Problem Defnition

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 !arge electronic "rms (#T$T, %&') produced their
components in captive shops, while smaller sized companies, or when
large and small (uantities of simple technology or fast turn-around
prototype boards were re(uired, these re(uests usually are ful"lled by
contract shops
)ith *+, competitors in the -. alone, and a market that is volatile,
Donner/s ability to anticipate and resolve design problems and
prototype techni(ues enabled it to maintain its competitive edge
0owever, 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 "rm, and management started
evaluating the company/s position and di1erent strategic policies
2ollowing is detailed analysis and recommendations by evaluating the
current conditions of the company, particularly the following areas3
4perational and strategic implications of company direction
!abor utilization
'aterials
Capacity
%nformation 5ow
6valuating the following performance criteria3 7uality,
8roductivity and Delivery
1
2ollowing detailed analysis of data, process 5ow and inventory
strategies, my recommendations will be focused on the following
opportunities3
9 Changing strategy from current position to one which concentrates
on producing only small (uantities of fast turn-around .'4&Cs
: Changing strategy from current position to one which concentrates
on producing only large (uantities of simple technology boards
; Changing strategy from current position to one which concentrates
on producing large $ small (uantities of simple technology 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 e<pertise, and it produced
specialized circuit boards known as =soldermask over bare copper>
(.'4&C) boards Donner positioned itself to manufacture these boards
to small and large electronic "rms and management envisioned it as
one of the industry leaders 0owever, in order to achieve this
ob?ective, 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 "rm
Donner employed :: production employees, managed by @ senior
e<ecutives 8lease refer to exhibit 1 for Donner/s organizational
chart 4perators were cross-trained and able to perform di1erent
2
functions in di1erent departments This is considered to be a ma?or
advantage for a company to haveA the ability to deploy employees to
perform di1erent functions in di1erent areas (as needed) 0owever, it
seemed that there was a lack of e1ective communication strategy
within the organization, as information did not 5ow properly within the
di1erent 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 2laherty, 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 2laherty 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 B 9 B : days on average) 2laherty spent much of his time
planning and determining how to move ?obs ahead of others and how
to shift workers from one operation to another (to meet une<pected
customers/ changes to speci"cations and to meet the deadlines for
rush orders) 8lease refer to the information 5ow chart (exhibit 2) and
the order process 5ow chart (exhibit 3)
Donner promised its customers ; weeks delivery on orders of 9,,,
boards or less, and + weeks on orders larger than 9,,, boards Cush
orders (orders of D 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 e<pensive
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 e<hibited any signs of corrosion %n fact, by
3
4ctober 9EDF, Donner began to e<pand their current location, which
was fully utilized, by installing an 9D,, s( ft addition This addition
was due to be completed by Govember, 9ED*
Donner/s management had to implement policies that, in addition to
manufacturing, had to be cost e1ective, as Donner was not able to
attract outside capital (cited earlier3 managed primarily by engineers,
not necessarily business oriented)
#nalyzing Donner/s current situations, it is evident that the company is
su1ering from several problems relating to its manufacturing, labor,
(uality and delivery 2ollowing is a highlight and a brief analysis of
each of Donner/s problems3
1. Operating problems:
'anagement could not manage the production bottlenecks e1ectively
6ach order was di1erent, as per each customer/s speci"cations .ince
there is no set (uality policy in place, some raw material may be
defective )hen operators are working on a speci"c pro?ect, they may
re(uire additional raw material (which takes about 9 B : 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 ne<t operation
4ften times, some customers make modi"cations to the original specs
and ask for changes in production This means that the operators have
to stop working on a certain pro?ect and await new instructions from
