Medaille College

MBA-621
Operations Management
Case Study #2

Donner
Company

3/8/26

1
 Amr A!!as

Problem Definition

 The three-year old Donner Company has positioned itself well within
both the small volume,
volume, customize
customized
d (contract
(contract)) printed
printed circuit
circuit boards
market as well as the large volume, generic (captive) printed circuit
boards
boards market
market !arge
!arge electron
electronic
ic firms
firms ("T#T,
("T#T, $%&) produce
produced
d their
their
components in captive shops, while smaller sized companies, or when
large
large and small
small 'uantit
'uantities
ies of simple
simple techno
technolog
logy
y or fast
fast turn-ar
turn-aroun
ound
d
prototype boards were re'uired, these re'uests usually are fulfilled by
contract shops

ith *+ competitors in the  alone, and a market that is volatile,

Donn
Donner
er.s
.s abil
abilit
ity
y to anti
antici
cipa
pate
te and
and reso
resolv
lve
e desi
design
gn prob
proble
lems
ms and
and
protot
prototype
ype techni
techni'ue
'ues
s enable
enabled
d it to mainta
maintain
in its compet
competiti
itive
ve edge
edge
/owever, this competitive edge has been compromised by poor on-
time delivery and high rate of product return, in addition to planning
and
and manu
manufa
fact
ctur
urin
ing
g prob
proble
lems
ms that
that caus
caused
ed bott
bottle
lene
neck
cks,
s, shif
shifti
ting
ng
bottlenec
bottlenecks
ks and improper
improper utilization
utilization of labor These problem
problems
s began
to hampe
hamperr the
the over
overal
alll perf
perfor
orma
manc
nce
e of the
the firm
firm,, and mana
manage
geme
ment
nt
starte
started
d evalu
evaluati
ating
ng the compan
company.s
y.s positi
position
on and differ
different
ent strate
strategic
gic
policies

0ollowing is detailed analysis and recommendations by evaluating the

current conditions of the company, particularly the following areas1

2
 • 2perational and strategic implications of company direction

• !abor utilization

• &aterials

• Capacity

• $nformation flow

• 3val
3valua
uati
ting
ng the
the fol
followin
owing
g per
perform
forman
ance
ce criter
teria1 4ual
uality,
ty,
5roductivity and Delivery

0oll
0ollow
owin
ing
g deta
detail
iled
ed anal
analys
ysis
is of data
data,, proc
proces
ess
s flow
flow and
and inve
invent
ntor
ory
y
strate
strategie
gies,
s, my recomm
recommend
endati
ations
ons will
will be focuse
focused
d on the follow
following
ing
opportunities1

6 Changing
Changing strategy
strategy from current
current position
position to one which
which concentrates
concentrates
on producing only small 'uantities of fast turn-around &2%Cs

7 Changing
Changing strategy
strategy from current
current position
position to one which
which concentrates
concentrates
on producing only large 'uantities of simple technology boards

8 Changing
Changing strategy
strategy from current
current position
position to one which
which concentrates
concentrates
on producing
producing large # small 'uantities
'uantities of simple
simple technolog
technology
y boards,
boards,
through the use of two separate production lines

Company Objectives and Overview of Problems:

ith a company that is managed primarily by engineers, Donner.s core

competency was, obviously, its engineering e9pertise, and it produced
specia
speciali
lized
zed circui
circuitt boards
boards known
known as :solde
:solderm
rmask
ask over
over bare
bare copper
copper;
;
(&2
(&2%C
%C)) boar
boards
ds Donn
Donner
er posi
positi
tion
oned
ed itse
itself
lf to manu
manufa
fact
ctur
ure
e thes
these
e

3
boards to small and large electronic firms and management envisioned
it as one of the industry leaders /owever, in order to achieve this
ob<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 firm

Donner employed 77 production employees, managed by = senior

e9ecutives 5lease refer to e"i!it 1 for Donner.s organizational
chart 2perators were cross-trained and able to perform different
functions in different departments This is considered to be a ma<or
advantage for a company to have> the ability to deploy employees to
perform different functions in different areas (as needed) /owever, it
seemed that there was a lack of effective communication strategy
within the organization, as information did not flow properly within the
different departments and workers often interrupted their work to
discuss issues with the supervisor, deliver completed panels or secure
more work from other work stations (low hanging fruits)

