Medaille College MBA-621 Operations Management Case Study #2
Donner Company 3/8/26
1
Amr A!!as Problem Definition The three-year old Donner Company has positioned itself well within both the small volume, volume, customize customized d (contract (contract)) printed printed circuit circuit boards market as well as the large volume, generic (captive) printed circuit boards boards market market
!arge !arge electron electronic ic firms firms ("T#T, ("T#T, $%&) produce produced d their their
components in captive shops, while smaller sized companies, or when large large and small small 'uantit 'uantities ies of simple simple techno technolog logy y or fast fast turn-ar turn-aroun ound d 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, Donn Donner er.s .s abil abilit ity y to anti antici cipa pate te and and reso resolv lve e desi design gn prob proble lems ms and and protot prototype ype techni techni'ue 'ues s enable enabled d it to mainta maintain in its compet competiti itive ve edge edge /owever, this competitive edge has been compromised by poor ontime delivery and high rate of product return, in addition to planning and and
manu manufa fact ctur urin ing g
prob proble lems ms
that that
caus caused ed
bott bottle lene neck cks, s,
shif sh ifti ting ng
bottlenec bottlenecks ks and improper improper utilization utilization of labor These problem problems s began to hampe hamperr the the over overal alll perf perfor orma manc nce e of the the firm firm,, and mana manage geme ment nt starte started d evalu evaluati ating ng the compan company.s y.s positi position on and differ different ent strate strategic gic policies
0ollowing is detailed analysis and recommendations by evaluating the current conditions of the company, particularly the following areas1
2
Amr A!!as Problem Definition The three-year old Donner Company has positioned itself well within both the small volume, volume, customize customized d (contract (contract)) printed printed circuit circuit boards market as well as the large volume, generic (captive) printed circuit boards boards market market
!arge !arge electron electronic ic firms firms ("T#T, ("T#T, $%&) produce produced d their their
components in captive shops, while smaller sized companies, or when large large and small small 'uantit 'uantities ies of simple simple techno technolog logy y or fast fast turn-ar turn-aroun ound d 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, Donn Donner er.s .s abil abilit ity y to anti antici cipa pate te and and reso resolv lve e desi design gn prob proble lems ms and and protot prototype ype techni techni'ue 'ues s enable enabled d it to mainta maintain in its compet competiti itive ve edge edge /owever, this competitive edge has been compromised by poor ontime delivery and high rate of product return, in addition to planning and and
manu manufa fact ctur urin ing g
prob proble lems ms
that that
caus caused ed
bott bottle lene neck cks, s,
shif sh ifti ting ng
bottlenec bottlenecks ks and improper improper utilization utilization of labor These problem problems s began to hampe hamperr the the over overal alll perf perfor orma manc nce e of the the firm firm,, and mana manage geme ment nt starte started d evalu evaluati ating ng the compan company.s y.s positi position on and differ different ent strate strategic gic policies
0ollowing is detailed analysis and recommendations by evaluating the current conditions of the company, particularly the following areas1
2
•
2perational and strategic implications of company direction
•
!abor utilization
•
&aterials
•
Capacity
•
$nformation flow
•
3val 3valua uati ting ng
the the
fol followin owing g
per perform forman ance ce
criter teria1
4ual uality, ty,
5roductivity and Delivery
0oll 0ollow owin ing g deta detail iled ed anal analys ysis is of data data,, proc proces ess s flow flow and and inve invent ntor ory y strate strategie gies, s, my recomm recommend endati ations ons will will be focuse focused d on the follow following ing opportunities1
6 Changing Changing strategy strategy from current current position position to one which which concentrates concentrates on producing only small 'uantities of fast turn-around &2%Cs
7 Changing Changing strategy strategy from current current position position to one which which concentrates concentrates on producing only large 'uantities of simple technology boards
8 Changing Changing strategy strategy from current current position position to one which which concentrates concentrates on producing producing large # small 'uantities 'uantities of simple simple technolog technology y boards, boards, through the use of two separate production lines
Company Objectives and Overview of Problems: ith a company that is managed primarily by engineers, Donner.s core competency was, obviously, its engineering e9pertise, and it produced specia speciali lized zed circui circuitt boards boards known known as :solde :solderm rmask ask over over bare bare copper copper; ; (&2 (&2%C %C)) boar boards ds
Donn Donner er posi positi tion oned ed itse itself lf to manu manufa fact ctur ure e thes these e
3
boards to small and large electronic firms and management envisioned it as one of the industry leaders
/owever, in order to achieve this
ob
5lease refer to e"i!it 1 for Donner.s organizational
2perators were cross-trained and able to perform different