management once they receive the new specs from the customers
4nce again, this causes a production bottleneck and, more seriously,
starts to shift the bottleneck to another operation process
4
2urthermore, rush orders represented a problem to Donner The
company promised @ days delivery to customers !ooking at the
bigger picture in this situation, we have a company that is being
pressured by sudden interruptions (of production), not meeting its on-
time delivery, su1ers 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 ful"llment of rush
orders) %f raw material is needed for rush orders, it is obtained from
the e<isting inventory, which is originally bought to ful"ll 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 : 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 speci"c process) 0owever, Donner e<perienced no
problems with rush orders (these orders were completed by one senior
employee) and had no re?ect rate %n fact, that was one area that did
not su1er from any =hemorrhage>
2. Productivity problems:
#s a result of the operating problems, it is normal to predict, and
e<pect, productivity problems )ith fre(uent down times and order
changes, management cited the fact that machines are idle for longer
than e<pected %n addition, standard labor time for each process (as
depicted in exhibit 4-A) did not re5ect accurate time at Donner itself,
rather it was based upon industry standards and competitors/ %n
addition, Donner/s operation is se(uential in nature, however
management is faced with a decision whether to use manual labor (for
drilling and punch press) or to use the CGC machine for the same
5
purpose %t is evident that management did not prepare a breakeven
analysis to be able to ob?ectively determine which method to use with
which kind of order 2urthermore, the se(uential process 5ow currently
utilized at Donner can cause a signi"cant idle time for workers #s my
analysis will show, a parallel 5ow of operations, at certain points, may
alleviate this problem and save time on production cycle time
3. uality problems:
Donner did not implement e1ective (uality control measures to inspect
the raw material or work in progress Donner depended on the
individual operators/ e<perience to perform informal e<amination as
the operation shifted from one process to the ne<t The result was the
increase rate of product return The company/s re?ect rate in
.eptember alone amounted to *H, of which 9H was a total loss and
FH re(uired re-works because the end products did not meet the
customers/ speci"cations Clearly, re-works resulted in pulling
operators from their current ?obs to begin re-works on the returned
boards, which in turn caused lack of productivity and bottlenecks
4. !elivery problems:
.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 (D 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 "nishing work in progress)A Donner continued to
su1er from the inability to meet its delivery dates 0owever, rush
6
orders were not a1ected 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)
2inally, the new sales manager for Donner, !loyd .earby, noted his
concerns that Donner/s sales may not e<ceed I:' in sales (in 9EDD) if
it continued to =bleed> from its (uality (returns and re-works) and
delivery problems 0owever, both !loyd and the president believed
that Donner should continue bidding for low volume orders and
improve their (uality standards, and believed this should stop the
=bleed> and possibly push Donner towards I;' in sales
#ll these troubles resulted in "nancial problems that manifested itself
in reduced sales in .eptember and threatened Donner/s e<istence in
the marketplace
Data Analysis:
Donner provided several e<hibits to demonstrate the following areas of
its operation3
8ro"t and !oss
.tandard 8rocess 2low
%nventory
2ollowing is an analysis of each area3
Pro"t and #oss $exhibit %&:
7
2rom the 8$! report we can identify few key points3
Donner is, despite the manufacturing problems, pro"table %n fact,
from January 9ED* to .eptember 9ED*, Donner/s pro"t before ta<
e<ceeded the preceding two years 0owever, if we analyzed each
month in 9ED*, it is obvious there is a negative trend from January till
July, and another negative trend from #ugust till .eptember3
%t is clear that there was a sharp drop in pro"ts from #ugust till
.eptember (total of I99* million loss Kdrop in net pro"t) 2rom the
information provided by Donner, most of the manufacturing and
delivery problems occurred in .eptember, 9ED*
2urther analysis of the 8ro"t and !oss sheet indicates that there was :9
working days in .eptember, 9ED* Donner employed :: employees
who worked D hrs K day shift This amounted to a total of ;FEF hours