David 0laherty, shop supervisor, is responsible for all aspects of the

manufacturing processes from the time he received the order and
blueprint until the order has been completed and shipped 0laherty is
in charge of preparing work schedules, which occurred several days
after the raw material has arrived from the vendor (most orders
reached him = days after customers. bids had been accepted, which
included the time needed by purchasing to locate the raw material at a
low price ? 6 ? 7 days on average) 0laherty spent much of his time
planning and determining how to move <obs ahead of others and how
to shift workers from one operation to another (to meet une9pected
customers. changes to specifications and to meet the deadlines for
rush orders) 5lease refer to the information flow chart (e"i!it 2) and
the order process flow chart (e"i!it 3)

4
Donner promised its customers 8 weeks delivery on orders of 6+++
boards or less, and * weeks on orders larger than 6+++ boards @ush
orders (orders of A boards or less) were delivered after = days

Donner operated at a plant that was carefully chosen by management

to minimize installation costs, preserved the life of e9pensive
machinery and isolated the operation.s diverse environment "fter
being in the same location for a year and a half, neither the machines
nor the graphic e'uipment e9hibited any signs of corrosion $n fact, by
2ctober 6BA, Donner began to e9pand their current location, which
was fully utilized, by installing an 6A++ s' ft addition This addition
was due to be completed by ovember, 6BA

Donner.s management had to implement policies that, in addition to

manufacturing, had to be cost effective, as Donner was not able to
attract outside capital (cited earlier1 managed primarily by engineers,
not necessarily business oriented)

"nalyzing Donner.s current situations, it is evident that the company is

suffering from several problems relating to its manufacturing, labor,
'uality and delivery 0ollowing is a highlight and a brief analysis of
each of Donner.s problems1

1$ Operating pro!lems%

&anagement could not manage the production bottlenecks effectively

3ach order was different, as per each customer.s specifications ince
there is no set 'uality policy in place, some raw material may be
defective hen operators are working on a specific pro<ect, they may
re'uire additional raw material (which takes about 6 ? 7 days to locate,
then additional days to be delivered to Donner) This causes

5
interruptions to the production cycle at one operation, which in turn
causes a production bottleneck at the ne9t operation

2ften times, some customers make modifications to the original specs

and ask for changes in production This means that the operators have
to stop working on a certain pro<ect and await new instructions from
management once they receive the new specs from the customers
2nce again, this causes a production bottleneck and, more seriously,
starts to shift the bottleneck to another operation process

0urthermore, 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, suffers from bottlenecks at almost every stage of
production yet continues to promise = days delivery on rush orders
 This means that, no matter what, rush orders are a priority (Donner
faced pressure from its competitors concerning the fulfillment of rush
orders) $f raw material is needed for rush orders, it is obtained from
the e9isting inventory, which is originally bought to fulfill large orders
 This causes possible shortages in inventory, which means that
Donner.s purchasing has to locate and purchase additional material (a
process that takes 7 days) The result is possibly stopping an
operation process until new raw material is obtained, which also means
down time for the operators (down time at one process, hence a
bottleneck at a specific process) /owever, Donner e9perienced no
problems with rush orders (these orders were completed by one senior
employee) and had no re<ect rate $n fact, that was one area that did
not suffer from any :hemorrhage;

2$ &rodu'ti(ity pro!lems%

6
"s a result of the operating problems, it is normal to predict, and
e9pect, productivity problems ith fre'uent down times and order
changes, management cited the fact that machines are idle for longer
than e9pected $n addition, standard labor time for each process (as
depicted in e"i!it )-A) did not reflect accurate time at Donner itself,
rather it was based upon industry standards and competitors. $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 CC machine for the same
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 0urthermore, the se'uential process flow currently
utilized at Donner can cause a significant idle time for workers "s my
analysis will show, a parallel flow of operations, at certain points, may
alleviate this problem and save time on production cycle time

