this affect

productivity, but Donner paid $8.73 per employee for 8 hours a day (each

employee cost Donner $69.84 / day), yet they only worked for 3 hours (revenue

generating production). This amounts to a loss of $43.65 per day, per employee

($69.84 - $26.19). Calculate this loss by 22 employees, and it is clear that Donner

wasted money on wages for hours either not worked or worked without

generating revenue, that amounted to $960.3 every working day, and $20,166.3 a

month!

Furthermore, the standard labor time increases with the order size. Please refer

to exhibits 8, 9 and 10 (standard process flow area)for complete calculations of

labor time for 1, 8 and 200 orders respectively:

Order size

Labor time

1 board

(exhibit 7)

8 boards

(exhibit 8)

200 boards

(exhibit 9)

Manual 6.39 hrs 11.57 hrs 153.59 hrs

CNC 11.16 hrs 11.85 hrs 30.67

It is clear that the labor time increases with the order size. As previously noted,

the breakeven point for the drilling process is 6 boards, and the breakeven point

for the profile process is 200 boards. Reviewing the table above, for an order size

of 1 board, it is more cost effective for Donner to utilize an entirely manual

procedure, as it takes about 6.40 hrs to finish an order and have it ready to be

shipped. As the order size increases (for example, 200 boards), it is clear that it is

past the breakeven point and therefore takes less time to be processed utilizing

CNC drill and router rather than manual processing.


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In addition, Donner is now faced with several options to better utilize its labor.

For example: for order size of 8 boards, Donner may choose to utilize manual

drill combined with CNC router, or CNC drill with manual punch press. To

illustrate, please refer to exhibits 8, 9 and 10- proposed strategies areas:

It is clear from the calculations that if the order size is 1 board, it is still cost and

time effective to utilize an entirely manual process (standard labor time for an

entire manual processing is 6.39 hrs), however once the order size increases to 8

boards (exhibit 9 proposed strategy), it is less time consuming for Donner to

utilize CNC drill + manual punch press, rather than an entirely manual or

automated process (labor time for the proposed strategy CNC drill + punch

press - is reduced to 10.25 hrs).

For order size of exactly 200 boards, Donner should utilize CNC drill and may

choose between punch press or CNC router (as 200 boards is the breakeven point

at which CNC drill must be utilized for time and cost effectiveness, and both

punch press and CNC router take the same amount of time 250 minutes).

Labor time is reduced to 30.67 hrs with the proposed strategy (exhibit 10

proposed strategy). For orders above 200 units, it is more efficient for Donner toimplement a process than utilizes both CNC 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 times savings for

orders of 8 and 200 boards:


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Strategy

Order size

CNC drill +

Punch Press

Manual drill +

CNC RouterEntirelymanual

Entirely CNC

8 boards

(exhibit 9

standard &

proposed)

10.25 hrs 13.17 hrs 11.57 hrs 11.85 hrs

200 boards

(exhibit 10

standard &proposed)

30.67 hrs 153.59 hrs 153.59 hrs 30.67 hrs

If the order size is above 200 (for example, 250 boards), then the labor time is

35.57 hours when CNC is used for drilling and profiling (entirely automated

process), which is less than the time taken when manual processes are utilized.

The breakeven points play a big role in these situations. This poses a suggestion

that if Donner decided to focus on large volume orders (over 200 boards); it may

be beneficial to buy a second CNC machine, particularly if they followed a

parallel manufacturing process (detail explanation of this process will follow in

the recommendation section).

As mentioned earlier, when Donner received an order and the bid had been

accepted by the customer, it took about 2 days for purchasing to locate the rawmaterial at a low price. It also took about 4 days from that moment until

Flaherty (shop Supervisor) received the order and prepared the blueprints,

scheduled work orders and allocated proper resources. Exhibit 11demonstrates

the actual order sizes for the month of September, 1987. Further analysis of the


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inventory strategy followed by Donner is depicted in exhibit 12, which is the

stock of each raw material ordered by Donner throughout September. It is

suggested that Donner should carry some inventory to minimize the lead time

from the moment the bid is accepted until it reaches Flaherty. To determine

which raw material Donner should carry depends on the strategy followed. If

Donner followed a strategy that focuses on small orders only, it makes sense to

carry over a percentage of the commonly used raw material for such orders

(suggested 20%, which follows the 80/20 rule). To illustrate: in September,

Donner received a total of 60 orders from customers, where 80% of these orders

were below 100 boards. Only 20% of these orders were for orders above 100

boards. If Donner decided to focus on small orders (i.e. orders of less than 100

boards), then it would make sense to carry about 20% the following raw

materials: stock codes A, B, C, D, E, F and possibly K as well. If Donner decided

to focus on orders of 100 boards and above, then the following stock codes

should be carried by the firm: A, D and possibly M. As 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. In addition, Flaherty will not have to wait for 4 days to begin planning

for each project.