functions in different departments This is considered to be a ma the ability to deploy employees to perform different functions in different areas (as needed) /owever, it seemed that there was a lack of effective communication strategy within the organization, as information did not flow properly within the different departments and workers often interrupted their work to discuss issues with the supervisor, deliver completed panels or secure more work from other work stations (low hanging fruits) David 0laherty, shop supervisor, is responsible for all aspects of the manufacturing processes from the time he received the order and blueprint until the order has been completed and shipped 0laherty is in charge of preparing work schedules, which occurred several days after the raw material has arrived from the vendor (most orders reached him = days after customers. bids had been accepted, which included the time needed by purchasing to locate the raw material at a low price ? 6 ? 7 days on average) 0laherty spent much of his time planning and determining how to move
4
Donner promised its customers 8 weeks delivery on orders of 6+++ boards or less, and * weeks on orders larger than 6+++ boards @ush orders (orders of A boards or less) were delivered after = days Donner operated at a plant that was carefully chosen by management to minimize installation costs, preserved the life of e9pensive machinery and isolated the operation.s diverse environment
"fter
being in the same location for a year and a half, neither the machines nor the graphic e'uipment e9hibited any signs of corrosion $n fact, by 2ctober 6BA, Donner began to e9pand their current location, which was fully utilized, by installing an 6A++ s' ft addition
This addition
was due to be completed by ovember, 6BA Donner.s management had to implement policies that, in addition to manufacturing, had to be cost effective, as Donner was not able to attract outside capital (cited earlier1 managed primarily by engineers, not necessarily business oriented) "nalyzing Donner.s current situations, it is evident that the company is suffering from several problems relating to its manufacturing, labor, 'uality and delivery 0ollowing is a highlight and a brief analysis of each of Donner.s problems1
1$ Operating pro!lems% &anagement could not manage the production bottlenecks effectively 3ach order was different, as per each customer.s specifications ince there is no set 'uality policy in place, some raw material may be defective hen operators are working on a specific pro
This causes
5
interruptions to the production cycle at one operation, which in turn causes a production bottleneck at the ne9t operation 2ften times, some customers make modifications to the original specs and ask for changes in production This means that the operators have to stop working on a certain pro
The
!ooking at the
bigger picture in this situation, we have a company that is being pressured by sudden interruptions (of production), not meeting its ontime delivery, suffers from bottlenecks at almost every stage of production yet continues to promise = days delivery on rush orders This means that, no matter what, rush orders are a priority (Donner faced pressure from its competitors concerning the fulfillment of rush orders) $f raw material is needed for rush orders, it is obtained from the e9isting inventory, which is originally bought to fulfill large orders This causes possible shortages in inventory, which means that Donner.s purchasing has to locate and purchase additional material (a process that takes 7 days)
The result is possibly stopping an
operation process until new raw material is obtained, which also means down time for the operators (down time at one process, hence a bottleneck at a specific process)
/owever, Donner e9perienced no
problems with rush orders (these orders were completed by one senior employee) and had no re
2$ &rodu'ti(ity pro!lems%
6
"s a result of the operating problems, it is normal to predict, and e9pect, productivity problems ith fre'uent down times and order changes, management cited the fact that machines are idle for longer than e9pected $n addition, standard labor time for each process (as depicted in e"i!it )-A) did not reflect accurate time at Donner itself, rather it was based upon industry standards and competitors. addition,
Donner.s
operation
is
se'uential
in
nature,
$n
however
management is faced with a decision whether to use manual labor (for drilling and punch press) or to use the CC machine for the same purpose $t is evident that management did not prepare a breakeven analysis to be able to ob
3$ *uality pro!lems% Donner did not implement effective 'uality control measures to inspect the raw material or work in progress
Donner depended on the
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
eptember alone amounted to E, of which 6E was a total loss and E re'uired re-works because the end products did not meet the customers. specifications
Clearly, re-works resulted in pulling
operators from their current
)$ Deli(ery pro!lems%
7
imilar to the current se'uential manufacturing policy at Donner, it is no surprise to note the delivery problems %ecause all these processes are interconnected, and especially because of the high rate of returns and re-works, Donner failed to meet is delivery dates (A days late in eptember) %ecause re-works re'uired pulling operators away from their current functions, deadlines were not met (due to delays in manufacturing and finishing work in progress)> Donner continued to suffer from the inability to meet its delivery dates
/owever, rush
orders were not affected and the company continued to promise = days delivery for such orders (this also caused bottlenecks and shifting bottlenecks as rush orders were treated with special status, raw materials and workers were simmered to satisfy these orders) 0inally, the new sales manager for Donner, !loyd earby, noted his concerns that Donner.s sales may not e9ceed F7& in sales (in 6BAA) if it continued to :bleed; from its 'uality (returns and re-works) and delivery problems
/owever, both !loyd and the president believed
that Donner should continue bidding for low volume orders and improve their 'uality standards, and believed this should stop the :bleed; and possibly push Donner towards F8& in sales "ll these troubles resulted in financial problems that manifested itself in reduced sales in eptember and threatened Donner.s e9istence in the marketplace