worked in that month Direct labor amounted to ID*; per employee
8
(I;:,;,,K;FEF hrs) Total "<ed cost was I;@,9,, and variable cost was
ID*,F,, #dded in exhibit % is a column to depict the di1erent costs
per unit (based upon +*F9 units manufactured in .eptember)
'tandard Process (lo) $exhibits 4-A and 4-*&:
8erhaps the most important e<hibit provided by Donner to enable us
to identify problems and suggest solutions 2rom the information
provided in exhibit 4-A, the following can be identi"ed and
calculated3
&reakeven point to decide when to use the automated CGC drill
vs manual drill (based upon number of orders)
&reakeven point to decide when to use the automated CGC
router vs manual punch press (based upon number of orders)
%dentify bottlenecks within all areas of manufacturing with
special focus on the Dry 2ilm 8hotoresist process (to perform
capacity analysis of the D28C area by assuming order size of D,
D, and D,, boards)
.tandard labor time for an order size of 9, D and :,, boards
2ollowing is an analysis of each area3
.ince Donner purchased a CGC machine at ID,,,,, 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 CGC machine and manually This is achieved by
9
performing a breakeven analysis of each function %t is important to
note that the set up time for each process is "<ed no matter the order
size The run time is variable and changes per order size
Calculations of the breakeven points (please refer to exhibit + for
complete calculation of breakeven points), for CGC or manual drill and
for CGC or manual pro"le processes show the following results3
Drill process3
2or orders of + units or less, manual drill should be utilized as it will
incur fewer costs (and less overall time to process) and for orders over
F units the CGC drill should be utilized because the cost will be less
than if manual is used, as well as time to process
8ro"le process3
2or orders below 2,, boards, manual punch press should be utilized as
it will take less time and incur fewer costs, and for orders above :,,
boards the CGC router should be utilized for the same reasons
-xhibit 4-A can also be used to identify bottlenecks within Donner/s
standard process, particularly surrounding the capacity of the dry 2ilm
8hotoresist area %t is critical to realize the true capacity to prevent
bottlenecks and work-overload %f, for e<ample, the ma<imum number
of boards that the D28C area can handle (due to the set up and run
time involved in the process) is 9,,, then Donner should realize that
order size that passes through the drilling process should not e<ceed
9,, units (to match the D28C capacity) %f the order sized is more than
10
9,, (hence, more than the ma<imum capacity that the D28C area can
handle), a bottleneck is created and possibly shifted throughout the
entire manufacturing process %n addition, since the D28C area
consists of several functions, it is important to be aware of the
ma<imum capacity (as per order size) to prevent bottlenecks within the
D28C area 6<ceeding ma<imum capacity will have a direct negative
impact on (uality and on-time delivery (two problems that Donner was
already su1ering from in .eptember) 4f course, the bottleneck will
change from one area of the D28C to the other, depending on the order
size and the time involved in each process
2ollowing is a table illustrating the results of an analysis of the D28C
area to determine the ma<imum daily capacity for order sizes of D, D,
and D,, units (assuming normal D hours working days B @D, minutes)3
4rder
size
D28C area
. ., .,,
8anel 8rep *;D@ +@D+F 9+;F,
!aminate $
6<pose
9*@@ EF, 9*@@
Develop 9E,,D 9*@@D EF,,
8lease refer to exhibit / for complete calculation methods used to
determine D28C daily capacities
11
To translate these numbers into facts, it is clear that in order to avoid
bottlenecks for an order size of D boards, the number of boards that
can be processed per day can not e<ceed 9*@@ boards (by taking the
least number of boards for each of the three stages of D28C, as it
re5ects the ma<imum daily capacity of orders processed) %f total
boards did not e<ceed 9*@@, this is, at least, a guarantee that Donner
should not e<perience bottlenecks at the D28C area, as well as at other
areas of manufacturing, for an order size of D boards
The same is applied to the daily capacity for an order size of D, boards
The ma<imum daily capacity for the D28C area is EF, boards, based
upon an order size of D, #ny increase in order size will result in a
bottleneck 2or an order of D,, units, the ma<imum daily capacity for
the D28C area is 9*@@ boards without bottlenecks
%t is clear then that based upon the order size, the daily capacity for
the D28C area changes The larger the order size, the more capacity