3$ *uality pro!lems%

Donner did not implement effective 'uality control measures to inspect

the raw material or work in progress Donner depended on the
individual operators. e9perience to perform informal e9amination as
the operation shifted from one process to the ne9t The result was the
increase rate of product return The company.s re<ect rate in
eptember alone amounted to E, of which 6E was a total loss and
E re'uired re-works because the end products did not meet the
customers. specifications Clearly, re-works resulted in pulling
operators from their current <obs to begin re-works on the returned
boards, which in turn caused lack of productivity and bottlenecks

)$ Deli(ery pro!lems%

7
imilar to the current se'uential manufacturing policy at Donner, it is
no surprise to note the delivery problems %ecause all these processes
are interconnected, and especially because of the high rate of returns
and re-works, Donner failed to meet is delivery dates (A days late in
eptember) %ecause re-works re'uired pulling operators away from
their current functions, deadlines were not met (due to delays in
manufacturing and finishing work in progress)> Donner continued to
suffer from the inability to meet its delivery dates /owever, rush
orders were not affected and the company continued to promise =
days delivery for such orders (this also caused bottlenecks and shifting
bottlenecks as rush orders were treated with special status, raw
materials and workers were simmered to satisfy these orders)

0inally, the new sales manager for Donner, !loyd earby, noted his
concerns that Donner.s sales may not e9ceed F7& in sales (in 6BAA) if
it continued to :bleed; from its 'uality (returns and re-works) and
delivery problems /owever, both !loyd and the president believed
that Donner should continue bidding for low volume orders and
improve their 'uality standards, and believed this should stop the
:bleed; and possibly push Donner towards F8& in sales

"ll these troubles resulted in financial problems that manifested itself

in reduced sales in eptember and threatened Donner.s e9istence in
the marketplace

Data Analysis:

Donner provided several e9hibits to demonstrate the following areas of

its operation1

8
 • 5rofit and !oss

• tandard 5rocess 0low

• $nventory

0ollowing is an analysis of each area1

• &ro+it and ,oss e"i!it .%

0rom the 5#! report we can identify few key points1

Donner is, despite the manufacturing problems, profitable $n fact,

from Ganuary 6BA to eptember 6BA, Donner.s profit before ta9
e9ceeded the preceding two years /owever, if we analyzed each
month in 6BA, it is obvious there is a negative trend from Ganuary till
 Guly, and another negative trend from "ugust till eptember1

Monthly Sales Trend - 1987

$16.00

$14.00

$12.00

$10.00

Sales (USD) $8.00

$6.00

$4.00

$2.00

$0.00
Jan - Jul 1987 Jul-87 Aug-87 Sep-87
Months

9
$t is clear that there was a sharp drop in profits from "ugust till
eptember (total of F66 million loss Hdrop in net profit) 0rom the
information provided by Donner, most of the manufacturing and
delivery problems occurred in eptember, 6BA

0urther analysis of the 5rofit and !oss sheet indicates that there was
76 working days in eptember, 6BA Donner employed 77 employees
who worked A hrs H day shift This amounted to a total of 8B hours
worked in that month Direct labor amounted to FA8 per employee
(F87,8++H8B hrs) Total fi9ed cost was F8=,6++ and variable cost was
FA,++ "dded in e"i!it . is a column to depict the different costs
per unit (based upon *6 units manufactured in eptember)

• Standard &ro'ess 0lo e"i!its )-A and )-B%

5erhaps the most important e9hibit provided by Donner to enable

us to identify problems and suggest solutions 0rom the information
provided in e"i!it )-A, the following can be identified and
calculated1

• %reakeven point to decide when to use the automated CC drill

vs manual drill (based upon number of orders)
• %reakeven point to decide when to use the automated CC
router vs manual punch press (based upon number of orders)

• $dentify bottlenecks within all areas of manufacturing with

special focus on the Dry 0ilm 5hotoresist process (to perform
capacity analysis of the D05@ area by assuming order size of A,
A+ and A++ boards)

10
 • tandard labor time for an order size of 6, A and 7++ boards

0ollowing is an analysis of each area1

ince Donner purchased a CC machine at FA+,+++ to perform the

drilling and router functions, and also since these processes can be
performed manually, it is important to decide which orders can be
scheduled on the CC machine and manually This is achieved by
performing a breakeven analysis of each function $t is important to
note that the set up time for each process is fi9ed no matter the order
size The run time is variable and changes per order size