Data Analysis: Donner provided several e9hibits to demonstrate the following areas of its operation1
8
•
5rofit and !oss
•
tandard 5rocess 0low
•
$nventory
0ollowing is an analysis of each area1 •
&ro+it and ,oss e"i!it .%
0rom the 5#! report we can identify few key points1 Donner is, despite the manufacturing problems, profitable
$n fact,
from Ganuary 6BA to eptember 6BA, Donner.s profit before ta9 e9ceeded the preceding two years
/owever, if we analyzed each
month in 6BA, it is obvious there is a negative trend from Ganuary till Guly, and another negative trend from "ugust till eptember1
Monthly Sales Trend - 1987
$16.00 $14.00 $12.00 $10.00 Sales (USD)
$8.00 $6.00 $4.00 $2.00 $0.00 Jan - Jul 1987
Jul-87
Aug-87
Sep-87
Months
9
$t is clear that there was a sharp drop in profits from "ugust till eptember (total of F66 million loss Hdrop in net profit)
0rom the
information provided by Donner, most of the manufacturing and delivery problems occurred in eptember, 6BA 0urther analysis of the 5rofit and !oss sheet indicates that there was 76 working days in eptember, 6BA Donner employed 77 employees who worked A hrs H day shift This amounted to a total of 8B hours worked in that month Direct labor amounted to FA8 per employee (F87,8++H8B hrs) Total fi9ed cost was F8=,6++ and variable cost was FA,++ "dded in e"i!it . is a column to depict the different costs per unit (based upon *6 units manufactured in eptember)
•
Standard &ro'ess 0lo e"i!its )-A and )-B%
5erhaps the most important e9hibit provided by Donner to enable us to identify problems and suggest solutions 0rom the information provided in e"i!it )-A, the following can be identified and calculated1 •
%reakeven point to decide when to use the automated CC drill vs manual drill (based upon number of orders)
•
%reakeven point to decide when to use the automated CC router vs manual punch press (based upon number of orders)
•
$dentify bottlenecks within all areas of manufacturing with special focus on the Dry 0ilm 5hotoresist process (to perform capacity analysis of the D05@ area by assuming order size of A, A+ and A++ boards) 10
•
tandard labor time for an order size of 6, A and 7++ boards
0ollowing is an analysis of each area1 ince Donner purchased a CC machine at FA+,+++ to perform the drilling and router functions, and also since these processes can be performed manually, it is important to decide which orders can be scheduled on the CC machine and manually
This is achieved by
performing 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 changes per order size Calculations of the breakeven points (please refer to e"i!it 6 for complete calculation of breakeven points), for CC or manual drill and for CC or manual profile processes show the following results1
•
Drill process1
0or orders of 6 units or less, manual drill should be utilized as it will incur fewer costs (and less overall time to process) and for orders over units the CC drill should be utilized because the cost will be less than if manual is used, as well as time to process •
5rofile process1
0or orders below 2 boards, manual punch press should be utilized as it will take less time and incur fewer costs, and for orders above 7++ boards the CC router should be utilized for the same reasons
11
"i!it )-A can also be used to identify bottlenecks within Donner.s standard process, particularly surrounding the capacity of the dry 0ilm 5hotoresist area $t is critical to realize the true capacity to prevent bottlenecks and work-overload $f, for e9ample, the ma9imum number of boards that the D05@ area can handle (due to the set up and run time involved in the process) is 6++, then Donner should realize that order size that passes through the drilling process should not e9ceed 6++ units (to match the D05@ capacity) $f the order sized is more than 6++ (hence, more than the ma9imum capacity that the D05@ area can handle), a bottleneck is created and possibly shifted throughout the entire manufacturing process
$n addition, since the D05@ area
consists of several functions, it is important to be aware of the ma9imum capacity (as per order size) to prevent bottlenecks within the D05@ area
39ceeding ma9imum capacity will have a direct
negative impact on 'uality and on-time delivery (two problems that Donner was already suffering from in eptember)
2f course, the
bottleneck will change from one area of the D05@ to the other, depending on the order size and the time involved in each process 0ollowing is a table illustrating the results of an analysis of the D05@ area to determine the ma9imum daily capacity for order sizes of A, A+ and A++ units (assuming normal A hours working days ? =A+ minutes)1
2rder
size
8
8
8
8A=
*=A*
6*8+
D05@ area
5anel 5rep
12
!aminate #
6==
B+
6==
6B++A
6==A
B++
39pose
Develop
5lease refer to e"i!it for complete calculation methods used to determine D05@ daily capacities To translate these numbers into facts, it is clear that in order to avoid bottlenecks for an order size of A boards, the number of boards that can be processed per day can not e9ceed 6== boards (by taking the least number of boards for each of the three stages of D05@, as it reflects the ma9imum daily capacity of orders processed)
$f total
boards did not e9ceed 6==, this is, at least, a guarantee that Donner should not e9perience bottlenecks at the D05@ area, as well as at other areas of manufacturing, for an order size of A boards The same is applied to the daily capacity for an order size of A+ boards The ma9imum daily capacity for the D05@ area is B+ boards, based upon an order size of A+ "ny increase in order size will result in a bottleneck 0or an order of A++ units, the ma9imum daily capacity for the D05@ area is 6== boards without bottlenecks $t is clear then that based upon the order size, the daily capacity for the D05@ area changes The larger the order size, the more capacity the area can handle, however that capacity should not e9ceed the highlighted figures
