Medaille College MBA-621 Operations Management Case Study #2

Donner Company
3/8/2006

Amr Abbas
1

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 lar e volume, eneric (captive) printed circuit boards market! "ar e electronic firms (#T$T, %&') produced their components in captive shops, while smaller sized companies, or when lar e and small (uantities of simple technolo y 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 desi n problems and prototype techni(ues enabled it to maintain its competitive ed e! 0owever, this competitive ed e has been compromised by poor ontime delivery and hi h rate of product return, in addition to plannin and manufacturin problems that caused bottlenecks, shiftin bottlenecks and improper utilization of labor! These problems be an to hamper the overall performance of the firm, and mana ement started evaluatin the company/s position and different strate ic policies! 1ollowin is detailed analysis and recommendations by evaluatin the current conditions of the company, particularly the followin areas2 3perational and strate ic implications of company direction "abor utilization 'aterials Capacity %nformation flow 4valuatin the followin performance criteria2 5uality, 6roductivity and Delivery! detailed analysis of data, process flow and inventory strate ies, my

1ollowin

recommendations will be focused on the followin opportunities2 7

1! Chan in strate y from current position to one which concentrates on producin only small (uantities of fast turn-around .'3&Cs! 7! Chan in strate y from current position to one which concentrates on producin only lar e (uantities of simple technolo y boards! 8! Chan in strate y from current position to one which concentrates on producin lar e $ small (uantities of simple technolo y boards, throu h the use of two separate production lines!

Company Objectives and Overview of Problems:

)ith a company that is mana ed primarily by en ineers, Donner/s core competency was, obviously, its en ineerin e9pertise, and it produced specialized circuit boards known as :soldermask over bare copper; (.'3&C) boards! Donner positioned itself to manufacture these boards to small and lar e electronic firms and mana ement envisioned it as one of the industry leaders! 0owever, in order to achieve this ob<ective, perhaps Donner needed a mana ement that is more business oriented rather than bein mana ed by en ineers who don/t necessarily possess the :business sense; to run a firm! Donner employed 77 production employees, mana ed by = senior e9ecutives! 6lease refer to exhibit 1 for Donner/s or anizational chart! 3perators were cross-trained and able to perform different functions in different departments! This is considered to be a ma<or advanta e for a company to have> the ability to deploy employees to perform different functions in different areas (as needed)! 0owever, it seemed that there was a lack of effective communication strate y within the or anization, 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 han in fruits)!

David 1laherty, shop supervisor, is responsible for all aspects of the manufacturin processes from the time he received the order and blueprint until the order has been completed and shipped! 1laherty is in char e of preparin 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 purchasin to locate the raw material at a low price ? 1 ? 7 days on avera e)! 1laherty spent much of his time plannin and determinin how to move <obs ahead of others and how to shift workers from one operation to another (to meet une9pected customers/ chan es to specifications and to meet the deadlines for rush orders)! 6lease refer to the information flow chart (exhibit 2) and the order process flow chart (exhibit 3)! Donner promised its customers 8 weeks delivery on orders of 1,,, boards or less, and + weeks on orders lar er than 1,,, boards! @ush orders (orders of A boards or less) were delivered after = days! Donner operated at a plant that was carefully chosen by mana ement to minimize installation costs, preserved the life of e9pensive machinery and isolated the operation/s diverse environment! #fter bein in the same location for a year and a half, neither the machines nor the raphic e(uipment e9hibited any si ns of corrosion! %n fact, by 3ctober 1BAC, Donner be an to e9pand their current location, which was fully utilized, by installin an 1A,, s( ft addition! This addition was due to be completed by Dovember, 1BA*! Donner/s mana ement had to implement policies that, in addition to manufacturin , had to be cost effective, as Donner was not able to attract outside capital (cited earlier2 mana ed primarily by en ineers, not necessarily business oriented)! #nalyzin Donner/s current situations, it is evident that the company is sufferin from several problems relatin to its manufacturin , labor, (uality and delivery! 1ollowin is a hi hli ht and a brief analysis of each of Donner/s problems2 1. Operating problems: =

