Medaille College

MBA-621
Operations Management
Case Study #2

Donner
Company
3/8/2006

Amr Abbas
Problem Definition
The three-year old Donner Company has positioned itself well within
both the small volume, customized (contract) printed circuit boards
market as well as the large volume, generic (captive) printed circuit
boards market.

Large electronic firms (AT&T, IBM) produced their

components in captive shops, while smaller sized companies, or when

large and small quantities of simple technology or fast turn-around
prototype boards were required, these requests usually are fulfilled by
contract shops.
With 750 competitors in the US alone, and a market that is volatile,
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 ontime 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:

Operational and strategic implications of company direction

Labor utilization

Materials

Capacity

Information flow

Evaluating

the

following

performance

criteria:

Quality,

Productivity and Delivery.

Following detailed analysis of data, process flow and inventory
strategies, my recommendations will be focused on the following
opportunities:
1. Changing strategy from current position to one which concentrates
on producing only small quantities of fast turn-around SMOBCs.
2. Changing strategy from current position to one which concentrates
on producing only large quantities of simple technology boards.
3. Changing strategy from current position to one which concentrates
on producing large & small quantities of simple technology boards,
through the use of two separate production lines.

Company Objectives and Overview of Problems:

With a company that is managed primarily by engineers, Donners 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
3

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 dont
necessarily possess the business sense to run a firm.
Donner employed 22 production employees, managed by 4 senior
executives.
chart.

Please refer to exhibit 1 for Donners organizational

Operators were cross-trained and able to perform different

functions in different departments. This is considered to be a major

advantage for a company to have; the ability to deploy employees to
perform different functions in different areas (as needed). However, it
seemed that there was a lack of effective communication strategy
within the organization, as information did not flow properly within the
different departments and workers often interrupted their work to
discuss issues with the supervisor, deliver completed panels or secure
more work from other work stations (low hanging fruits).
David Flaherty, shop supervisor, is responsible for all aspects of the
manufacturing processes from the time he received the order and
blueprint until the order has been completed and shipped. Flaherty is
in charge of preparing work schedules, which occurred several days
after the raw material has arrived from the vendor (most orders
reached him 4 days after customers bids had been accepted, which
included the time needed by purchasing to locate the raw material at a
low price 1 2 days on average). Flaherty spent much of his time
planning and determining how to move jobs ahead of others and how
to shift workers from one operation to another (to meet unexpected
customers changes to specifications and to meet the deadlines for
rush orders). Please refer to the information flow chart (exhibit 2) and
the order process flow chart (exhibit 3).

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 operations diverse environment.

After

being in the same location for a year and a half, neither the machines
nor the graphic equipment exhibited any signs of corrosion. In fact, by
October 1986, Donner began to expand their current location, which
was fully utilized, by installing an 1800 sq ft addition.

This addition

was due to be completed by November, 1987.

Donners 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 Donners 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 Donners problems:

1. Operating problems:
Management could not manage the production bottlenecks effectively.
Each order was different, as per each customers 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.
company promised 4 days delivery to customers.

The

Looking at the

bigger picture in this situation, we have a company that is being

pressured by sudden interruptions (of production), not meeting its ontime delivery, suffers from bottlenecks at almost every stage of
production yet continues to promise 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
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).

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.
addition,

Donners

operation

is

sequential

in

nature,

In

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 re-works required pulling operators away from
their current functions, deadlines were not met (due to delays in
manufacturing and finishing work in progress); Donner continued to
suffer from the inability to meet its delivery dates.

However, rush

orders were not affected and the company continued to promise 4

days delivery for such orders (this also caused bottlenecks and shifting
bottlenecks as rush orders were treated with special status, raw
materials and workers were simmered to satisfy these orders).
Finally, the new sales manager for Donner, Lloyd Searby, noted his
concerns that 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:

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, Donners profit before tax

exceeded the preceding two years.

However, if we analyzed each

month in 1987, it is obvious there is a negative trend from January till

July, and another negative trend from August till September:

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).

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)
10

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:

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.

11

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.
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
8

80

800

738.4

5485.6

15360

DFPR area
Panel Prep

12

Laminate &
Expose

Develop

174.4

960

1744

190.08

1744.8

9600

Please refer to exhibit 7 for complete calculation methods used to

determine DFPR daily capacities.
To translate these numbers into facts, it is clear that in order to avoid
bottlenecks for an order size of 8 boards, the number of boards that
can be processed per day can not exceed 174.4 boards (by taking the
least number of boards for each of the three stages of DFPR, as it
reflects the maximum daily capacity of orders processed).

If total

boards did not exceed 174.4, this is, at least, a guarantee that Donner
should not experience bottlenecks at the DFPR area, as well as at other
areas of manufacturing, for an order size of 8 boards.
The same is applied to the daily capacity for an order size of 80 boards.
The maximum daily capacity for the DFPR area is 960 boards, based
upon an order size of 80. Any increase in order size will result in a
bottleneck. For an order of 800 units, the maximum daily capacity for
the DFPR area is 1744 boards without bottlenecks.
It is clear then that based upon the order size, the daily capacity for
the DFPR area changes. The larger the order size, the more capacity
the area can handle, however that capacity should not exceed the
highlighted figures.