%ottlenecks can cause work to pile at another
stage of the process, which will impact the entire manufacturing
13
process as a whole, which is a ma
%oth
indicated that the labor time in the standard process flow chart (e"i!it )-A) did not reflect the true labor time at Donner $n eptember 6BA, there was a total of 8B hours worked ( e"i!it
.), however the standard process flow for eptember ( e"i!it )-A) showed a total actual hours worked of 6*86 hours This means that there was a total of 76* hours that were considered either as down time or idle (non-revenue producing), hence1 unproductive (*BE of idle time), yet paid for by Donner This also means the following1 76* hrs H 76 days in eptember I 6+8 total hours wasted every working day 6+8 hours H 77 employee I * hours that are wasted by each employee every day, which is J of the working day This simply means that each employee worked an actual 8 hours on a normal A hours working day ot only does this affect productivity, but Donner paid FA8 per employee for A hours a day (each employee cost Donner FBA= H day), yet they only worked for 8 hours (revenue generating production) This amounts to a loss of F=8* per day, per employee (FBA= F76B)
Calculate this loss by 77 employees, and it is clear that
Donner wasted money on wages for hours either not worked or worked
14
without generating revenue, that amounted to FB+8 every working day, and F7+,68 a monthK 0urthermore, the standard labor time increases with the order size 5lease refer to e"i!its 84 5 and 1 standard pro'ess +lo area for complete calculations of labor time for 6, A and 7++ orders respectively1
2rder
size
6 board
A boards
7++ boards
(e9hibit )
(e9hibit A)
(e9hibit B)
&anual
8B hrs
66* hrs
6*8*B hrs
CC
666 hrs
66A* hrs
8+
!abor time
$t is clear that the labor time increases with the order size
"s
previously noted, the breakeven point for the drilling process is boards, and the breakeven point for the profile process is 7++ boards @eviewing the table above, for an order size of 6 board, it is more cost effective for Donner to utilize an entirely manual procedure, as it takes about =+ hrs to finish an order and have it ready to be shipped "s the order size increases (for e9ample, 7++ boards), it is clear that it is past the breakeven point and therefore takes less time to be processed utilizing CC drill and router rather than manual processing $n addition, Donner is now faced with several options to better utilize its labor 0or e9ample1 for order size of A boards, Donner may choose to utilize manual drill combined with CC router, or CC drill with manual punch press To illustrate, please re+er to e"i!its 84 5 and
1 - proposed strategies areas%
15
$t is clear from the calculations that if the order size is 6 board, it is still cost and time effective to utilize an entirely manual process (standard labor time for an entire manual processing is 8B hrs), however once the order size increases to A boards ( e"i!it 5 proposed strategy), it is less time consuming for Donner to utilize CC drill L manual punch press, rather than an entirely manual or automated process (labor time for the proposed strategy ? CC drill L punch press - is reduced to 6+7* hrs) 0or order size of e9actly 7++ boards, Donner should utilize CC drill and may choose between punch press or CC router (as 7++ boards is the breakeven point at which CC drill must be utilized for time and cost effectiveness, and both punch press and CC router take the same amount of time ? 7*+ minutes) !abor time is reduced to 8+ hrs with the proposed strategy (e"i!it 1 proposed strategy ) 0or orders above 7++ units, it is more efficient for Donner to implement a process than utilizes both CC drill and router to ensure less labor time, less manufacturing lead time and better utilization of their resources The following table illustrates the proposed strategy and labor time.s savings for orders of A and 7++ boards1
y
trateg CC drill L
&anual drill
5unch 5ress
L CC
3ntirely manual
3ntirely CC
@outer
16
2rder size A boards (e"i!it 5 ? standard #
1$2. rs
686 hrs
8+ hrs
6*8*B hrs
66* hrs
66A* hrs
6*8*B hrs
8+ hrs
proposed) 7++ boards (e"i!it 1 ? standard # proposed)
$f the order size is above 7++ (for e9ample, 7*+ boards), then the labor time is 8** hours when CC 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 7++ boards)> it may be beneficial to buy a second
CC
machine,
particularly
if
they
followed
a
parallel
manufacturing process (detail e9planation of this process will follow in the recommendation section) "s mentioned earlier, when Donner received an order and the bid had been accepted by the customer, it took about 7 days for purchasing to locate the raw material at a low price $t also took about = days from that moment until 0laherty (shop upervisor) received the order and prepared the blueprints, scheduled work orders and allocated proper resources
"i!it 11 demonstrates the actual order sizes for the
month of eptember, 6BA
0urther analysis of the inventory strategy
17
followed by Donner is depicted in e"i!it 12, which is the stock of each raw material ordered by Donner throughout eptember
$t is
suggested that Donner should carry some inventory to minimize the lead time from the moment the bid is accepted until it reaches 0laherty
To determine which raw material Donner should carry
depends on the strategy followed $f 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 7+E, which follows the A+H7+ rule)
To illustrate1 in