It is worth mentioning that despite the fact that 80% of orders received from

customers in September were for small volume boards, 90% of the total number

of circuit boards manufactured was for orders of 100 boards or more. This

means that large volume orders represented the largest portion of total number

of boards made by Donner for September. 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.


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It is clear however that Donner needs to carry some inventory (regardless of their

strategy). Assuming a monthly cost of 2% (cost of carrying inventory), and

assuming that Donner carried over some inventory from August (to show total

impact on total cost and cost per unit), we note the following:

Re-reviewing exhibit 5(P&L summary), the cost of materials in September was

$42,600. If Donner carried inventory from August, then we add an additional 2%

to Septembers materials cost: $42,600 x 2% = $852, which means that the new

cost of materials for September will be equal to $43,452. The new calculations

are depicted on exhibit 13. It 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 $7.39 to $7.54. This also has a

direct effect on total variable cost (increased from $87.60 to $88.45), as well as

total net profit before tax, which is reduced from $3.1M to $2.25M. 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 80/20 rule, which means that (by looking into

Septembers orders) Donner may choose to carry 20% inventory of the most

commonly ordered raw materials (80% of total volume of each core raw

material).


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Recommendations

Based upon my analysis of Donners current situation and problems, the

following are recommendations that I deem as appropriate for the companys

survival:

Recommendation #1:

Change strategy from current position to one which concentrates on

producing only small quantities of fast turn-around SMOBCs.

Currently, Donner is fulfilling low-volume (100 or less), high-volume (more than

100) and expedited (8 or less) SMOBC orders. Although 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 low-volume and fast turn-around:

First, excelling at its core competency as a manufacturer of SMOBCs is the

primary reason Donner has managed to not only survive, but to flourish in this

highly competitive and volatile industry (consisting of approximately 750 firms

in the U.S. alone). Donner has successfully maintained its competitive edge by

asserting itself as a leader and enhancing various manufacturing processes and

equipment.

Second, by continuing to serve the specific market segment of small quantities of

fast turn-around SMOBCs, the firm will not be required to seek out new

customers or to develop a new core competency (either activity is burdened with

uncertainty, time-consuming and additional costs). In short, the firm could

continue to supply large and prestigious firms such as IBM, AT&T or Digital

Equipment in addition to the smaller electronics firms; thus allowing Donner to

target all manufacturers in the electronics industry (for low-order volumes).


20/35

Third, senior management has cited the firms ability to anticipate and resolve

problems encountered during the design and production of small volumes of

SMOBCs as one of its strengths and distinguishing features when compared to

the competition. Coupled with managements desire to continue fulfilling low-

volume orders (where they experienced no problems with rejects or on-time

delivery), the firm should pursue a policy of serving this market segment with

vigour since it possesses both the experience and confidence to assure a high

degree of success.

Finally, although only a three-year old firm, its profits have grown consistently

year-on-year, as shown in following graph:

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It is interesting to note that they have already exceeded last years earnings in

the first nine months of this year (1987). Such financial facts are further evidence


21/35

that the firm is clearly well positioned in the industry of producing small

quantities of fast turn-around SMOBCs, while avoiding the possible problems

that are associated with large-volume orders (i.e. bottlenecks, sudden changes to

the designs by customers, which may result in long idle time).

Operational and Strategic Implications

If the firm decides to pursue a policy of producing only small volumes of quick

turn-around boards, it will enjoy productivity gains, better labor utilization and

improved quality assurance, which will make Donner a more competitive and

efficient firm. Below are listed the impacts, positive and negative, which will beexperienced in specific areas of the firms operations in the pursuit of this

strategy:

Materials

Currently, raw materials are being simmered by those who are fulfilling

expedited orders, namely by Arthur Dief. Such a practice may consistently lead

to an order remaining as a Work in Progress (WIP) order, in the firmsmanufacturing stream for longer than necessary. WIP are further delayed as it

awaits another shipment of raw materials that were originally acquired for its

use but now consumed by the rush orders. Fulfilling only small-volume, quick

turn-around orders would require the firm to either hold larger inventories of

raw materials or to acquire materials in a more timely fashion, but would

decrease the probability of this inefficient process from continuing to hamper the

entire manufacturing process.