Calculations of the breakeven points (please refer to e"i!it 6  for

complete calculation of breakeven points), for CC or manual drill and
for CC or manual profile processes show the following results1

• Drill process1

0or orders of 6 units or less, manual drill should be utilized as it will

incur fewer costs (and less overall time to process) and for orders over
 units the CC drill should be utilized because the cost will be less
than if manual is used, as well as time to process

• 5rofile process1

0or orders below 2 boards, manual punch press should be utilized as

it will take less time and incur fewer costs, and for orders above 7++
boards the CC router should be utilized for the same reasons

11
"i!it )-A can also be used to identify bottlenecks within Donner.s
standard process, particularly surrounding the capacity of the dry 0ilm
5hotoresist area $t is critical to realize the true capacity to prevent
bottlenecks and work-overload $f, for e9ample, the ma9imum number
of boards that the D05@ area can handle (due to the set up and run
time involved in the process) is 6++, then Donner should realize that
order size that passes through the drilling process should not e9ceed
6++ units (to match the D05@ capacity) $f the order sized is more than
6++ (hence, more than the ma9imum capacity that the D05@ area can
handle), a bottleneck is created and possibly shifted throughout the
entire manufacturing process $n addition, since the D05@ area
consists of several functions, it is important to be aware of the
ma9imum capacity (as per order size) to prevent bottlenecks within
the D05@ area 39ceeding ma9imum capacity will have a direct
negative impact on 'uality and on-time delivery (two problems that
Donner was already suffering from in eptember) 2f course, the
bottleneck will change from one area of the D05@ to the other,
depending on the order size and the time involved in each process

0ollowing is a table illustrating the results of an analysis of the D05@

area to determine the ma9imum daily capacity for order sizes of A, A+
and A++ units (assuming normal A hours working days ? =A+ minutes)1

  2rder
size
8 8 8
D05@ area

5anel 5rep 8A= *=A* 6*8+

12
 !aminate #
6== B+ 6==
39pose

Develop 6B++A 6==A B++

5lease refer to e"i!it  for complete calculation methods used to

determine D05@ daily capacities

 To translate these numbers into facts, it is clear that in order to avoid
bottlenecks for an order size of A boards, the number of boards that
can be processed per day can not e9ceed 6== boards (by taking the
least number of boards for each of the three stages of D05@, as it
reflects the ma9imum daily capacity of orders processed) $f total
boards did not e9ceed 6==, this is, at least, a guarantee that Donner
should not e9perience bottlenecks at the D05@ area, as well as at other
areas of manufacturing, for an order size of A boards

 The same is applied to the daily capacity for an order size of A+

boards The ma9imum daily capacity for the D05@ area is B+ boards,
based upon an order size of A+ "ny increase in order size will result in
a bottleneck 0or an order of A++ units, the ma9imum daily capacity
for the D05@ area is 6== boards without bottlenecks

$t is clear then that based upon the order size, the daily capacity for
the D05@ area changes The larger the order size, the more capacity
the area can handle, however that capacity should not e9ceed the
highlighted figures %ottlenecks can cause work to pile at another
stage of the process, which will impact the entire manufacturing

13
process as a whole, which is a ma<or factor in creating on-time delivery
and 'uality problems

$n addition, the larger the order size, the less e9pensive 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

5resident of the firm, as well as the new sales manager %oth
indicated that the labor time in the standard process flow chart
(e"i!it )-A) did not reflect the true labor time at Donner

$n eptember 6BA, there was a total of 8B hours worked ( e"i!it

.), however the standard process flow for eptember ( e"i!it )-A)
showed a total actual hours worked of 6*86 hours This means that
there was a total of 76* hours that were considered either as down
time or idle (non-revenue producing), hence1 unproductive (*BE of idle
time), yet paid for by Donner This also means the following1