eptember, Donner received a total of + orders from customers, where A+E of these orders were below 6++ boards 2nly 7+E of these orders were for orders above 6++ boards $f Donner decided to focus on small orders (ie orders of less than 6++ boards), then it would make sense to carry about 7+E the following raw materials1 stock codes ", %, C, D, 3, 0 and possibly M as well $f Donner decided to focus on orders of 6++ boards and above, then the following stock codes should be carried by the firm1 ", D and possibly &
"s mentioned
earlier, stocking some of these raw materials should minimize manufacturing lead time as the firm will not be at the mercy of locating the entire amount once an order is received $n addition, 0laherty will not have to wait for = days to begin planning for each pro
This may play a role when Donner decides whether to
focus on large or small volume orders, and whether it can afford to lose the customer base for each type of orders if they decided to drop one
18
$t is clear however that Donner needs to carry some inventory (regardless of their strategy) "ssuming a monthly cost of 7E (cost of carrying inventory), and assuming that Donner carried over some inventory from "ugust (to show total impact on total cost and cost per unit), we note the following1 @e-reviewing e"i!it . (5#! summary), the cost of materials in eptember was F=7,++
$f Donner carried inventory from "ugust,
then we add an additional 7E to eptember.s materials cost1 F=7,++ 9 7E I FA*7, which means that the new cost of materials for eptember will be e'ual to F=8,=*7 depicted on e"i!it 13$
The new calculations are
$t is apparent that by adding the additional
cost of carrying inventory, total cost of materials becomes higher, which also means that the cost of materials per unit is increased from F8B to F*=
This also has a direct effect on total variable cost
(increased from FA+ to FAA=*), as well as total net profit before ta9, which is reduced from F86& to F77*& Certainly, adding another cost, as the cost of carrying inventory, will have an effect on the bottom line> however it may be a strategy Donner prefers to implement to reduce lead times and enable the manufacturing process to begin sooner, given that there are no bottlenecks or any other problems within the manufacturing process You have to spend money to make money, especially if you are planning for long term existence. The appropriate volume of inventory Donner needs to carry can be determined by utilizing the A+H7+ rule, which means that (by looking into eptember.s orders) Donner may choose to carry 7+E inventory of the most commonly ordered raw materials (A+E of total volume of each core raw material)
19
7e'ommendations %ased upon my analysis of Donner.s current situation and problems, the following are recommendations that $ deem as appropriate for the company.s survival1
7e'ommendation #1% Cange
strategy
+rom
'urrent
position
to
one
i'
'on'entrates on produ'ing only small uantities o+ +ast turnaround SMOBCs$
Currently, Donner is fulfilling low-volume (6++ or less), high-volume (more than 6++) and e9pedited (A or less) &2%C orders "lthough diversification of a product line is sometimes a desirable business strategy to pursue, there are several compelling reasons for Donner to concentrate on fulfilling one type of order, namely those that are lowvolume and fast turn-around1
0irst, e9celling at its core competency as a manufacturer of &2%Cs is the primary reason Donner has managed to not only survive, but to flourish in this highly competitive and volatile industry (consisting of appro9imately *+ firms in the alone) Donner has successfully maintained its competitive edge by asserting itself as a leader and enhancing various manufacturing processes and e'uipment
econd, by continuing to serve the specific market segment of small 'uantities of fast turn-around &2%Cs, the firm will not be re'uired to seek out new customers or to develop a new core competency (either activity is burdened with uncertainty, time-consuming and additional
20
costs) $n short, the firm could continue to supply large and prestigious firms such as $%&, "T#T or Digital 3'uipment in addition to the smaller electronics firms> thus allowing Donner to target all manufacturers in the electronics industry (for low-order volumes)
Third, senior management has cited the firm.s ability to anticipate and resolve problems encountered during the design and production of small volumes of &2%Cs as one of its strengths and distinguishing features
when
compared
to
the
competition
Coupled
with
management.s desire to continue fulfilling low-volume orders (where they e9perienced no problems with re
0inally, although only a three-year old firm, its profits have grown consistently year-on-year, as shown in following graph1
21
Donner Company Net Proit !eore Ta"
$33,500
35000 30000 25000 20000 15000 Sales in USD
$2,100
Year Sales
10000 5000 0
1985
1986
1987
-5000 -$6,900 -10000
1
2
3
Year
1985
1986
1987
Sales
-$6,900
$2,100
$33,500
Year
$t is interesting to note that they have already e9ceeded last year.s earnings in the first nine months of this year (6BA) uch financial facts are further evidence that the firm is clearly well positioned in the industry of producing small 'uantities of fast turn-around &2%Cs, while avoiding the possible problems that are associated with largevolume orders (ie bottlenecks, sudden changes to the designs by customers, which may result in long idle time)
Operational and Strategi' 9mpli'ations
$f the firm decides to pursue a policy of producing only small volumes of 'uick turn-around boards, it will en
•
Materials
Currently, raw materials are being :simmered; by those who are fulfilling e9pedited orders, namely by "rthur Dief uch a practice may consistently lead to an order remaining as a ork in 5rogress ($5) order, in the firm.s manufacturing stream for longer than necessary $5 are further delayed as it awaits another shipment of raw materials that were originally ac'uired for its use but now consumed by the :rush; orders 0ulfilling only small-volume, 'uick turn-around orders would re'uire the firm to either hold larger inventories of raw materials or to ac'uire materials in a more timely fashion, but would decrease the probability of this inefficient process from continuing to hamper the entire manufacturing process