Labor utilization:

The simmering of materials also has the added disadvantage of increasing the

amount of labor required to produce a board. When a WIP is interrupted by an


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expedited order, it may incur additional set-up costs. In addition, workers then

remain idle until the machine he/she was using is made available again (after the

rush order has been completed). Therefore, small quantity orders should

alleviate such a 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.

Capacity:

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 pattern. This phenomenon mainly

occurs due to the variation in the order sizes and the unremitting interruption of

current work flow (work in progress) in favor of rush orders. Thus, by adapting

a small order volume only policy, which will eliminate both the great difference

in order size and the concept of the rush order, the firms manufacturing

throughput will improve significantly.

Information Flow:

As shown in exhibit 2, David Flaherty, the shop supervisor, has the greatest

number of informational in and out flows. A high proportion of information,

both inter-departmental and inter-firm, has to pass through Flaherty. Allowing

him to operate effectively and efficiently will have tremendous impact on

Donners overall performance. Flaherty had indicated that due to the sizeable

variations in order types, work in progress remain in the manufacturing stream

for longer than necessary. By making the order-types as uniform as possible,

Flaherty should find it easier to plan resources and share information.

Furthermore, carrying inventory of necessary raw materials should alleviate the

need for long lead time to plan for work.

Effect of suggested strategy on performance criteria:


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Donners management is concerned with the firms performance in the following

areas:

Quality

Productivity

Financial

Deliveries

Since all these items are inter-linked, an improvement in one area will lead to an

improvement in all. Should the firm decide to produce only small quantities of

fast turn-around SMOBCs, it will be able to fix the flaws in all of these areas.Since new employees typically take only approximately 3 "months to become

proficient in their assigned areas and if the order size is small, managing the

orders would be easier. Staff could work either individually or in teams to

ensure their orders are of high quality and free of errors, from the moment the

order is received till the moment it is shipped to the customer. The 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 themanufacturing process.

On-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):


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Also 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.

Recommendation #2:


producing only large quantities of simple technology boards.

Currently, Donner holds a position in both the contract and captive

manufacturing markets. While initially focusing on small quantity specialized

circuit boards for experimental devices and for pilot production runs (proto-

types), the experience Donner has gained over the last three years would


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facilitate the firm to concentrate on the large quantities of Simple Technology

boards. This will enable Donner to utilize their current core competency and

resources, and focus on gaining new strengths, yielding improved quality and on

time delivery.

Focusing on the captive market will mean that Donner will be in a position to

further support its larger customers (i.e. IBM, AT&T, etc) with orders larger than

200 boards (90% of total orders received in September)

Operational & Strategic Implications

Labor Utilization:

Donners current labor use will require changes. As the chart below shows,

significant time is saved per board when using the CNC Drill and Router (for

orders over 200 boards); hence no requirements for manual drill or punch press.

Employment could be reduced or workers could be re-deployed to work in other

areas in the firm (Donners management cited the fact that workers are well

cross-trained and able to perform different functions throughout the

manufacturing process).

Septembers Production Data September Total Std Production

Operation Setup(min) Run

(min)

Orders Boards Setup

(min)

Runs

(min)

Total

Hours

Manual

Drill

15 0.080 51 936 765 37,440 636.8

CNC Drill 240 0.004 9 4,825 2,160 9,650 196.8

The increase in batch size will reduce the time per average board for

manufacture and subsequently reduce labor time. In addition, previous


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calculations of breakeven points depicted the very fact: the larger the order size,

the less time the process flow looked using the CNC machine, as opposed to

manual processes. Perhaps Donner should purchase a second CNC machine to

accommodate this new strategy (advantageous for large-volume orders).

Capacity:

As previously mentioned, capacity is dependent on the order size, product mix

and technology choices. By choosing to manufacture just the large quantity

simple technology boards, product mix 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). The bottlenecks

inherent in the current process would be easier to identify and solve, without

further reoccurrences.