the area can handle, however that capacity should not e<ceed the
highlighted "gures &ottlenecks can cause work to pile at another
stage of the process, which will impact the entire manufacturing
process as a whole, which is a ma?or factor in creating on-time delivery
and (uality problems
%n addition, the larger the order size, the less e<pensive 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 su1ered from a productivity problem, as noted by the 8resident
of the "rm, as well as the new sales manager &oth indicated that the
labor time in the standard process 5ow chart (exhibit 4-A) did not
re5ect the true labor time at Donner
12
%n .eptember 9ED*, there was a total of ;FEF hours worked (exhibit
%), however the standard process 5ow for .eptember (exhibit 4-A)
showed a total actual hours worked of 9+;9 hours This means that
there was a total of :9F+ hours that were considered either as down
time or idle (non-revenue producing), hence3 unproductive (+EH of idle
time), yet paid for by Donner This also means the following3
:9F+ hrs K :9 days in .eptember L 9,; total hours wasted every
working day
9,; hours K :: employee L + hours that are wasted by each employee
every day, which is M of the working day This simply means that each
employee worked an actual ; hours on a normal D hours working day
Got only does this a1ect productivity, but Donner paid ID*; per
employee for D hours a day (each employee cost Donner IFED@ K day),
yet they only worked for ; hours (revenue generating production) This
amounts to a loss of I@;F+ per day, per employee (IFED@ - I:F9E)
Calculate this loss by :: employees, and it is clear that Donner wasted
money on wages for hours either not worked or worked without
generating revenue, that amounted to IEF,; every working day, and
I:,,9FF; a monthN
2urthermore, the standard labor time increases with the order size
8lease refer to exhibits .0 1 and 1, $standard process 2o) area&
for complete calculations of labor time for 9, D and :,, orders
respectively3
4rder
size
!abor time
9 board
(e<hibit *)
D boards
(e<hibit D)
:,, boards
(e<hibit E)
13
'anual F;E hrs 99+* hrs 9+;+E hrs
CGC 999F hrs 99D+ hrs ;,F*
%t is clear that the labor time increases with the order size #s
previously noted, the breakeven point for the drilling process is F
boards, and the breakeven point for the pro"le process is :,, boards
Ceviewing the table above, for an order size of 9 board, it is more cost
e1ective for Donner to utilize an entirely manual procedure, as it takes
about F@, hrs to "nish an order and have it ready to be shipped #s
the order size increases (for e<ample, :,, boards), it is clear that it is
past the breakeven point and therefore takes less time to be processed
utilizing CGC drill and router rather than manual processing
%n addition, Donner is now faced with several options to better utilize
its labor 2or e<ample3 for order size of D boards, Donner may choose
to utilize manual drill combined with CGC router, or CGC drill with
manual punch press To illustrate, please re3er to exhibits .0 1 and
1, - proposed strategies areas:
%t is clear from the calculations that if the order size is 9 board, it is still
cost and time e1ective to utilize an entirely manual process (standard
labor time for an entire manual processing is F;E hrs), however once
the order size increases to D boards (exhibit 1 4 proposed strategy),
it is less time consuming for Donner to utilize CGC drill O manual
punch press, rather than an entirely manual or automated process
(labor time for the proposed strategy B CGC drill O punch press - is
reduced to 9,:+ hrs)
2or order size of e<actly :,, boards, Donner should utilize CGC drill
and may choose between punch press or CGC router (as :,, boards is
14
the breakeven point at which CGC drill must be utilized for time and
cost e1ectiveness, and both punch press and CGC router take the
same amount of time B :+, minutes) !abor time is reduced to ;,F*
hrs with the proposed strategy (exhibit 1, 4 proposed strategy)
2or orders above :,, units, it is more ePcient for Donner to implement
a process than utilizes both CGC 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 D and :,, boards3
.trateg
y
4rder size
CGC drill O
8unch 8ress
'anual drill
O CGC
Couter
6ntirely
manual
6ntirely CGC
D boards
(exhibit 1 B
standard $
proposed)
1,.2% hrs 9;9* hrs
99+* hrs 99D+ hrs
:,, boards
(exhibit 1,
B standard $
proposed)
;,F* hrs 9+;+E hrs
9+;+E hrs ;,F* hrs
15
%f the order size is above :,, (for e<ample, :+, boards), then the labor
time is ;++* hours when CGC is used for drilling and pro"ling (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 :,, boards)A it may be bene"cial to buy a