'ana ement could not mana e the production bottlenecks effectively! 4ach 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 workin on a specific pro<ect, they may re(uire additional raw material (which takes about 1 ? 7 days to locate, then additional days to be delivered to Donner)! ne9t operation! 3ften times, some customers make modifications to the ori inal specs and ask for chan es in production! This means that the operators have to stop workin on a certain pro<ect and await new instructions from mana ement once they receive the new specs from the customers! 3nce a ain, this causes a production bottleneck and, more seriously, starts to shift the bottleneck to another operation process! 1urthermore, rush orders represented a problem to Donner! The company promised = days delivery to customers! "ookin at the bi er picture in this situation, we have a company that is bein pressured by sudden interruptions (of production), not meetin its on-time delivery, suffers from bottlenecks at almost every sta e 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 concernin the fulfillment of rush orders)! %f raw material is needed for rush orders, it is obtained from the e9istin inventory, which is ori inally bou ht to fulfill lar e orders! This causes possible shorta es in inventory, which means that Donner/s purchasin has to locate and purchase additional material (a process that takes 7 days)! The result is possibly stoppin 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)! 0owever, Donner e9perienced no problems with rush orders (these orders were completed by one senior employee) and had no re<ect rate! %n fact, that was one area that did not suffer from any :hemorrha e;! 2. Productivit problems: This causes interruptions to the production cycle at one operation, which in turn causes a production bottleneck at the

#s a result of the operatin problems, it is normal to predict, and e9pect, productivity problems! )ith fre(uent down times and order chan es, mana ement cited the fact that machines are idle for lon er than e9pected! %n addition, standard labor time for each process (as depicted in exhibit !"#) did not reflect accurate time at Donner itself, rather it was based upon industry standards and competitors/! %n addition, Donner/s operation is se(uential in nature, however mana ement is faced with a decision whether to use manual labor (for drillin and punch press) or to use the CDC machine for the same purpose! %t is evident that mana ement did not prepare a breakeven analysis to be able to ob<ectively determine which method to use with which kind of order! 1urthermore, the se(uential process flow currently utilized at Donner can cause a si nificant idle time for workers! #s my analysis will show, a parallel flow of operations, at certain points, may alleviate this problem and save time on production cycle time!

3. $ualit problems: Donner did not implement effective (uality control measures to inspect the raw material or work in pro ress! Donner depended on the individual operators/ e9perience to perform informal e9amination as the operation shifted from one process to the ne9t! The result was the increase rate of product return! The company/s re<ect rate in .eptember alone amounted to *E, of which 1E 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 pullin operators from their current <obs to be in re-works on the returned boards, which in turn caused lack of productivity and bottlenecks! !. %eliver problems: .imilar to the current se(uential manufacturin policy at Donner, it is no surprise to note the delivery problems! &ecause all these processes are interconnected, and especially because of the hi h rate of returns and re-works, Donner failed to meet is delivery dates (A days late in .eptember)! &ecause re-works re(uired pullin operators away from their current functions, deadlines were not met (due to delays in manufacturin and finishin C

work in pro ress)> Donner continued to suffer from the inability to meet its delivery dates! 0owever, rush orders were not affected and the company continued to promise = days delivery for such orders (this also caused bottlenecks and shiftin bottlenecks as rush orders were treated with special status, raw materials and workers were simmered to satisfy these orders)! 1inally, the new sales mana er for Donner, "loyd .earby, noted his concerns that Donner/s sales may not e9ceed F7' in sales (in 1BAA) if it continued to :bleed; from its (uality (returns and re-works) and delivery problems! 0owever, both "loyd and the president believed that Donner should continue biddin 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! for low volume orders and improve their (uality standards, and believed this should stop the :bleed; and possibly

Data Analysis:
Donner provided several e9hibits to demonstrate the followin areas of its operation2 6rofit and "oss .tandard 6rocess 1low %nventory

1ollowin is an analysis of each area2 Pro&it and 'oss (exhibit )*:

1rom the 6$" report we can identify few key points2

Donner is, despite the manufacturin problems, profitable! %n fact, from Ganuary 1BA* to .eptember 1BA*, Donner/s profit before ta9 e9ceeded the precedin two years! 0owever, if we analyzed each month in 1BA*, it is obvious there is a ne ative trend from Ganuary till Guly, and another ne ative trend from #u ust till .eptember2

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 #u ust till .eptember (total of F11!* million loss Hdrop in net profit)! 1rom the information provided by Donner, most of the manufacturin and delivery problems occurred in .eptember, 1BA*! 1urther analysis of the 6rofit and "oss sheet indicates that there was 71 workin days in .eptember, 1BA*! Donner employed 77 employees who worked A hrs H day shift! This amounted to a total of 8CBC hours worked in that month! Direct labor amounted to FA!*8 per employee (F87,8,,H8CBC hrs)! Total fi9ed cost was F8=,1,, and variable cost was FA*,C,,! #dded in exhibit ) is a column to depict the different costs per unit (based upon +*C1 units manufactured in .eptember)!