•
,a!or utili:ation%
The :simmering; of materials also has the added disadvantage of increasing the amount of labor re'uired to produce a board hen a $5 is interrupted by an e9pedited order, it may incur additional set-up costs $n addition, workers then remain idle until the machine heHshe was using is made available again (after the rush order has been completed) Therefore, small 'uantity 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
•
Capa'ity%
The ability of the firm to increase its production capacity is being hampered by the :shifting bottleneck;, which appears throughout various stages of the manufacturing process without any particular
23
pattern This phenomenon mainly occurs due to the variation in the 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
•
9n+ormation 0lo%
"s shown in e"i!it 2, David 0laherty, the shop supervisor, has the greatest number of informational in and out flows " high proportion of information, both inter-departmental and inter-firm, has to pass through 0laherty
"llowing him to operate effectively and efficiently
will have tremendous impact on Donner.s overall performance 0laherty had indicated that due to the sizeable variations in order types, work in progress remain in the manufacturing stream for longer than necessary
%y making the order-types as uniform as possible,
0laherty should find it easier to plan resources and share information 0urthermore, carrying inventory of necessary raw materials should alleviate the need for long lead time to plan for work
++e't o+ suggested strategy on per+orman'e 'riteria%
Donner.s management is concerned with the firm.s performance in the following areas1 •
*uality
•
&rodu'ti(ity
•
0inan'ial
•
Deli(eries
24
ince all these items are inter-linked, an improvement in one area will lead to an improvement in all hould the firm decide to produce only small 'uantities of fast turn-around &2%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 assigned areas and if the order size is small, managing the orders would be easier taff could work either individually or in teams to ensure their orders are of high 'uality and free of errors, from the moment the order is received till the moment it is shipped to the customer 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
2n-time delivery will improve as a result and will be more uniform throughout the month, rather than the current unorganized shipping strategy (as illustrated in the chart below)1
25
#al$e o a%t$al shippments in Septem&er' 1987 140000 124836
120000
100000
D S U n i e $ l a #
80276
80000 71463 69188 63627
60000
71639 70312 62337
53557 36389
40000
44560 40341
36536 26339
20000 11118
0
17909 15683 13987 9930 8430 4057 16962226 -1188
28734 30610 28050 17939 5926 2560 2395 -147 -684
13216 10070 5561 3952 2275
176 -1327 -7975
1 9 / -20000 1-Sep 4-Sep 5-Sep 6-Sep 7-Sep 8-Sep Daily
11118 -1188
4057
1696
2226
8430
11Sep
12Sep
13Sep
14Sep
15Sep
2395
-684
2560
5926
-147
18Sep
19Sep
20Sep
21Sep
22Sep
25Sep
3952 13216 10070 5561
2275
176
26Sep
27Sep
28Sep
29Sep
-1327 -7975 17939 44560
u!ula"i#e 11118 9930 13987 15683 17909 26339 28734 28050 30610 36536 36389 40341 53557 63627 69188 71463 71639 70312 62337 80276 124836
Dates
Daily
Cumulative
"lso favourably affected will be the financial health of the firm since it will be able to bill its customers sooner and will carry smaller inventory of work in progress
7e'ommendation #2% Cange strategy +rom 'urrent position to one i' 'on'entrates on produ'ing only large uantities o+ simple te'nology !oards$
Currently, Donner holds a position in both the contract and captive manufacturing markets
hile initially focusing on small 'uantity
specialized circuit boards for e9perimental devices and for pilot
26
production runs (proto-types), the e9perience Donner has gained over the last three years would facilitate the firm to concentrate on the large 'uantities of imple Technology boards This will enable Donner to utilize their current core competency and resources, and focus on gaining new strengths, yielding improved 'uality and on time delivery
0ocusing on the captive market will mean that Donner will be in a position to further support its larger customers (ie $%&, "T#T, etc) with orders larger than 7++ boards (B+E of total orders received in eptember)
Operational ; Strategi' 9mpli'ations
•
,a!or
Donner.s current labor use will re'uire changes "s the chart below shows, significant time is saved per board when using the CC Drill and @outer (for orders over 7++ boards)> hence no re'uirements for manual drill or punch press 3mployment could be reduced or workers could be re-deployed to work in other areas in the firm (Donner.s management cited the fact that workers are well cross-trained and able to perform different functions throughout the manufacturing process)
Septembers Production Data
September Total
Std Production
2peration
etup(mi
@un
&anual
n) 6*
(min) ++A
7=+
+ +++
Drill CC Drill
2rders *6 B
%oards
etup
@uns
B8
(min) *
(min) 8,==
/ours 8A
7,6+
+ B,*+
6BA
=,A7*
Total
27
= The increase in batch size will reduce the time per average board for manufacture and subse'uently reduce labor time
$n addition,
previous calculations of breakeven points depicted the very fact1 the larger the order size, the less time the process flow looked using the CC machine, as opposed to manual processes 5erhaps Donner should purchase a second CC machine to accommodate this new strategy (advantageous for large-volume orders)
•
Capa'ity%