second CGC machine, particularly if they followed a parallel
manufacturing process (detail e<planation 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 : days for purchasing to
locate the raw material at a low price %t also took about @ days from
that moment until 2laherty (shop .upervisor) received the order and
prepared the blueprints, scheduled work orders and allocated proper
resources -xhibit 11 demonstrates the actual order sizes for the
month of .eptember, 9ED* 2urther 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 .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
2laherty 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 :,H, which follows the D,K:, rule) To illustrate3 in
.eptember, Donner received a total of F, orders from customers,
where D,H of these orders were below 9,, boards 4nly :,H of these
orders were for orders above 9,, boards %f Donner decided to focus
16
on small orders (ie orders of less than 9,, boards), then it would
make sense to carry about :,H the following raw materials3 stock
codes #, &, C, D, 6, 2 and possibly Q as well %f Donner decided to focus
on orders of 9,, boards and above, then the following stock codes
should be carried by the "rm3 #, D and possibly ' #s mentioned
earlier, stocking some of these raw materials should minimize
manufacturing lead time as the "rm will not be at the mercy of locating
the entire amount once an order is received %n addition, 2laherty will
not have to wait for @ days to begin planning for each pro?ect
%t is worth mentioning that despite the fact that D,H of orders received
from customers in .eptember were for small volume boards, E,H of
the total number of circuit boards manufactured was for orders of 9,,
boards or more This means that large volume orders represented the
largest portion of total number of boards made by Donner for
.eptember This may play a role when Donner decides whether to
focus on large or small volume orders, and whether it can a1ord to lose
the customer base for each type of orders if they decided to drop one
%t is clear however that Donner needs to carry some inventory
(regardless of their strategy) #ssuming a monthly cost of :H (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 following3
Ce-reviewing exhibit % (8$! summary), the cost of materials in
.eptember was I@:,F,, %f Donner carried inventory from #ugust,
then we add an additional :H to .eptember/s materials cost3 I@:,F,,
< :H L ID+:, which means that the new cost of materials for
.eptember will be e(ual to I@;,@+: The new calculations are
depicted on exhibit 13. %t is apparent that by adding the additional
cost of carrying inventory, total cost of materials becomes higher,
17
which also means that the cost of materials per unit is increased from
I*;E to I*+@ This also has a direct e1ect on total variable cost
(increased from ID*F, to IDD@+), as well as total net pro"t before
ta<, which is reduced from I;9' to I::+' Certainly, adding another
cost, as the cost of carrying inventory, will have an e1ect on the
bottom lineA 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 D,K:, rule, which means that (by looking
into .eptember/s orders) Donner may choose to carry :,H inventory of
the most commonly ordered raw materials (D,H of total volume of
each core raw material)
5ecommendations
&ased upon my analysis of Donner/s current situation and problems,
the following are recommendations that % deem as appropriate for the
company/s survival3
5ecommendation 61:
7hange strategy 3rom current position to one )hich
concentrates on producing only small 8uantities o3 3ast turn-
around '9O*7s.
18
Currently, Donner is ful"lling low-volume (9,, or less), high-volume
(more than 9,,) and e<pedited (D or less) .'4&C orders #lthough
diversi"cation of a product line is sometimes a desirable business
strategy to pursue, there are several compelling reasons for Donner to
concentrate on ful"lling one type of order, namely those that are low-
volume and fast turn-around3
2irst, e<celling at its core competency as a manufacturer of .'4&Cs is
the primary reason Donner has managed to not only survive, but to
5ourish in this highly competitive and volatile industry (consisting of
appro<imately *+, "rms 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 speci"c market segment of small
(uantities of fast turn-around .'4&Cs, the "rm 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
costs) %n short, the "rm could continue to supply large and prestigious
"rms such as %&', #T$T or Digital 6(uipment in addition to the smaller
electronics "rmsA thus allowing Donner to target all manufacturers in
the electronics industry (for low-order volumes)