+tandard Process ,lo- (exhibits !"# and !".*:

6erhaps the most important e9hibit provided by Donner to enable us to identify problems and su est solutions! 1rom the information provided in exhibit !"#, the followin can be identified and calculated2 &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 manufacturin with special focus on the Dry 1ilm 6hotoresist process (to perform capacity analysis of the D16@ area by assumin order size of A, A, and A,, boards) .tandard labor time for an order size of 1, A and 7,, boards

1ollowin is an analysis of each area2 .ince Donner purchased a CDC machine at FA,,,,, to perform the drillin 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 performin a breakeven analysis of each function! %t is important to note that the set up time for each process is fi9ed no matter the order size! The run time is variable and chan es per order size! Calculations of the breakeven points (please refer to exhibit 6 for complete calculation of breakeven points), for CDC or manual drill and for CDC or manual profile processes show the followin results2

Drill process2

1or 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! 6rofile process2

1or orders below 200 boards, manual punch press should be utilized as 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! /xhibit !"# can also be used to identify bottlenecks within Donner/s standard process, particularly surroundin the capacity of the dry 1ilm 6hotoresist area! %t is critical to realize the true capacity to prevent bottlenecks and work-overload! %f, for e9ample, the ma9imum number of boards that the D16@ area can handle (due to the set up and run time involved in the process) is 1,,, then Donner should realize that order size that passes throu h the drillin process should not e9ceed 1,, units (to match the D16@ capacity)! %f the order sized is more than 1,, (hence, more than the ma9imum capacity that the D16@ area can handle), a bottleneck is created and possibly shifted throu hout the entire manufacturin process! %n addition, since the D16@ area consists of several functions, it is important to be aware of the ma9imum capacity (as per order size) to prevent bottlenecks within the D16@ area! 49ceedin ma9imum capacity will have a direct ne ative impact on (uality and on-time delivery (two problems that Donner was already sufferin from in .eptember)! 3f course, the bottleneck will chan e from one area of the D16@ to the other, dependin on the order size and the time involved in each process! 1ollowin is a table illustratin the results of an analysis of the D16@ area to determine the ma9imum daily capacity for order sizes of A, A, and A,, units (assumin normal A hours workin days ? =A, minutes)2 1,

3rder size D16@ area 8 80 800

6anel 6rep

*8A!=

+=A+!C

1+8C,

"aminate $ 49pose

1*=!=

BC,

1*==

Develop

1B,!,A

1*==!A

BC,,

6lease refer to exhibit 0 for complete calculation methods used to determine D16@ 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 1*=!= boards (by takin the least number of boards for each of the three sta es of D16@, as it reflects the ma9imum daily capacity of orders processed)! %f total boards did not e9ceed 1*=!=, this is, at least, a uarantee that Donner should not e9perience bottlenecks at the D16@ area, as well as at other areas of manufacturin , 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 D16@ area is BC, boards, based upon an order size of A,! #ny increase in order size will result in a bottleneck! 1or an order of A,, units, the ma9imum daily capacity for the D16@ area is 1*== boards without bottlenecks! %t is clear then that based upon the order size, the daily capacity for the D16@ area chan es! The lar er the order size, the more capacity the area can handle, however that

11

capacity should not e9ceed the hi hli hted fi ures! &ottlenecks can cause work to pile at another sta e of the process, which will impact the entire manufacturin process as a whole, which is a ma<or factor in creatin on-time delivery and (uality problems! %n addition, the lar er 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 ed e for the lon term! Donner suffered from a productivity problem, as noted by the 6resident of the firm, as well as the new sales mana er! &oth indicated that the labor time in the standard process flow chart (exhibit !"#) did not reflect the true labor time at Donner! %n .eptember 1BA*, there was a total of 8CBC hours worked ( exhibit )), however the standard process flow for .eptember (exhibit !"#) showed a total actual hours worked of 1+81 hours! This means that there was a total of 71C+ hours that were considered either as down time or idle (non-revenue producin ), hence2 unproductive (+BE of idle time), yet paid for by Donner! This also means the followin 2 71C+ hrs H 71 days in .eptember I 1,8 total hours wasted every workin day 1,8 hours H 77 employee I + hours that are wasted by each employee every day, which is J of the workin day! This simply means that each employee worked an actual 8 hours on a normal A hours workin 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 eneratin production)! This amounts to a loss of F=8!C+ per day, per employee (FCB!A= - F7C!1B)! Calculate this loss by 77 employees, and it is clear that Donner wasted money on wa es for hours either not worked or worked without eneratin revenue, that amounted to FBC,!8 every workin day, and F7,,1CC!8 a monthK 1urthermore, the standard labor time increases with the order size! 6lease refer to exhibits 81 2 and 10 (standard process &lo- area* for complete calculations of labor time for 1, A and 7,, orders respectively2

17

3rder size 1 board (e9hibit "abor time 'anual CDC *) C!8B hrs 11!1C hrs A boards (e9hibit A) 11!+* hrs 11!A+ hrs 7,, boards (e9hibit B) 1+8!+B hrs 8,!C*