Materials:

The need to source raw material on a regular urgent basis should decrease in

number substantially. In effect, there should be more 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). Furthermore, raw

material required for large orders should be freed from the continuous

simmering by rush orders. 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 explained).

Information Flow:

Analyzing all processes within the company, by far the most fractured and

complex (and confusing) is the information flow (exhibit 2). The majority of the


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returned boards were a result of the firm missing or failing to complete one or

two required design specification. Currently, until an order is shipped, Flaherty

keeps the factory order and blueprint at all times throughout the process. This

indicates that possibly, vital information is not being disseminated throughout

the production line. September 1987s pre-shipment rejection rate amounted to

7%, causing a large amount of rework. This information flow policy must

change from being centered on Flaherty. Flahertys role should be redefined and

restructured to improve the flow of information and communication. In

addition, the current process of expediting rush orders through the

manufacturing process is adversely affecting the rest of the production process

and increasing the information over load. Focusing on only large volume boards

should allow for enhancements within information flow.

Effect of suggested strategy on performance criteria:

A new Quality strategy should be adopted. Arthur 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 quality 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. six sigma, SPC or TQM). Workers should be trained

to utilize such methods and to utilize new technologies. Productivity should be

increased due to the decrease in bottlenecks throughout the manufacturing

process. Regarding the financial performance of Donner, if the sales manager

(Searby) can generate the desired sales and focus on the large quantity simple

technology boards, there should be a marked improvement in Donners financial

health. The on-time delivery should be enhanced significantly due to the

companys new strategic policy of concentrating on the large quantity boards, as

well as the reduction in product returns and re-works.


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In 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 Market. It is critical that consistent sales numbers can be achieved. If

Donner lost one or two large customers in this specialized and highly

competitive market, revenue will seriously be compromised. Furthermore,

Donner must be prepared to turn down a significant number of small orders.

These small orders represent a large portion of the established customer base

(80%); and those customers have been the backbone of Donners business.

Management and workers will need to adjust their mentality to focus on larger

orders and be willing to avoid those smaller orders.

Recommendation# 3:


producing large & small quantities of simple technology boards,

through the use of two separate production lines.

Currently, Donner is already operating and manufacturing for both segments of

the market with considerable success and a solid customer base. However, in

serving both the low & high volume markets, it is becoming increasing evident

that the production processes and facilities are under significant stress. It 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). At the same time, Donner is trying to adapt itself, workers

and facility to cope with the diversification in product lines (the penetration of

captive markets). Lloyd Searbys 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. A large part of the


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problem in meeting these faster delivery times and the increased number of re-

works and work in progress appears to be the effects that rush orders have on

the entire production process. Work in progress (WIP) is usually delayed in

order to expedite these rush orders in a delivery time of four days. With the

additional 1800-sq. 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 extra production line should be designed to

meet small volume & rush orders. The existing production line can then be fully

devoted for large volume production purposes and Donner should purchase a

second CNC machine and run two separate production lines to accommodate

this new strategy (advantageous for large-volume orders).

If 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 the contract and captive

markets, thus increasing the overall customer base.

Operational & Strategic Implications

Labor Utilization:

At the present time, Donners workers are only working productively for only 3

hours of their working day and idle (unproductive) for 5 hours (3696 total hours

in September, however only 1531 hours are actually worked for the month of

September). This issue stems from three main problems:

First: there is considerable time wasted through the frequent stop & start

manufacturing process directly resulting from rush orders.

Second: inadequate operational organization of current production

facilities.


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Third: ineffective communication and flow of vital information from

Flaherty.

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. Furthermore,

adopting a parallel manufacturing process will result in less manufacturing lead

time and faster completion of orders, which will enhance on-time delivery. In

addition, workers can be deployed more effectively in each production line, as

job functions will become more defined leading to less confusion and less time

wasted as the case in the current manufacturing process.

Also, it is clear that the current manufacturing process results in having too

many responsibilities lie on the shoulders of very few people (namely: Flaherty).

With two production lines in operation simultaneously, David Flaherty could be

made responsible for the large volume production line, with Arthur Dief (as a

senior and experienced worker) managing the smaller production line. Arthur

Dief is, clearly, valuable to Donner. Also, new workers could receive their

training from Arthur. This strategy will allow Donner to better utilize all

available resources and focus on improving productivity, quality, information

flow, delivery and, in essence, the bottom line.