Third, senior management has cited the "rm/s ability to anticipate and
resolve problems encountered during the design and production of
small volumes of .'4&Cs as one of its strengths and distinguishing
features when compared to the competition Coupled with
management/s desire to continue ful"lling low-volume orders (where
they e<perienced no problems with re?ects or on-time delivery), the
"rm should pursue a policy of serving this market segment with vigour
19
since it possesses both the e<perience and con"dence to assure a high
degree of success
2inally, although only a three-year old "rm, its pro"ts have grown
consistently year-on-year, as shown in following graph3
%t is interesting to note that they have already e<ceeded last year/s
earnings in the "rst nine months of this year (9ED*) .uch "nancial
facts are further evidence that the "rm is clearly well positioned in the
industry of producing small (uantities of fast turn-around .'4&Cs,
while avoiding the possible problems that are associated with large-
volume orders (ie bottlenecks, sudden changes to the designs by
customers, which may result in long idle time)
Operational and 'trategic :mplications
20
%f the "rm decides to pursue a policy of producing only small volumes
of (uick turn-around boards, it will en?oy productivity gains, better
labor utilization and improved (uality assurance, which will make
Donner a more competitive and ePcient "rm &elow are listed the
impacts, positive and negative, which will be e<perienced in speci"c
areas of the "rm/s operations in the pursuit of this strategy3
9aterials
Currently, raw materials are being =simmered> by those who are
ful"lling e<pedited orders, namely by #rthur Dief .uch a practice may
consistently lead to an order remaining as a )ork in 8rogress ()%8)
order, in the "rm/s manufacturing stream for longer than necessary
)%8 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 2ul"lling only small-volume, (uick turn-around orders
would re(uire the "rm 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 inePcient process from continuing to hamper the
entire manufacturing process
#abor 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
)%8 is interrupted by an e<pedited order, it may incur additional set-up
costs %n addition, workers then remain idle until the machine heKshe
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 "lled by the "rm will be of similar size
and have similar delivery dates, thus eliminating the =special status>
21
given to rush orders and reducing the idle time, which ampli"es
workers/ productivity
7apacity:
The ability of the "rm 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 5ow (work
in progress) in favor of rush orders Thus, by adapting a small order
volume only policy, which will eliminate both the great di1erence in
order size and the concept of the =rush> order, the "rm/s
manufacturing throughput will improve signi"cantly
:n3ormation (lo):
#s shown in exhibit 2, David 2laherty, the shop supervisor, has the
greatest number of informational in and out 5ows # high proportion of
information, both inter-departmental and inter-"rm, has to pass
through 2laherty #llowing him to operate e1ectively and ePciently
will have tremendous impact on Donner/s overall performance
2laherty 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,
2laherty should "nd it easier to plan resources and share information
2urthermore, carrying inventory of necessary raw materials should
alleviate the need for long lead time to plan for work
-<ect o3 suggested strategy on per3ormance criteria:
22
Donner/s management is concerned with the "rm/s performance in the
following areas3
uality
Productivity
(inancial
!eliveries
.ince all these items are inter-linked, an improvement in one area will
lead to an improvement in all .hould the "rm decide to produce only
small (uantities of fast turn-around .'4&Cs, it will be able to "< the
5aws in all of these areas .ince new employees typically take only
appro<imately ; R months to become pro"cient in their assigned areas
and if the order size is small, managing the orders would be easier
.ta1 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 bene"t from this as the
5oor sta1 are given more responsibility for assuring their orders
ePciently move along the manufacturing process
4n-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)3
23

#lso favourably a1ected will be the "nancial health of the "rm since it
will be able to bill its customers sooner and will carry smaller inventory
of work in progress
5ecommendation 62:
7hange strategy 3rom current position to one )hich
concentrates on producing only large 8uantities o3 simple
technology boards.