%t is clear that the labor time increases with the order size! #s previously noted, the breakeven point for the drillin process is C boards, and the breakeven point for the profile process is 7,, boards! @eviewin 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 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 utilizin CDC drill and router rather than manual processin ! %n addition, Donner is now faced with several options to better utilize its labor! 1or e9ample2 for order size of A boards, Donner may choose to utilize manual drill combined with CDC router, or CDC drill with manual punch press! To illustrate, please re&er to exhibits 81 2 and 10 - proposed strategies areas: %t 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 processin is C!8B hrs), however once the order size increases to A boards ( exhibit 2 3 proposed strateg ), it is less time consumin for Donner to utilize CDC drill L manual punch press, rather than an entirely manual or automated process (labor time for the proposed strate y ? CDC drill L punch press - is reduced to 1,!7+ hrs)! 1or 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* hrs with the proposed strate y (exhibit 10 3 proposed strateg )! 1or orders above 7,,

18

units, it is more efficient for Donner to implement a process than utilizes both CDC drill and router to ensure less labor time, less manufacturin lead time and better utilization of their resources! The followin table illustrates the proposed strate y and labor time/s savin s for orders of A and 7,, boards2

.trate y CDC drill L 6unch 6ress 3rder size A boards (exhibit 2 ? standard $ proposed) 7,, boards (exhibit 10 ? standard $ proposed) 8,!C* hrs 1+8!+B hrs 1+8!+B hrs 8,!C* hrs 10.2) hrs 18!1* hrs 11!+* hrs 11!A+ hrs 'anual drill L CDC @outer 4ntirely manual 4ntirely CDC

%f the order size is above 7,, (for e9ample, 7+, boards), then the labor time is 8+!+* hours when CDC is used for drillin and profilin (entirely automated process), which is less than the time taken when manual processes are utilized! The breakeven points play a bi role in these situations! This poses a su estion that if Donner decided to focus on lar e volume orders (over 7,, boards)> it may be beneficial to buy a second CDC 1=

machine, particularly if they followed a parallel manufacturin e9planation of this process will follow in the recommendation section)!

process (detail

#s mentioned earlier, when Donner received an order and the bid had been accepted by the customer, it took about 7 days for purchasin to locate the raw material at a low price! %t also took about = days from that moment until 1laherty (shop .upervisor) received the order and prepared the blueprints, scheduled work orders and allocated proper resources! /xhibit 11 demonstrates the actual order sizes for the month of .eptember, 1BA*! 1urther analysis of the inventory strate y followed by Donner is depicted in exhibit 12, which is the stock of each raw material ordered by Donner throu hout .eptember! %t is su ested that Donner should carry some inventory to minimize the lead time from the moment the bid is accepted until it reaches 1laherty! To determine which raw material Donner should carry depends on the strate y followed! %f Donner followed a strate y that focuses on small orders only, it makes sense to carry over a percenta e of the commonly used raw material for such orders (su ested 7,E, which follows the A,H7, rule)! To illustrate2 in .eptember, Donner received a total of C, orders from customers, where A,E of these orders were below 1,, boards! 3nly 7,E of these orders were for orders above 1,, boards! %f Donner decided to focus on small orders (i!e! orders of less than 1,, boards), then it would make sense to carry about 7,E the followin raw materials2 stock codes #, &, C, D, 4, 1 and possibly M as well! %f Donner decided to focus on orders of 1,, boards and above, then the followin stock codes should be carried by the firm2 #, D and possibly '! #s mentioned earlier, stockin some of these raw materials should minimize manufacturin lead time as the firm will not be at the mercy of locatin the entire amount once an order is received! %n addition, 1laherty will not have to wait for = days to be in plannin for each pro<ect! %t is worth mentionin 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 1,, boards or more! This means that lar e volume orders represented the lar est portion of total number of boards made by Donner for .eptember! This may play a role when Donner decides whether to focus on lar e or small volume

1+

orders, and whether it can afford to lose the customer base for each type of orders if they decided to drop one! %t is clear however that Donner needs to carry some inventory (re ardless of their strate y)! #ssumin a monthly cost of 7E (cost of carryin inventory), and assumin that Donner carried over some inventory from #u ust (to show total impact on total cost and cost per unit), we note the followin 2 @e-reviewin exhibit ) (6$" summary), the cost of materials in .eptember was F=7,C,,! %f Donner carried inventory from #u ust, then we add an additional 7E to .eptember/s materials cost2 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! The new calculations are depicted on exhibit 13. %t is apparent that by addin the additional cost of carryin inventory, total cost of materials becomes hi her, 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!1' to F7!7+'! Certainly, addin another cost, as the cost of carryin inventory, will have an effect on the bottom line> however it may be a strate y Donner prefers to implement to reduce lead times and enable the manufacturin process to be in sooner, iven that there are no bottlenecks or any other problems within the manufacturin 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 utilizin the A,H7, rule, which means that (by lookin 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)!