"s previously mentioned, capacity is dependent on the order size, product mi9 and technology choices %y choosing to manufacture
•
Materials%
The need to source raw material on a regular urgent 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 large orders is typically less restrictive) 0urthermore, raw material re'uired 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 (ie carry certain percentage of inventory as previously e9plained)
28
•
9n+ormation 0lo%
"nalyzing all processes within the company, by far the most fractured and comple9 (and confusing) is the information flow ( e"i!it 2 ) The ma
This indicates that
possibly, vital information is not being disseminated throughout the production line
eptember 6BA.s pre-shipment re
amounted to E, causing a large amount of rework This information flow policy must change from being centered on 0laherty 0laherty.s role should be redefined and restructured to improve the flow of information and communication
$n addition, the current process of
e9pediting rush orders through the manufacturing process is adversely affecting the rest of the production process and increasing the information over load 0ocusing on only large volume boards should allow for enhancements within information flow
++e't o+ suggested strategy on per+orman'e 'riteria%
" new 4uality strategy should be adopted "rthur Dief (senior worker) could be used in this role due to his knowledge of the entire manufacturing process and the fact that he had a zero return rate There are various 'uality control strategies that could be implemented throughout the entire manufacturing process to detect (early) and prevent product defects, and to monitor the entire manufacturing process (ie si9 sigma, 5C or T4&)
orkers should be trained to 29
utilize such methods and to utilize new technologies
5roductivity
should be increased due to the decrease in bottlenecks throughout the manufacturing process
@egarding the financial performance of
Donner, if the sales manager (earby) can generate the desired sales and focus on the large 'uantity simple technology boards, there should be a marked improvement in Donner.s financial health The on-time delivery should be enhanced significantly due to the company.s new strategic policy of concentrating on the large 'uantity boards, as well as the reduction in product returns and re-works
$n summary, by adopting this strategy and focusing on this segment of the market, Donner should be able to compete with those current producers in the :Captive &arket; $t is critical that consistent sales numbers can be achieved $f Donner lost one or two large customers in this specialized and highly competitive market, revenue will seriously be compromised 0urthermore, Donner must be prepared to turn down a significant number of small orders These small orders represent a large portion of the established customer base (A+E)> and those customers
have
been
the
backbone
of
Donner.s
business
&anagement and workers will need to ad
7e'ommendation# 3%
Cange strategy +rom 'urrent position to one i' 'on'entrates on produ'ing large ; small uantities o+ simple
te'nology
!oards4
troug
te
use
o+
to
separate produ'tion lines$
30
Currently, Donner is already operating and manufacturing for both segments of the market with considerable success and a solid customer base /owever, in serving both the low # high volume markets, it is becoming increasing evident that the production processes and facilities are under significant stress $t is also clear that the present production facilities have been designed primarily around small order size production (since Donner originally started as a producer for contract markets) "t the same time, Donner is trying to 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 promising for the company, yet this will only be realized if the company can achieve faster delivery time, coupled with fewer work in progress and re-works " large part of the problem in meeting these faster delivery times and the increased number of reworks and work in progress appears to be the effects that :rush orders; have on the entire production process ork in progress ($5) is usually delayed in order to e9pedite these rush orders in a delivery time of four days ith the additional 6A++-s' feet of factory space available in the near future, it may be the best time make a strategic move to develop two separate production facilities, with two separate product lines This e9tra production line should be designed to meet small volume # rush orders The e9isting production line can then be fully devoted for large volume production purposes and Donner should purchase a second CC machine and run two separate production lines to accommodate this new strategy (advantageous for large-volume orders)
$f two production lines are established, it will simplify the production process and make it more efficient, increase the workers. productivity, improve delivery dates and increase volume of work secured in both
31
the contract and captive markets, thus increasing the overall customer base
Operational ; Strategi' 9mpli'ations
•
,a!or
"t the present time, Donner.s workers are only working productively for only 8 hours of their working day and idle (unproductive) for * hours (8B total hours in eptember, however only 6*86 hours are actually worked for the month of eptember) This issue stems from three main problems1
•
0irst1 there is considerable time wasted through the fre'uent stop # start manufacturing process directly resulting from rush orders
•
econd1
inade'uate
operational
organization
of
current
production facilities •
Third1 ineffective communication and flow of vital information from 0laherty
Through the strategic move of introducing a second production line, it will be feasible to improve productivity from each work, as work should be able to flow continuously through each production line without interruption 0urthermore, adopting a parallel manufacturing process will result in less manufacturing lead time and faster completion of orders, which will enhance on-time delivery $n addition, workers can be deployed more effectively in each production line, as
