Donner case study om

Medaille College
MBA-621
Operations Management
Case Study #2
Donner Company
3/8/2006
Amr Abbas
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Problem Definition
The three-year old Donner Company has positioned itself well within both the
small volume, customized (contract) printed circuit boards market as well as the
large volume, generic (captive) printed circuit boards market. Large electronic
firms (AT&T, IBM) produced their components in captive shops, while smaller
sized companies, or when large and small quantities of simple technology or fast
turn-around prototype boards were required, these requests usually are fulfilled
by contract shops.
With 750 competitors in the US alone, and a market that is volatile, 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:
• Operational and strategic implications of company direction
• Labor utilization
• Materials
• Capacity
• Information flow
• Evaluating the following performance criteria: Quality, Productivity and
Delivery.
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Following detailed analysis of data, process flow and inventory strategies, my
recommendations will be focused on the following opportunities:
1. Changing strategy from current position to one which concentrates on
producing only small quantities of fast turn-around SMOBCs.
producing only large quantities of simple technology boards.
producing large & small quantities of simple technology boards, through the
use of two separate production lines.
Company Objectives and Overview of Problems:
With a company that is managed primarily by engineers, 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 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
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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).
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
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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 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
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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:
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
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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:
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).
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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
• 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
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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-87
Months
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 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).
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• Standard Process Flow (exhibits 4-A and 4-B):
Perhaps the most important exhibit provided by Donner to enable us to
identify problems and suggest solutions. From the information provided in
exhibit 4-A, the following can be identified and calculated:
• Breakeven point to decide when to use the automated CNC drill vs.
manual drill (based upon number of orders)
• Breakeven point to decide when to use the automated CNC router vs.
manual punch press (based upon number of orders)
• Identify bottlenecks within all areas of manufacturing with special focus
on the Dry Film Photoresist process (to perform capacity analysis of the
DFPR area by assuming order size of 8, 80 and 800 boards)
• Standard labor time for an order size of 1, 8 and 200 boards
Following is an analysis of each area:
Since Donner purchased a CNC machine at $80,000 to perform the drilling and
router functions, and also since these processes can be performed manually, it is
important to decide which orders can be scheduled on the CNC machine and
manually. This is achieved by performing a breakeven analysis of each function.
It is important to note that the set up time for each process is fixed no matter the
order size. The run time is variable and changes per order size.
Calculations of the breakeven points (please refer to exhibit 6 for complete
calculation of breakeven points), for CNC or manual drill and for CNC or
manual profile processes show the following results:
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• Drill process:
For orders of 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 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
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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 &
Expose
174.4 960 1744
Develop 190.08 1744.8 9600
Please refer to exhibit 7 for complete calculation methods used to determine
DFPR daily capacities.
To translate these numbers into facts, it is clear that in order to avoid bottlenecks
for an order size of 8 boards, the number of boards that can be processed per day
can not exceed 174.4 boards (by taking the least number of boards for each of the
three stages of DFPR, as it reflects the maximum daily capacity of orders
processed). If total boards did not exceed 174.4, this is, at least, a guarantee that
Donner should not experience bottlenecks at the DFPR area, as well as at other
areas of manufacturing, for an order size of 8 boards.
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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.
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
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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!
Furthermore, the standard labor time increases with the order size. Please refer
to exhibits 8, 9 and 10 (standard process flow area) for complete calculations of
labor time for 1, 8 and 200 orders respectively:
Order size
Labor time
1 board
(exhibit 7)
8 boards
(exhibit 8)
200 boards
(exhibit 9)
Manual 6.39 hrs 11.57 hrs 153.59 hrs
CNC 11.16 hrs 11.85 hrs 30.67
It is clear that the labor time increases with the order size. As previously noted,
the breakeven point for the drilling process is 6 boards, and the breakeven point
for the profile process is 200 boards. Reviewing the table above, for an order size
of 1 board, it is more cost effective for Donner to utilize an entirely manual
procedure, as it takes about 6.40 hrs to finish an order and have it ready to be
shipped. As the order size increases (for example, 200 boards), it is clear that it is
past the breakeven point and therefore takes less time to be processed utilizing
CNC drill and router rather than manual processing.
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In addition, Donner is now faced with several options to better utilize its labor.
For example: for order size of 8 boards, Donner may choose to utilize manual
drill combined with CNC router, or CNC drill with manual punch press. To
illustrate, please refer to exhibits 8, 9 and 10 - proposed strategies areas:
It is clear from the calculations that if the order size is 1 board, it is still cost and
time effective to utilize an entirely manual process (standard labor time for an
entire manual processing is 6.39 hrs), however once the order size increases to 8
boards (exhibit 9 – proposed strategy), it is less time consuming for Donner to
utilize CNC drill + manual punch press, rather than an entirely manual or
automated process (labor time for the proposed strategy – CNC drill + punch
press - is reduced to 10.25 hrs).
For order size of exactly 200 boards, Donner should utilize CNC drill and may
choose between punch press or CNC router (as 200 boards is the breakeven point
at which CNC drill must be utilized for time and cost effectiveness, and both
punch press and CNC router take the same amount of time – 250 minutes).
Labor time is reduced to 30.67 hrs with the proposed strategy (exhibit 10 –
proposed strategy). For orders above 200 units, it is more efficient for Donner 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:
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Strategy
Order size
CNC drill +
Punch Press
Manual drill +
CNC Router
Entirely
manual
Entirely CNC
8 boards
(exhibit 9 –
standard &
proposed)
10.25 hrs 13.17 hrs
11.57 hrs 11.85 hrs
200 boards
(exhibit 10 –
standard &
proposed)
30.67 hrs 153.59 hrs
153.59 hrs 30.67 hrs
If the order size is above 200 (for example, 250 boards), then the labor time is
35.57 hours when CNC is used for drilling and profiling (entirely automated
process), which is less than the time taken when manual processes are utilized.
The breakeven points play a big role in these situations. This poses a suggestion
that if Donner decided to focus on large volume orders (over 200 boards); it may
be beneficial to buy a second CNC machine, particularly if they followed a
parallel manufacturing process (detail explanation of this process will follow in
the recommendation section).
As mentioned earlier, when Donner received an order and the bid had been
accepted by the customer, it took about 2 days for purchasing to locate the 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
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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 lead time
from the moment the bid is accepted until it reaches Flaherty. To determine
which raw material Donner should carry depends on the strategy followed. If
Donner followed a strategy that focuses on small orders only, it makes sense to
carry over a percentage of the commonly used raw material for such orders
(suggested 20%, which follows the 80/20 rule). To illustrate: in September,
Donner received a total of 60 orders from customers, where 80% of these orders
were below 100 boards. Only 20% of these orders were for orders above 100
boards. If Donner decided to focus on small orders (i.e. orders of less than 100
boards), then it would make sense to carry about 20% the following raw
materials: stock codes A, B, C, D, E, F and possibly K as well. If Donner decided
to focus on orders of 100 boards and above, then the following stock codes
should be carried by the firm: A, D and possibly M. As mentioned earlier,
stocking some of these raw materials should minimize manufacturing lead time
as the firm will not be at the mercy of locating the entire amount once an order is
received. In addition, Flaherty will not have to wait for 4 days to begin planning
for each project.
It is worth mentioning that despite the fact that 80% of orders received from
customers in September were for small volume boards, 90% of the total number
of circuit boards manufactured was for orders of 100 boards or more. This
means that large volume orders represented the largest portion of total number
of boards made by Donner for September. This may play a role when Donner
decides whether to focus on large or small volume orders, and whether it can
afford to lose the customer base for each type of orders if they decided to drop
one.
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It is clear however that Donner needs to carry some inventory (regardless of their
strategy). Assuming a monthly cost of 2% (cost of carrying inventory), and
assuming that Donner carried over some inventory from August (to show total
impact on total cost and cost per unit), we note the following:
Re-reviewing exhibit 5 (P&L summary), the cost of materials in September was
$42,600. If Donner carried inventory from August, then we add an additional 2%
to 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
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Equipment 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
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 than necessary. By making the order-types as uniform as possible,
Flaherty should find it easier to plan resources and share information.
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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):
23