Currently, Donner holds a position in both the contract and captive
manufacturing markets )hile initially focusing on small (uantity
specialized circuit boards for e<perimental devices and for pilot
24
production runs (proto-types), the e<perience Donner has gained over
the last three years would facilitate the "rm 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
2ocusing 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 :,, boards (E,H of total orders received in
.eptember)
Operational = 'trategic :mplications
#abor >tili;ation:
Donner/s current labor use will re(uire changes #s the chart below
shows, signi"cant time is saved per board when using the CGC Drill
and Couter (for orders over :,, boards)A hence no re(uirements for
manual drill or punch press 6mployment could be reduced or workers
could be re-deployed to work in other areas in the "rm (Donner/s
management cited the fact that workers are well cross-trained and
able to perform di1erent functions throughout the manufacturing
process)
Septembers Production Data September Total
Std Production
4peration .etup(mi
n)
Cun
(min)
4rders &oards .etup
(min)
Cuns
(min)
Total
0ours
'anual
Drill
9+ ,,D
,
+9 E;F *F+ ;*,@@
,
F;FD
CGC Drill :@, ,,, E @,D:+ :,9F, E,F+, 9EFD
25
@
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 fact3 the
larger the order size, the less time the process 5ow looked using the
CGC machine, as opposed to manual processes 8erhaps Donner
should purchase a second CGC machine to accommodate this new
strategy (advantageous for large-volume orders)
7apacity:
#s previously mentioned, capacity is dependent on the order size,
product mi< and technology choices &y choosing to manufacture ?ust
the large (uantity simple technology boards, product mi< 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
9aterials:
The need to source raw material on a regular urgent basis should
decrease in number substantially %n e1ect, 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) 2urthermore, 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 e<plained)
26
:n3ormation (lo):
#nalyzing all processes within the company, by far the most fractured
and comple< (and confusing) is the information 5ow (exhibit 2) The
ma?ority of the returned boards were a result of the "rm missing or
failing to complete one or two re(uired design speci"cation Currently,
until an order is shipped, 2laherty 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
.eptember 9ED*/s pre-shipment re?ection rate amounted to *H,
causing a large amount of rework This information 5ow policy must
change from being centered on 2laherty 2laherty/s role should be
rede"ned and restructured to improve the 5ow of information and
communication %n addition, the current process of e<pediting rush
orders through the manufacturing process is adversely a1ecting the
rest of the production process and increasing the information over
load 2ocusing on only large volume boards should allow for
enhancements within information 5ow
-<ect o3 suggested strategy on per3ormance criteria:
# new 7uality 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 si< sigma, .8C or T7') )orkers should be trained to
27
utilize such methods and to utilize new technologies 8roductivity
should be increased due to the decrease in bottlenecks throughout the
manufacturing process Cegarding the "nancial 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 "nancial health The on-time
delivery should be enhanced signi"cantly 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 2urthermore, Donner must be prepared to turn down
a signi"cant number of small orders These small orders represent a
large portion of the established customer base (D,H)A and those
customers have been the backbone of Donner/s business
'anagement and workers will need to ad?ust their mentality to focus
on larger orders and be willing to avoid those smaller orders
5ecommendation6 3:
7hange strategy 3rom current position to one )hich
concentrates on producing large = small 8uantities o3
simple technology boards0 through the use o3 t)o
separate production lines.
28
Currently, Donner is already operating and manufacturing for both
segments of the market with considerable success and a solid
customer base 0owever, in serving both the low $ high volume
markets, it is becoming increasing evident that the production
processes and facilities are under signi"cant 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 diversi"cation 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 re-
works and work in progress appears to be the e1ects that =rush
orders> have on the entire production process )ork in progress ()%8)
is usually delayed in order to e<pedite these rush orders in a delivery
time of four days )ith the additional 9D,,-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 e<tra production line should be designed to meet
small volume $ rush orders The e<isting production line can then be
fully devoted for large volume production purposes and Donner should
purchase a second CGC 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 ePcient, increase the workers/ productivity,
improve delivery dates and increase volume of work secured in both
29
the contract and captive markets, thus increasing the overall customer
base
Operational = 'trategic :mplications
#abor >tili;ation:
#t the present time, Donner/s workers are only working productively for
only ; hours of their working day and idle (unproductive) for + hours
(;FEF total hours in .eptember, however only 9+;9 hours are actually
worked for the month of .eptember) This issue stems from three
main problems3
2irst3 there is considerable time wasted through the fre(uent stop
$ start manufacturing process directly resulting from rush orders
.econd3 inade(uate operational organization of current
production facilities
Third3 ine1ective communication and 5ow of vital information
from 2laherty