4ecommendations

1C

&ased upon my analysis of Donner/s current situation and problems, the followin are recommendations that % deem as appropriate for the company/s survival2 4ecommendation 51: 6hange strateg &rom current position to one -hich concentrates on producing onl small 7uantities o& &ast turn"around +8O.6s. Currently, Donner is fulfillin low-volume (1,, or less), hi h-volume (more than 1,,) and e9pedited (A or less) .'3&C orders! #lthou h diversification of a product line is sometimes a desirable business strate y to pursue, there are several compellin reasons for Donner to concentrate on fulfillin one type of order, namely those that are lowvolume and fast turn-around2 1irst, e9cellin at its core competency as a manufacturer of .'3&Cs is the primary reason Donner has mana ed to not only survive, but to flourish in this hi hly competitive and volatile industry (consistin of appro9imately *+, firms in the -!.! alone)! Donner has successfully maintained its competitive ed e by assertin enhancin various manufacturin processes and e(uipment! .econd, by continuin to serve the specific market se ment of small (uantities of fast turn-around .'3&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, timeconsumin and additional costs)! %n short, the firm could continue to supply lar e and presti ious firms such as %&', #T$T or Di ital 4(uipment in addition to the smaller electronics firms> thus allowin Donner to tar et all manufacturers in the electronics industry (for low-order volumes)! Third, senior mana ement has cited the firm/s ability to anticipate and resolve problems encountered durin the desi n and production of small volumes of .'3&Cs as one of its stren ths and distin uishin features when compared to the competition! Coupled with mana ement/s desire to continue fulfillin low-volume orders (where they e9perienced 1* itself as a leader and

no problems with re<ects or on-time delivery), the firm should pursue a policy of servin this market se ment with vi our since it possesses both the e9perience and confidence to assure a hi h de ree of success! 1inally, althou h only a three-year old firm, its profits have rown consistently year-onyear, as shown in followin raph2

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 interestin to note that they have already e9ceeded last year/s earnin s in the first nine months of this year (1BA*)! .uch financial facts are further evidence that the firm is clearly well positioned in the industry of producin small (uantities of fast turn-around .'3&Cs, while avoidin the possible problems that are associated with lar e-volume orders (i!e! bottlenecks, sudden chan es to the desi ns by customers, which may result in lon idle time)!

Operational and +trategic 9mplications

1A

%f the firm decides to pursue a policy of producin only small volumes of (uick turnaround boards, it will en<oy productivity ains, better labor utilization and improved (uality assurance, which will make Donner a more competitive and efficient firm! &elow are listed the impacts, positive and ne ative, which will be e9perienced in specific areas of the firm/s operations in the pursuit of this strate y2 8aterials .uch a practice may consistently lead to an order

Currently, raw materials are bein :simmered; by those who are fulfillin e9pedited orders, namely by #rthur Dief! remainin as a )ork in 6ro ress ()%6) order, in the firm/s manufacturin stream for lon er than necessary! )%6 are further delayed as it awaits another shipment of raw materials that were ori inally ac(uired for its use but now consumed by the :rush; orders! 1ulfillin only small-volume, (uick turn-around orders would re(uire the firm to either hold lar er inventories of raw materials or to ac(uire materials in a more timely fashion, but would decrease the probability of this inefficient process from continuin to hamper the entire manufacturin process! 'abor utili:ation:

The :simmerin ; of materials also has the added disadvanta e of increasin the amount of labor re(uired to produce a board! )hen a )%6 is interrupted by an e9pedited order, it may incur additional set-up costs! %n addition, workers then remain idle until the machine heHshe was usin is made available a ain (after the rush order has been completed)! Therefore, small (uantity orders should alleviate such a problem since all orders bein filled by the firm will be of similar size and have similar delivery dates, thus eliminatin the :special status; iven to rush orders and reducin the idle time, which amplifies workers/ productivity! :shiftin 6apacit : bottleneck;, which appears throu hout various sta es of the manufacturin

The ability of the firm to increase its production capacity is bein hampered by the process without any particular pattern! This phenomenon mainly occurs due to the 1B

variation in the order sizes and the unremittin interruption of current work flow (work in pro ress) in favor of rush orders! Thus, by adaptin a small order volume only policy, which will eliminate both the reat difference in order size and the concept of the :rush; order, the firm/s manufacturin throu hput will improve si nificantly! 9n&ormation ,lo-: # hi h proportion of information, both inter-

