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MBA-621
Operations Management
Case Study #2
Donner Company
3/8/2006
Amr Abbas
1
Problem Definition
The three-year old Donner Company has positioned itself well within both the
small volume, customized (contract) printed circuit boards market as well as the
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, Donners
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 companys position and different strategic policies.
Following is detailed analysis and recommendations by evaluating the current
conditions of the company, particularly the following areas:
Labor utilization
Materials
Capacity
Information flow
The company
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 Donners 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).
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, Donners operation is sequential in
nature, however management is faced with a decision whether to use manual
labor (for drilling and punch press) or to use the CNC machine for the same
purpose. It is evident that management did not prepare a breakeven analysis to
be able to objectively determine which method to use with which kind of order.
Furthermore, the sequential process flow currently utilized at Donner can cause
a significant idle time for workers. As my analysis will show, a parallel flow of
operations, at certain points, may alleviate this problem and save time on
production cycle time.
3. Quality problems:
Donner did not implement effective quality control measures to inspect the raw
material or work in progress. Donner depended on the individual operators
experience to perform informal examination as the operation shifted from one
process to the next. The result was the increase rate of product return. The
companys 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 reworks required pulling operators away from their current functions, deadlines
were not met (due to delays in manufacturing and finishing work in progress);
Donner continued to suffer from the inability to meet its delivery dates.
However, rush orders were not affected and the company continued to promise
4 days delivery for such orders (this also caused bottlenecks and shifting
bottlenecks as rush orders were treated with special status, raw materials and
workers were simmered to satisfy these orders).
Finally, the new sales manager for Donner, Lloyd Searby, noted his concerns that
Donners 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 Donners existence in the marketplace.
Data Analysis:
Donner provided several exhibits to demonstrate the following areas of its
operation:
Inventory
$16.00
$14.00
$12.00
$10.00
Sales (USD)
$8.00
$6.00
$4.00
$2.00
$0.00
Jan - Jul 1987
Jul-87
Aug-87
Sep-87
Months
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).
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)
10
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 Donners 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
change from one area of the DFPR to the other, depending on the order size and
the time involved in each process.
11
80
800
738.4
5485.6
15360
174.4
960
1744
190.08
1744.8
9600
DFPR area
Panel Prep
Laminate &
Expose
Develop
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 ontime 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
13
103 hours / 22 employee = 5 hours that are wasted by each employee every day,
which is 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
1 board
8 boards
200 boards
(exhibit 7)
(exhibit 8)
(exhibit 9)
Manual
6.39 hrs
11.57 hrs
153.59 hrs
CNC
11.16 hrs
11.85 hrs
30.67
Labor time
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.
14
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 times savings for
orders of 8 and 200 boards:
15
Strategy
CNC drill +
Manual drill +
Punch Press
CNC Router
Entirely
manual
Entirely CNC
10.25 hrs
13.17 hrs
11.57 hrs
11.85 hrs
30.67 hrs
153.59 hrs
153.59 hrs
30.67 hrs
Order size
8 boards
(exhibit 9
standard &
proposed)
200 boards
(exhibit 10
standard &
proposed)
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.
Flaherty (shop Supervisor) received the order and prepared the blueprints,
scheduled work orders and allocated proper resources. Exhibit 11 demonstrates
the actual order sizes for the month of September, 1987. Further analysis of the
16
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.
17
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 Septembers materials cost: $42,600 x 2% = $852, which means that the new
cost of materials for September will be equal to $43,452.
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
Septembers orders) Donner may choose to carry 20% inventory of the most
commonly ordered raw materials (80% of total volume of each core raw
material).
18
Recommendations
Based upon my analysis of Donners current situation and problems, the
following are recommendations that I deem as appropriate for the companys
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).
continue to supply large and prestigious firms such as IBM, AT&T or Digital
Equipment in addition to the smaller electronics firms; thus allowing Donner to
target all manufacturers in the electronics industry (for low-order volumes).