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 5ow continuously through each production line without
interruption 2urthermore, 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 e1ectively in each production line, as ?ob functions will
become more de"ned leading to less confusion and less time wasted
as the case in the current manufacturing process
30
#lso, it is clear that the current manufacturing process results in having
too many responsibilities lie on the shoulders of very few people
(namely3 2laherty) )ith two production lines in operation
simultaneously, David 2laherty could be made responsible for the large
volume production line, with #rthur Dief (as a senior and e<perienced
worker) managing the smaller production line #rthur Dief is, clearly,
valuable to Donner #lso, new workers could receive their training from
#rthur This strategy will allow Donner to better utilize all available
resources and focus on improving productivity, (uality, information
5ow, delivery and, in essence, the bottom line
2urthermore, if Donner adopted this strategy, % would also recommend
applying a parallel process 5ow as it will result in reduced
manufacturing lead time Current process 5ow is se(uential in nature
#ssume an order size of :,, boards (where CGC drill will be utilized),
the se(uence of the process 5ow is as follows3
#nalyzing the current process, it is evident that it takes a total of ;:@
minutes from the time an artwork is generated until CGC drilling
commences During such time it is also evident that there is a total of
31
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
++ minutes of idle time that occurs at the CGC drilling station The
worker who is responsible for the CGC 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 CGC set up (which takes :@, minutes)
&y applying a parallel process 5ow, this idle time can be reduced
signi"cantly The new process may look as follows3
The moment artwork generation is completed, two copies are passed
onto both stations3 inspect and sheer as well as the CGC drill, so that
the worker responsible for setting up the CGC machine may begin his
set up process without waiting (being idle K unproductive) for ++
minutes (the time spent on inspect $ sheer and punch tooling
processes) This amounts to a total of ++ minutes saved on production
cycle time (;:@ min vs :FE min proposed under the parallel process
32
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
5ow) Ceduced cycle time will translate into better ePciency and
productivity, which will add to Donner/s bottom line and improve the
on-time delivery process
The parallel process 5ow 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 un-
necessary time spent to transfer completed boards to the tanks B back
and forth B and other low hanging fruits that hamper the overall
productivity)
7apacity:
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 I; million by 9EDD as,
predicted by the sales manager
9aterials:
Donner/s current delivery problems stem from several reasons,
including re-works, rush orders and the e1ect they have on )%8s, and
also the inade(uate inventory policy e<isting within the company
David 2laherty 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
stocked to avoid valuable days being lost in the present order
33
processing system, as well as to avoid vendors/ volatilities The costs
incurred by carrying inventory should be realized with sales "gures
increase, improved (uality and on-time delivery
:n3ormation (lo):
The current information 5ow within Donner can be described as
incredibly inade(uateN #dopting this strategy will succeed only if
information 5ows faster and becomes more readily available Just as
there are bottlenecks in the production process, there are also
bottlenecks in the current information system 4rders are taking up to
four days to reach 2laherty, after the bid has been accepted This
e<cessive time period is adding to the e<isting delivery problem #s
previously described, Donner will hold certain levels of inventory of
speci"c raw materialsA which will lead to a shorter lead-time of
manufacturing and information to 2laherty, as well as to his workers
The amount of inventory carried can be determined by the D,K:, rule,
which means that Donner could hold :,H inventory of core raw
materials based upon D,H 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 5ow 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 delivery:
4nce the new strategic move is adopted by Donner, a new (uality
strategy should also be adopted Currently, there is not one speci"c
person responsible for ensuring (uality standards are met 0owever,
by implementing highly e1ective (uality control measures (si<-sigma,
.8C or T7'), this should improve (uality standards and reduce product
34
returns 8roductivity will also be increased for the same reasons
outlined above Concerning Donner/s "nancial status, the "rm can
generate more sales "gures, as a result of improved productivity and
(uality, and possibly attain the sales "gure planned by .earby (I;')
6<penses incurred during this strategic move should be recouped with
increased sales The on-time delivery should be increased signi"cantly
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
7onclusion
#fter reviewing Donner/s current strategic plans, it is evident that
certain operations of the company are no longer compatible with
Donner/s ob?ectives There is a need to change while concentrating on
the company/s core competency
&y attempting to serve both captive and contract markets, Donner has
the opportunity to e<pand its market and customer base, as well as
improve productivity, (uality, "nancial health, labor utilization and
capacity Donner could remain one of the market leaders and maintain
its competitive edge #ll these factors will lead to increased sales %t is
therefore my conclusion that recommendation 6 3 is the most
appropriate and e1ective solution to Donner/s current problems
35