#s shown in exhibit 2, David 1laherty, the shop supervisor, has the reatest number of informational in and out flows! departmental and inter-firm, has to pass throu h 1laherty! #llowin him to operate effectively and efficiently will have tremendous impact on Donner/s overall performance! 1laherty had indicated that due to the sizeable variations in order types, work in pro ress remain in the manufacturin stream for lon er than necessary! &y makin the ordertypes as uniform as possible, 1laherty should find it easier to plan resources and share information! 1urthermore, carryin inventory of necessary raw materials should alleviate the need for lon lead time to plan for work! /&&ect o& suggested strateg on per&ormance criteria: Donner/s mana ement is concerned with the firm/s performance in the followin areas2 $ualit Productivit ,inancial %eliveries

.ince all these items are inter-linked, an improvement in one area will lead to an improvement in all! .hould the firm decide to produce only small (uantities of fast turnaround .'3&Cs, it will be able to fi9 the flaws in all of these areas! .ince new employees typically take only appro9imately 8 N months to become proficient in their assi ned areas and if the order size is small, mana in the orders would be easier! .taff could work either individually or in teams to ensure their orders are of hi h (uality and

7,

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 iven more responsibility for assurin their orders efficiently move alon the manufacturin process! 3n-time delivery will improve as a result and will be more uniform throu hout the month, rather than the current unor anized shippin strate y (as illustrated in the chart below)2

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

140000 120000 100000 80000 60000 40000 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 26339 17909 15683 13987 9930 8430 4057 2226 -1188 1696 28734 30610 28050 5926 2560 2395 -147 -684 13216 10070 5561 3952 2275 36389 40341 44560 71639 70312 62337

#al$e in USD

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 pro ress!

4ecommendation 52:

71

6hange strateg

&rom current position to one -hich concentrates on

producing onl large 7uantities o& simple technolog boards. Currently, Donner holds a position in both the contract and captive manufacturin markets! )hile initially focusin on small (uantity specialized circuit boards for e9perimental devices and for pilot production runs (proto-types), the e9perience Donner has ained over the last three years would facilitate the firm to concentrate on the lar e (uantities of .imple Technolo y boards! This will enable Donner to utilize their current core competency and resources, and focus on ainin new stren ths, yieldin improved (uality and on time delivery! 1ocusin on the captive market will mean that Donner will be in a position to further support its lar er customers (i!e! %&', #T$T, etc) with orders lar er than 7,, boards (B,E of total orders received in .eptember) Operational ; +trategic 9mplications 'abor <tili:ation:

Donner/s current labor use will re(uire chan es! #s the chart below shows, si nificant time is saved per board when usin the CDC Drill and @outer (for orders over 7,, boards)> hence no re(uirements for manual drill or punch press! 4mployment could be reduced or workers could be re-deployed to work in other areas in the firm (Donner/s mana ement cited the fact that workers are well cross-trained and able to perform different functions throu hout the manufacturin process)! Septembers Production Data 3peration 'anual Drill CDC Drill .etup(min) 1+ 7=, @un (min) ,!,A, ,!,,= 3rders +1 B &oards B8C =,A7+ September Total Std Production .etup (min) *C+ 7,1C, @uns (min) 8*,==, B,C+, Total 0ours C8C!A 1BC!A 77

The increase in batch size will reduce the time per avera e board for manufacture and subse(uently reduce labor time! %n addition, previous calculations of breakeven points depicted the very fact2 the lar er the order size, the less time the process flow looked usin the CDC machine, as opposed to manual processes! 6erhaps Donner should purchase a second CDC machine to accommodate this new strate y (advanta eous for lar e-volume orders)! 6apacit : &y choosin to manufacture <ust the lar e (uantity simple

#s previously mentioned, capacity is dependent on the order size, product mi9 and technolo y choices! technolo y boards, product mi9 is no lon er an issue, the technolo y is set and order size will always be hi h, hence producin at a lower avera e time per board (and low cost by utilizin economies of scale)! The bottlenecks inherent in the current process would be easier to identify and solve, without further reoccurrences! 8aterials:

The need to source raw material on a re ular ur ent basis should decrease in number substantially! %n 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 lar e orders is typically less restrictive)! 1urthermore, raw material re(uired for lar e orders should be freed from the continuous :simmerin ; by rush orders! This bein said, a new strate ic policy should be applied with relation to the stockin levels of raw materials to satisfy lar e orders (i!e! carry certain percenta e of inventory as previously e9plained)!

