Medaille College

MBA-621

Operations Management

Case Study #2

Donner

Company

3/8/2006

1

Amr Abbas

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,

Donner’s 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 company’s position and different strategic

policies.

Following is detailed analysis and recommendations by evaluating the

current conditions of the company, particularly the following areas:

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Operational and strategic implications of company direction

Labor utilization

Materials

Capacity

Information flow

Evaluating the following performance criteria: Quality,

Productivity and Delivery.

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.

2. Changing strategy from current position to one which concentrates

on producing only large quantities of simple technology boards.

3. Changing strategy from current position to one which concentrates

on 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, Donner’s core

competency was, obviously, its engineering expertise, and it produced

specialized 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

3

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 don’t

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 Donner’s 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). 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).

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Donner promised its customers 3 weeks delivery on orders of 1000

boards or less, 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 operation’s 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.

Donner’s management had to implement policies that, in addition to

manufacturing, had to be cost effective, as Donner was not able to

attract outside capital (cited earlier: managed primarily by engineers,

not necessarily business oriented).

Analyzing Donner’s 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 Donner’s problems:

1. Operating problems:

Management could not manage the production bottlenecks effectively.

Each order was different, as per each customer’s 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

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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

company promised 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 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

Donner’s 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:

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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 industry standards and competitors’. In

addition, Donner’s 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 of operations, at certain points, may

alleviate this problem and save time on production cycle time.

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 company’s 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:

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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 Donner’s 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 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 Donner’s existence in

the marketplace.

Data Analysis:

Donner provided several exhibits to demonstrate the following areas of

its operation:

Profit and Loss

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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, Donner’s 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:

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Sales (USD)

Jan - Jul 1987 Jul-87 Aug-87 Sep-87Months

Monthly Sales Trend - 1987

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

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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 5 is a column to depict the different costs

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

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

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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:

Drill process:

For 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

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 200 boards, 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 Donner’s

standard process, particularly surrounding the capacity of the dry Film

Photoresist area. It is critical to realize the true capacity to prevent

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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.

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 &

Expose174.4 960 1744

12

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 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.

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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 the following:

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

working day

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

every day, which is ¾ 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!

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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.

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

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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 to implement

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 time’s savings for orders of 8 and 200 boards:

Strateg

y

Order size

CNC drill +

Punch Press

Manual drill

+ CNC

Router

Entirely manual

Entirely CNC

8 boards 10.25 hrs 13.17 hrs11.57 hrs 11.85 hrs

16

(exhibit 9 –

standard &

proposed)

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 raw material 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 11 demonstrates the actual order sizes for the

month of September, 1987. Further analysis of the 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

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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.

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

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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 September’s 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 September’s 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 Donner’s current situation and problems,

the following are recommendations that I deem as appropriate for the

company’s 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

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electronics firms; thus allowing Donner to target all manufacturers in

the electronics industry (for low-order volumes).

Third, senior management has cited the firm’s ability to anticipate and

resolve problems encountered during the design and production of

small volumes of SMOBCs as one of its strengths and distinguishing

features when compared to the competition. Coupled with

management’s desire to continue fulfilling low-volume orders (where

they 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:

1985

-$6,900

1986

$2,100

1987

$33,500

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

Sales in USD

Year

Donner Company Net Profit Before Tax

Year

Sales

Year 1985 1986 1987

Sales -$6,900 $2,100 $33,500

1 2 3

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It is interesting to note that they have already exceeded last year’s

earnings in the first nine months of this year (1987). Such financial

facts are further evidence 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 be experienced in specific

areas of the firm’s 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 firm’s manufacturing 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.

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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 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 firm’s

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 Donner’s overall performance.

Flaherty had indicated that due to the sizeable variations in order

types, work in progress remain in the manufacturing stream for longer

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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:

Donner’s management is concerned with the firm’s 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 ½ 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 the manufacturing 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):

24

Value of actual shippments in September, 1987

11118

-1188405716962226

84302395

-6842560

5926-147

3952

1321610070

55612275 176 -1327

-7975

17939

44560

11118 9930139871568317909

26339 28734 30610

40341

53557

636276918871463 7163970312

62337

80276

124836

28050

3653636389

-20000

0

20000

40000

60000

80000

100000

120000

140000

9/1

Dates

Val

ue

in U

SD

Daily Cumulative

Daily 11118 -1188 4057 1696 2226 8430 2395 -684 2560 5926 -147 3952 13216 10070 5561 2275 176 -1327 -7975 17939 44560

Cumulative 11118 9930 13987 15683 17909 26339 28734 28050 30610 36536 36389 40341 53557 63627 69188 71463 71639 70312 62337 80276 124836

1-Sep 4-Sep 5-Sep 6-Sep 7-Sep 8-Sep11-Sep

12-Sep

13-Sep

14-Sep

15-Sep

18-Sep

19-Sep

20-Sep

21-Sep

22-Sep

25-Sep

26-Sep

27-Sep

28-Sep

29-Sep

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:

Change strategy from current position to one which

concentrates on 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

25

production runs (proto-types), the experience Donner has gained over

the last three years would 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:

Donner’s 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 (Donner’s

management cited the fact that workers are well cross-trained and

able to perform different functions throughout the manufacturing

process).

Septembers Production Data September Total

Std Production

Operation Setup(mi

n)

Run

(min)

Orders Boards Setup

(min)

Runs

(min)

Total

Hours

Manual

Drill

15 0.08

0

51 936 765 37,44

0

636.8

26

CNC Drill 240 0.00

4

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 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).

27

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 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 1987’s pre-shipment rejection rate

amounted to 7%, causing a large amount of rework. This information

flow policy must change from being centered on Flaherty. Flaherty’s

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

28

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 Donner’s financial health. The on-time

delivery should be enhanced significantly due to the company’s new

strategic policy of concentrating on the large quantity boards, as well

as the reduction in product returns and re-works.

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 Donner’s 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:

Change strategy from current position to one which

concentrates on producing large & small quantities of

simple technology boards, through the use of two

separate production lines.

29

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 Searby’s

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 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

30

the contract and captive markets, thus increasing the overall customer

base.

Operational & Strategic Implications

Labor Utilization:

At the present time, Donner’s 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.

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.

31

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:

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

32

Artwork generation – 29 minutes to set up

Inspect and sheer – 32.5 minutes

Punch tooling hole – 22.5 minutes

CNC drill – set up time 240 minutes

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:

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

33

Art work generation – 29 minutes

Inspect and Sheer – 32.5 minutes

Punch tooling hole – 22.5 minutes

CNC drill – 185 minutes to set up

CNC run – 640 minutes

flow). Reduced cycle time will translate into better efficiency and

productivity, which will add to Donner’s bottom line and improve the

on-time delivery process.

The parallel process flow can be utilized at any stage of the production

cycle, regardless of the order size. 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 Donner’s 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.

Materials:

Donner’s 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

34

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.

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 Donner’s financial status, the firm can

35

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 company’s new strategic policy of having two separate

production lines, each independent, with each optimized for their

respective production processes. This will help alleviate the delay and

confusion inherent in the current system.

Conclusion

After reviewing Donner’s current strategic plans, it is evident that

certain operations of the company are no longer compatible with

Donner’s objectives. There is a need to change while concentrating on

the company’s 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 recommendation # 3 is the most

appropriate and effective solution to Donner’s current problems.

36