Furthermore, if Donner adopted this strategy, I would also recommend applying

a parallel process flow as it will result in reduced manufacturing lead time.

Current process flow is sequential in nature. Assume an order size of 200 boards

(where CNC drill will be utilized), the sequence of the process flow is as follows:

Artwork generation 29 minutes to

set up


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Analyzing the current process, it is evident that it takes a total of 324 minutes

from the time an artwork is generated until CNC drilling commences. During

such time it is also evident that there is a total of 55 minutes of idle time that

occurs at the CNC drilling station. The worker who is responsible for the CNC

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 CNC set up (which takes 240

minutes).

By applying a parallel process flow, this idle time can be reduced significantly.

The new process may look as follows:

Inspect and sheer 32.5 minutes

Punch tooling hole 22.5 minutes

CNC drill set up time 240 minutes

Art work generation 29 minutes

Inspect andSheer

32.5minutes


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The moment artwork generation is completed, two copies are passed onto both

stations: inspect and sheer as well as the CNC drill, so that the worker

responsible for setting up the CNC machine may begin his set up process

without waiting (being idle / unproductive) for 55 minutes (the time spent on

inspect & sheer and punch tooling processes). This amounts to a total of 55

minutes saved on production cycle time (324 min. vs. 269 min. proposed under

the parallel process flow). Reduced cycle time will translate into better efficiency

and productivity, which will add to Donners 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. It is another method to improve productivity. In

addition, eliminating any non-value-added processes from the manufacturing

process will improve productivity (i.e. un-necessary time spent to transfer

completed boards to the tanks back and forth and other low hanging fruits

that hamper the overall productivity).

Capacity:

The capacity of Donners current production facility is not being fully realized, as

it is not fully optimized for low or high volume circuit board manufacturing. By

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 $3 million by 1988 as, predicted by the sales manager.

Punchtooling

hole 22.5minutes

CNC drill 185

minutes toset up

CNC run 640

minutes


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Materials:

Donners current delivery problems stem from several reasons, including re-

works, rush orders and the effect they have on WIPs, and also the inadequate

inventory policy existing within the company. David Flaherty had

acknowledged that he often delayed his scheduling for several days until the raw

materials arrived from the vendor. As previously analyzed, it is understandable

that it would not be possible to stock all raw materials, but a certain core raw

materials should be 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 quality and on-time delivery.

Information Flow:

The current information flow within Donner can be described as incredibly

inadequate! Adopting this strategy will succeed only if information flows faster

and becomes more readily available. Just as there are bottlenecks in the

production process, there are also bottlenecks in the current information system.

Orders are taking up to four days to reach Flaherty, after the bid has been

accepted. This excessive time period is adding to the existing delivery problem.

As 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 Flaherty, as well as to his workers. The amount of inventory

carried can be determined by the 80/20 rule, which means that Donner could

hold 20% inventory of core raw materials based upon 80% of their individual

order sizes in September (Donner could determine a monthly baseline or, should

they elect to, quarterly baseline to determine appropriate level of inventory).

Also, 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 quality

and fewer product return rates.


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Quality and on-time delivery:

Once the new strategic move is adopted by Donner, a new quality strategy

should also be adopted. Currently, there is not one specific person responsible

for ensuring quality standards are met. However, by implementing highly

effective quality control measures (six-sigma, SPC or TQM), this should improve

quality standards and reduce product returns. Productivity will also be increased

for the same reasons outlined above. Concerning Donners financial status, the

firm can generate more sales figures, as a result of improved productivity and

quality, and possibly attain the sales figure planned by Searby ($3M). Expenses

incurred during this strategic move should be recouped with increased sales.

The on-time delivery should be increased significantly due to the companys 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.

Conclusion

After reviewing Donners current strategic plans, it is evident that certain

operations of the company are no longer compatible with Donners objectives.

There is a need to change while concentrating on the companys core

competency.

By attempting to serve both captive and contract markets, Donner has the

opportunity to expand its market and customer base, as well as improve

productivity, quality, financial health, labor utilization and capacity. Donner

could remain one of the market leaders and maintain its competitive edge. All

these factors will lead to increased sales. It is therefore my conclusion that


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recommendation # 3is the most appropriate and effective solution to Donners

current problems.

Donner Case Study - MBA 621.pdf

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