9n&ormation ,lo-:

#nalyzin all processes within the company, by far the most fractured and comple9 (and confusin ) is the information flow (exhibit 2)! The ma<ority of the returned boards were 78

a result of the firm missin

or failin

to complete one or two re(uired desi n This indicates that possibly, vital

specification! Currently, until an order is shipped, 1laherty keeps the factory order and blueprint at all times throu hout the process! information is not bein disseminated throu hout the production line! .eptember 1BA*/s pre-shipment re<ection rate amounted to *E, causin a lar e amount of rework! This information flow policy must chan e from bein centered on 1laherty! 1laherty/s role should be redefined and restructured to improve the flow of information and communication! %n addition, the current process of e9peditin rush orders throu h the manufacturin process is adversely affectin the rest of the production process and increasin the information over load! 1ocusin on only lar e volume boards should allow for enhancements within information flow!

/&&ect o& suggested strateg on per&ormance criteria: # new 5uality strate y should be adopted! #rthur Dief (senior worker) could be used in this role due to his knowled e of the entire manufacturin process and the fact that he had a zero return rate! There are various (uality control strate ies that could be implemented throu hout the entire manufacturin process to detect (early) and prevent product defects, and to monitor the entire manufacturin process (i!e! si9 si ma, .6C or T5')! )orkers should be trained to utilize such methods and to utilize new technolo ies! 6roductivity should be increased due to the decrease in bottlenecks throu hout the manufacturin process! @e ardin the financial performance of Donner, if the sales mana er (.earby) can enerate the desired sales and focus on the lar e (uantity simple technolo y boards, there should be a marked improvement in Donner/s financial health! The on-time delivery should be enhanced si nificantly due to the company/s new strate ic policy of concentratin on the lar e (uantity boards, as well as the reduction in product returns and re-works! %n summary, by adoptin this strate y and focusin on this se ment of the market, Donner should be able to compete with those current producers in the :Captive 'arket;!

7=

%t is critical that consistent sales numbers can be achieved! %f Donner lost one or two lar e customers in this specialized and hi hly competitive market, revenue will seriously be compromised! 1urthermore, Donner must be prepared to turn down a si nificant number of small orders! These small orders represent a lar e portion of the established customer base (A,E)> and those customers have been the backbone of Donner/s business! 'ana ement and workers will need to ad<ust their mentality to focus on lar er orders and be willin to avoid those smaller orders!

4ecommendation5 3: 6hange strateg &rom current position to one -hich concentrates on

producing large ; small 7uantities o& simple technolog boards1 through the use o& t-o separate production lines. Currently, Donner is already operatin and manufacturin for both se ments of the

market with considerable success and a solid customer base! 0owever, in servin both the low $ hi h volume markets, it is becomin increasin evident that the production processes and facilities are under si nificant stress! %t is also clear that the present production facilities have been desi ned primarily around small order size production (since Donner ori inally started as a producer for contract markets)! #t the same time, Donner is tryin to adapt itself, workers and facility to cope with the diversification in product lines (the penetration of :captive markets;)! "loyd .earby/s sales forecast looks very promisin for the company, yet this will only be realized if the company can achieve faster delivery time, coupled with fewer work in pro ress and re-works! # lar e part of the problem in meetin these faster delivery times and the increased number of re-works and work in pro ress appears to be the effects that :rush orders; have on the entire production process! )ork in pro ress ()%6) is usually delayed in order to e9pedite these rush orders in a delivery time of four days! )ith the additional 1A,,-s(! feet of factory space available in the near future, it may be the best time make a strate ic move to develop two separate production facilities, with two separate product lines! This e9tra

7+

production line should be desi ned to meet small volume $ rush orders! The e9istin production line can then be fully devoted for lar e volume production purposes and Donner should purchase a second CDC machine and run two separate production lines to accommodate this new strate y (advanta eous for lar e-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 the contract and captive markets, thus increasin the overall customer base!

Operational ; +trategic 9mplications 'abor <tili:ation:

#t the present time, Donner/s workers are only workin productively for only 8 hours of their workin day and idle (unproductive) for + hours (8CBC total hours in .eptember, however only 1+81 hours are actually worked for the month of .eptember)! This issue stems from three main problems2 1irst2 there is considerable time wasted throu h the fre(uent stop $ start manufacturin process directly resultin from rush orders! .econd2 inade(uate operational or anization of current production facilities! Third2 ineffective communication and flow of vital information from 1laherty!