32
"lso, it is clear that the current manufacturing process results in having too many responsibilities lie on the shoulders of very few people (namely1 0laherty) ith two production lines in operation simultaneously, David 0laherty could be made responsible for the large volume production line, with "rthur Dief (as a senior and e9perienced worker) managing the smaller production line "rthur Dief is, clearly, valuable to Donner from "rthur
"lso, new workers could receive their training
This strategy will allow Donner to better utilize all
available resources and focus on improving productivity, 'uality, information flow, delivery and, in essence, the bottom line
0urthermore, if Donner adopted this strategy, $ would also recommend applying
a
parallel
process flow
as
it
will
result
in
reduced
manufacturing lead time Current process flow is se'uential in nature "ssume an order size of 7++ boards (where CC drill will be utilized), the se'uence of the process flow is as follows1
Artwork generation – 29 minutes to set up Inspect and sheer – 325 minutes
!unch too"ing ho"e – 225 minutes
#$# dri"" – set up time 240 minutes
"nalyzing the current process, it is evident that it takes a total of 87= minutes from the time an artwork is generated until CC drilling 33
commences During such time it is also evident that there is a total of ** minutes of idle time that occurs at the CC drilling station
The
worker who is responsible for the CC drilling is, literally, idle and waiting for the artwork generation, then for the inspect and sheer process, then for the punch tooling hole processes to be completed then he or she would begin the CC set up (which takes 7=+ minutes)
%y applying a parallel process flow, this idle time can be reduced significantly The new process may look as follows1
Art work generation – 29 minutes
Inspect and %heer – 325 minutes
!unch too"ing ho"e – 225 minutes
#$# dri"" – 185 minutes to set up
#$# run – 640 minutes
The moment artwork generation is completed, two copies are passed onto both stations1 inspect and sheer as well as the CC drill, so that the worker responsible for setting up the CC machine may begin his set up process without waiting (being idle H unproductive) for ** minutes (the time spent on inspect # sheer and punch tooling processes) This amounts to a total of ** minutes saved on production 34
cycle time (87= min vs 7B min proposed under the parallel process flow)
@educed cycle time will translate into better efficiency and
productivity, which will add to Donner.s bottom line and improve the on-time delivery process
The parallel process flow can be utilized at any stage of the production cycle, regardless of the order size
$t is another method to improve
productivity $n addition, eliminating any non-value-added processes from the manufacturing process will improve productivity (ie unnecessary time spent to transfer completed boards to the tanks ? back and forth ? and other low hanging fruits that hamper the overall productivity)
•
Capa'ity%
The capacity of Donner.s current production facility is not being fully realized, as it is not fully optimized for low or high volume circuit board manufacturing %y utilizing
two production lines, each can
be
optimized for their respective production purposes, and potential bottlenecks will be easier to identify and resolve This strategic move should allow Donner to achieve the potential sales volume of F8 million by 6BAA as, predicted by the sales manager
•
Materials%
Donner.s current delivery problems stem from several reasons, including re-works, rush orders and the effect they have on $5s, and also the inade'uate inventory policy e9isting within the company David 0laherty had acknowledged that he often delayed his scheduling for several days until the raw materials arrived from the vendor "s previously analyzed, it is understandable that it would not be possible to stock all raw materials, but a certain core raw materials should be
35
stocked to avoid valuable days being lost in the present order processing system, as well as to avoid vendors. volatilities The costs incurred by carrying inventory should be realized with sales figures increase, improved 'uality and on-time delivery
•
9n+ormation 0lo%
The current information flow within Donner can be described as incredibly inade'uateK "dopting this strategy will succeed only if information flows faster and becomes more readily available Gust as there are bottlenecks in the production process, there are also bottlenecks in the current information system 2rders are taking up to four days to reach 0laherty, after the bid has been accepted This e9cessive time period is adding to the e9isting 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 manufacturing and information to 0laherty, as well as to his workers The amount of inventory carried can be determined by the A+H7+ rule, which means that Donner could hold 7+E inventory of core raw materials based upon A+E of their individual order sizes in eptember (Donner could determine a monthly baseline or, should they elect to, 'uarterly baseline to determine appropriate level of inventory) "lso, by improving information flow and simplifying the process, Donner could become a market leader in the delivery time of its products, as well as in 'uality and fewer product return rates
•
*uality and on-time deli(ery%
2nce the new strategic move is adopted by Donner, a new 'uality strategy should also be adopted Currently, there is not one specific person responsible for ensuring 'uality standards are met /owever, by implementing highly effective 'uality control measures (si9-sigma,
36