Bottlenecks can cause work to pile at another

stage of the process, which will impact the entire manufacturing

13

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
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

14

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.
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:

15

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:

Strateg
y

CNC drill +

Manual drill

Punch Press

+ CNC

Entirely
manual

Entirely CNC

Router

16

Order size
8 boards
(exhibit 9
standard &

10.25 hrs

13.17 hrs

30.67 hrs

153.59 hrs

11.57 hrs

11.85 hrs

153.59 hrs

30.67 hrs

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

parallel

manufacturing process (detail explanation of this process will follow in

the recommendation section).
As mentioned earlier, when Donner received an order and the bid had
been accepted by the customer, it took about 2 days for purchasing to
locate the raw material at a low price. It also took about 4 days from
that moment until Flaherty (shop Supervisor) received the order and
prepared the blueprints, scheduled work orders and allocated proper
resources.

Exhibit 11 demonstrates the actual order sizes for the

month of September, 1987.

Further analysis of the inventory strategy

17

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.

18

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.
depicted on exhibit 13.

The new calculations are

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).

19

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 turnaround 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 lowvolume 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

20

costs). In short, the firm could continue to supply large and prestigious
firms such as IBM, AT&T or Digital Equipment in addition to the smaller
electronics firms; thus allowing Donner to target all manufacturers in
the electronics industry (for low-order volumes).
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 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:

21

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 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 largevolume 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 firms operations in the pursuit of this strategy:
22

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 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

23

pattern. This phenomenon mainly occurs due to the variation in the

order sizes and the unremitting interruption of current work flow (work
in progress) in favor of rush orders. Thus, by adapting a small order
volume only policy, which will eliminate both the great difference in
order

size

and

the

concept

of

the

rush

order,

the

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:
Donners management is concerned with the firms performance in the
following areas:

Quality

Productivity

Financial

Deliveries

24

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):

25

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

26

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

the last three years would facilitate the firm to concentrate on the
large quantities of Simple Technology boards. This will enable Donner
to utilize their current core competency and resources, and focus on
gaining new strengths, yielding improved quality and on time delivery.
Focusing on the captive market will mean that Donner will be in a
position to further support its larger customers (i.e. IBM, AT&T, etc)
with orders larger than 200 boards (90% of total orders received in
September)
Operational & Strategic Implications

Labor Utilization:

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

September Total

Std Production
Operation

Setup(mi

Run

Orders

Boards

Setup

Runs

Total

Manual

n)
15

(min)
0.08

51

936

(min)
765

(min)
37,44

Hours
636.8

Drill
CNC Drill

240

0
0.00

4,825

2,160

0
9,650

196.8

27

4
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).

28

Information Flow:

Analyzing all processes within the company, by far the most fractured
and complex (and confusing) is the information flow (exhibit 2). The
majority of the returned boards were a result of the firm missing or
failing to complete one or two required design specification. Currently,
until an order is shipped, Flaherty keeps the factory order and blueprint
at all times throughout the process. This indicates that possibly, vital
information is not being disseminated throughout the production line.
September 1987s pre-shipment rejection rate amounted to 7%,
causing a large amount of rework. This information flow policy must
change from being centered on Flaherty. Flahertys 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

29

utilize such methods and to utilize new technologies.

Productivity

should be increased due to the decrease in bottlenecks throughout the

manufacturing process.

Regarding the financial performance of

Donner, if the sales manager (Searby) can generate the desired sales
and focus on the large quantity simple technology boards, there should
be a marked improvement in Donners financial health. The on-time
delivery should be enhanced significantly due to the companys 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

Donners

business.

Management and workers will need to adjust their mentality to focus

on larger orders and be willing to avoid those smaller orders.

Recommendation# 3:
Change strategy from current position to one which
concentrates on producing large & small quantities of
simple

technology

boards,

through

the

use

of

two

separate production lines.

30

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 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

31

the contract and captive markets, thus increasing the overall customer
base.

Operational & Strategic Implications

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.

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.

32

Also, it is clear that the current manufacturing process results in having

too many responsibilities lie on the shoulders of very few people
(namely:

Flaherty).

With

two

production

lines

in

operation

simultaneously, David Flaherty could be made responsible for the large

volume production line, with Arthur Dief (as a senior and experienced
worker) managing the smaller production line. Arthur Dief is, clearly,
valuable to Donner. Also, new workers could receive their training from
Arthur.

This strategy will allow Donner to better utilize all available

resources and focus on improving productivity, quality, information

flow, delivery and, in essence, the bottom line.
Furthermore, if Donner adopted this strategy, I would also recommend
applying

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:

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

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
33

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:

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

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
34

flow).

Reduced cycle time will translate into better efficiency and

productivity, which will add to Donners 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. unnecessary 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.

Materials:

Donners 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

35

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:

The current information flow within Donner can be described as

incredibly inadequate! Adopting this strategy will succeed only if
information flows faster and becomes more readily available. Just as
there are bottlenecks in the production process, there are also
bottlenecks in the current information system. Orders are taking up to
four days to reach Flaherty, after the bid has been accepted. This
excessive time period is adding to the existing delivery problem. As
previously described, Donner will hold certain levels of inventory of
specific raw materials; which will lead to a shorter lead-time of
manufacturing and information to Flaherty, as well as to his workers.
The amount of inventory carried can be determined by the 80/20 rule,
which means that Donner could hold 20% inventory of core raw
materials based upon 80% of their individual order sizes in September
(Donner could determine a monthly baseline or, should they elect to,
quarterly baseline to determine appropriate level of inventory). Also,
by improving information flow and simplifying the process, Donner
could become a market leader in the delivery time of its products, as
well as in quality and fewer product return rates.

Quality and on-time delivery:

Once the new strategic move is adopted by Donner, a new quality

strategy should also be adopted. Currently, there is not one specific
person responsible for ensuring quality standards are met. However,
by implementing highly effective quality control measures (six-sigma,
SPC or TQM), this should improve quality standards and reduce product

36

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 recommendation # 3 is the most
appropriate and effective solution to Donners current problems.

37