Throu h the strate ic move of introducin a second production line, it will be feasible to improve productivity from each work, as work should be able to flow continuously throu h each production line without interruption! 1urthermore, adoptin a parallel manufacturin process will result in less manufacturin 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

7C

leadin to less confusion and less time wasted as the case in the current manufacturin process! #lso, it is clear that the current manufacturin process results in havin too many

responsibilities lie on the shoulders of very few people (namely2 1laherty)! )ith two production lines in operation simultaneously, David 1laherty could be made responsible for the lar e volume production line, with #rthur Dief (as a senior and e9perienced worker) mana in the smaller production line! #rthur Dief is, clearly, valuable to Donner! #lso, new workers could receive their trainin from #rthur! This strate y will allow Donner to better utilize all available resources and focus on improvin productivity, (uality, information flow, delivery and, in essence, the bottom line! 1urthermore, if Donner adopted this strate y, % would also recommend applyin a parallel process flow as it will result in reduced manufacturin 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 follows2

#rtwork eneration ? 7B minutes to set up %nspect and sheer ? 87!+ minutes

6unch toolin hole ? 77!+ minutes

CDC drill ? set up time 7=, minutes

#nalyzin the current process, it is evident that it takes a total of 87= minutes from the time an artwork is enerated until CDC drillin commences! Durin such time it is also evident that there is a total of ++ minutes of idle time that occurs at the CDC drillin

7*

station! The worker who is responsible for the CDC drillin is, literally, idle and waitin for the artwork eneration, then for the inspect and sheer process, then for the punch toolin hole processes to be completed then he or she would be in the CDC set up (which takes 7=, minutes)! &y applyin a parallel process flow, this idle time can be reduced si nificantly! The new process may look as follows2

#rt work eneration ? 7B minutes

%nspect and .heer ? 87!+ minutes

6unch toolin hole ? 77!+ minutes

CDC drill ? 1A+ minutes to set up

CDC run ? C=, minutes

The moment artwork eneration is completed, two copies are passed onto both stations2 inspect and sheer as well as the CDC drill, so that the worker responsible for settin up the CDC machine may be in his set up process without waitin (bein idle H unproductive) for ++ minutes (the time spent on inspect $ sheer and punch toolin processes)! This amounts to a total of ++ minutes saved on production 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!

7A

The parallel process flow can be utilized at any sta e of the production cycle, re ardless of the order size! %t is another method to improve productivity! %n addition, eliminatin any non-value-added processes from the manufacturin process will improve productivity (i!e! un-necessary time spent to transfer completed boards to the tanks ? back and forth ? and other low han in fruits that hamper the overall productivity)! 6apacit :

The capacity of Donner/s current production facility is not bein fully realized, as it is not fully optimized for low or hi h volume circuit board manufacturin ! &y utilizin two production lines, each can be optimized for their respective production purposes, and potential bottlenecks will be easier to identify and resolve! This strate ic move should allow Donner to achieve the potential sales volume of F8 million by 1BAA as, predicted by the sales mana er! 8aterials:

Donner/s current delivery problems stem from several reasons, includin re-works, rush orders and the effect they have on )%6s, and also the inade(uate inventory policy e9istin within the company! David 1laherty had acknowled ed that he often delayed his schedulin 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 stocked to avoid valuable days bein lost in the present order processin system, as well as to avoid vendors/ volatilities! The costs incurred by carryin inventory should be realized with sales fi ures increase, improved (uality and on-time delivery! 9n&ormation ,lo-:

The current information flow within Donner can be described as incredibly inade(uateK #doptin this strate y 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! 3rders are takin up to four days to reach 7B

1laherty, after the bid has been accepted! This e9cessive time period is addin to the e9istin delivery problem! #s previously described, Donner will hold certain levels of inventory of specific raw materials> which will lead to a shorter lead-time of manufacturin and information to 1laherty, 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 improvin information flow and simplifyin 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! $ualit and on"time deliver :

3nce the new strate ic move is adopted by Donner, a new (uality strate y should also be adopted! Currently, there is not one specific person responsible for ensurin (uality standards are met! 0owever, by implementin hi hly effective (uality control measures (si9-si ma, .6C or T5'), this should improve (uality standards and reduce product returns! 6roductivity will also be increased for the same reasons outlined above! Concernin Donner/s financial status, the firm can enerate more sales fi ures, as a result of improved productivity and (uality, and possibly attain the sales fi ure planned by .earby (F8')! 49penses incurred durin this strate ic move should be recouped with increased sales! The on-time delivery should be increased si nificantly due to the two separate production lines, each company/s new strate ic policy of havin

independent, with each optimized for their respective production processes! This will help alleviate the delay and confusion inherent in the current system!

6onclusion

8,

#fter reviewin Donner/s current strate ic plans, it is evident that certain operations of the company are no lon er compatible with Donner/s ob<ectives! There is a need to chan e while concentratin on the company/s core competency! &y attemptin 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 ed e! #ll these factors will lead to increased sales! %t is therefore my conclusion that recommendation 5 3 is the most appropriate and effective solution to Donner/s current problems!

81