Value of actual shippments in September, 1987
11118
-1188
405716962226
8430
2395
-684
2560
5926
-147
3952
13216
10070
5561
2275 176 -1327
-7975
17939
44560
11118 9930
139871568317909
26339 28734 30610
40341
53557
63627
6918871463 7163970312
62337
80276
124836
28050
36536
36389
-20000
0
20000
40000
60000
80000
100000
120000
140000
9/1
Dates
ValueinUSD
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-Sep
11-
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:
producing only large quantities of simple technology boards.
Currently, Donner holds a position in both the contract and captive
manufacturing markets. While initially focusing on small quantity specialized
circuit boards for experimental devices and for pilot production runs (proto-
24

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(min) Run
(min)
Orders Boards Setup
(min)
Runs
(min)
Total
Hours
Manual
Drill
15 0.080 51 936 765 37,440 636.8
CNC Drill 240 0.004 9 4,825 2,160 9,650 196.8
25

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).
26

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 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
27

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:
producing large & small quantities of simple technology boards,
through the use of two separate production lines.
Currently, Donner is already operating and manufacturing for both segments of
the market with considerable success and a solid customer base. However, in
serving both the low & high volume markets, it is becoming increasing evident
that the production processes and facilities are under significant stress. It is also
clear that the present production facilities have been designed primarily around
small order size production (since Donner originally started as a producer for
28

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 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
29

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.
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.
30

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 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:
31
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

The moment artwork generation is completed, two copies are passed onto both
stations: inspect and sheer as well as the CNC drill, so that the worker
responsible for setting up the CNC machine may begin his set up process
without waiting (being idle / unproductive) for 55 minutes (the time spent on
inspect & sheer and punch tooling processes). This amounts to a total of 55
minutes saved on production cycle time (324 min. vs. 269 min. proposed under
the parallel process flow). Reduced cycle time will translate into better efficiency
and productivity, which will add to 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
32
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

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
incurred by carrying inventory should be realized with sales figures increase,
improved quality and on-time delivery.
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
33

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 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.
34

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.
35

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