19
Third, senior management has cited the firms 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 managements desire to continue fulfilling lowvolume 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:
$33,500
35000
30000
25000
20000
15000
Sales in USD
$2,100
Year
Sales
10000
5000
0
1985
1986
-5000
-10000
1987
-$6,900
1
Year
1985
1986
1987
Sales
-$6,900
$2,100
$33,500
Year
It is interesting to note that they have already exceeded last years earnings in
the first nine months of this year (1987). Such financial facts are further evidence
20
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).
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 firms
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.
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
21
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).
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 firms 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
Donners 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.
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:
22
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 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
Also favourably affected will be the financial health of the firm since it will be
able to bill its customers sooner and will carry smaller inventory of work in
progress.
Recommendation #2:
Change strategy from current position to one which concentrates on
producing only large quantities of simple technology boards.
Currently, Donner holds a position in both the contract and captive
manufacturing markets. While initially focusing on small quantity specialized
circuit boards for experimental devices and for pilot production runs (prototypes), the experience Donner has gained over the last three years would
24
Labor Utilization:
Donners 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 (Donners management cited the fact that workers are well
cross-trained and able to perform different functions throughout the
manufacturing process).
Septembers Production Data
Operation
Setup(min)
Run
Boards
(min)
Manual
Setup
Runs
Total
(min)
(min)
Hours
15
0.080
51
936
765
37,440
636.8
240
0.004
4,825
2,160
9,650
196.8
Drill
CNC Drill
The increase in batch size will reduce the time per average board for
manufacture and subsequently reduce labor time.
In addition, previous
25
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:
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.
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).
Information Flow:
Analyzing all processes within the company, by far the most fractured and
complex (and confusing) is the information flow (exhibit 2). The majority of the
26
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 1987s pre-shipment rejection rate amounted to
7%, causing a large amount of rework.
change from being centered on Flaherty. Flahertys role should be redefined and
restructured to improve the flow of information and communication.
In
Furthermore,
Recommendation# 3:
Change strategy from current position to one which concentrates on
producing large & small quantities of simple technology boards,
through the use of two separate production lines.
Currently, Donner is already operating and manufacturing for both segments of
the market with considerable success and a solid customer base. However, in
serving both the low & high volume markets, it is becoming increasing evident
that the production processes and facilities are under significant stress. It is also
clear that the present production facilities have been designed primarily around
small order size production (since Donner originally started as a producer for
contract markets). At the same time, Donner is trying to adapt itself, workers
and facility to cope with the diversification in product lines (the penetration of
captive markets). Lloyd Searbys 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
28
problem in meeting these faster delivery times and the increased number of reworks and work in progress appears to be the effects that rush orders have on
the entire production process. 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.
Labor Utilization:
At the present time, Donners workers are only working productively for only 3
hours of their working day and idle (unproductive) for 5 hours (3696 total hours
in September, however only 1531 hours are actually worked for the month of
September). This issue stems from three main problems:
First: there is considerable time wasted through the frequent stop & start
manufacturing process directly resulting from rush orders.
30
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:
Inspect and
Sheer
32.5
minutes
31
Punch
tooling
hole 22.5
minutes
CNC drill
185
minutes to
set up
CNC run
640
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 Donners bottom line and improve the ontime delivery process.
The parallel process flow can be utilized at any stage of the production cycle,
regardless of the order size. It is another method to improve productivity. In
addition, eliminating any non-value-added processes from the manufacturing
process will improve productivity (i.e. un-necessary time spent to transfer
completed boards to the tanks back and forth and other low hanging fruits
that hamper the overall productivity).
Capacity:
The capacity of Donners 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.
32
Materials:
Donners current delivery problems stem from several reasons, including reworks, 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.
Information Flow:
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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.
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 Donners 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 companys new
strategic policy of having two separate production lines, each independent, with
each optimized for their respective production processes. This will help alleviate
the delay and confusion inherent in the current system.
Conclusion
After reviewing Donners current strategic plans, it is evident that certain
operations of the company are no longer compatible with Donners objectives.
There is a need to change while concentrating on the companys 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
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