76* hrs H 76 days in eptember I 6+8 total hours wasted every

working day

6+8 hours H 77 employee I * hours that are wasted by each employee

every day, which is J of the working day This simply means that each
employee worked an actual 8 hours on a normal A hours working day
ot only does this affect productivity, but Donner paid FA8 per
employee for A hours a day (each employee cost Donner FBA= H day),
yet they only worked for 8 hours (revenue generating production)
 This amounts to a loss of F=8* per day, per employee (FBA= -
F76B) Calculate this loss by 77 employees, and it is clear that
Donner wasted money on wages for hours either not worked or worked

14
without generating revenue, that amounted to FB+8 every working
day, and F7+,68 a monthK

0urthermore, the standard labor time increases with the order size
5lease refer to e"i!its 84 5 and 1 standard pro'ess +lo area
for complete calculations of labor time for 6, A and 7++ orders
respectively1

  2rder
size 6 board A boards 7++ boards
(e9hibit ) (e9hibit A) (e9hibit B)
!abor time

&anual 8B hrs 66* hrs 6*8*B hrs

CC 666 hrs 66A* hrs 8+

$t is clear that the labor time increases with the order size "s
previously noted, the breakeven point for the drilling process is 
boards, and the breakeven point for the profile process is 7++ boards
@eviewing the table above, for an order size of 6 board, it is more cost
effective for Donner to utilize an entirely manual procedure, as it takes
about =+ hrs to finish an order and have it ready to be shipped "s
the order size increases (for e9ample, 7++ boards), it is clear that it is
past the breakeven point and therefore takes less time to be processed
utilizing CC drill and router rather than manual processing

$n addition, Donner is now faced with several options to better utilize

its labor 0or e9ample1 for order size of A boards, Donner may choose
to utilize manual drill combined with CC router, or CC drill with
manual punch press To illustrate, please re+er to e"i!its 84 5 and
1 - proposed strategies areas%

15
$t is clear from the calculations that if the order size is 6 board, it is still
cost and time effective to utilize an entirely manual process (standard
labor time for an entire manual processing is 8B hrs), however once
the order size increases to A boards ( e"i!it 5  proposed strategy),
it is less time consuming for Donner to utilize CC drill L manual
punch press, rather than an entirely manual or automated process
(labor time for the proposed strategy ? CC drill L punch press - is
reduced to 6+7* hrs)

0or order size of e9actly 7++ boards, Donner should utilize CC drill
and may choose between punch press or CC router (as 7++ boards is
the breakeven point at which CC drill must be utilized for time and
cost effectiveness, and both punch press and CC router take the
same amount of time ? 7*+ minutes) !abor time is reduced to 8+
hrs with the proposed strategy (e"i!it 1  proposed strategy )
0or orders above 7++ units, it is more efficient for Donner to implement
a process than utilizes both CC drill and router to ensure less labor
time, less manufacturing lead time and better utilization of their
resources The following table illustrates the proposed strategy and
labor time.s savings for orders of A and 7++ boards1

  trateg 3ntirely 3ntirely CC

CC drill L &anual drill manual
y
5unch 5ress L CC
@outer

16
2rder size

A boards
(e"i!it 5 ? 66* hrs 66A* hrs
1$2. rs 686 hrs
standard #
proposed)

7++ boards
(e"i!it 1 6*8*B hrs 8+ hrs
 8+ hrs 6*8*B hrs
? standard #
proposed)

$f the order size is above 7++ (for e9ample, 7*+ boards), then the labor
time is 8** hours when CC is used for drilling and profiling (entirely
automated process), which is less than the time taken when manual
processes are utilized The breakeven points play a big role in these
situations This poses a suggestion that if Donner decided to focus on
large volume orders (over 7++ boards)> it may be beneficial to buy a
second CC machine, particularly if they followed a parallel
manufacturing process (detail e9planation of this process will follow in
the recommendation section)

"s mentioned earlier, when Donner received an order and the bid had
been accepted by the customer, it took about 7 days for purchasing to
locate the raw material at a low price $t also took about = days from
that moment until 0laherty (shop upervisor) received the order and
prepared the blueprints, scheduled work orders and allocated proper
resources "i!it 11  demonstrates the actual order sizes for the
month of eptember, 6BA 0urther analysis of the inventory strategy

17
followed by Donner is depicted in e"i!it 12, which is the stock of
each raw material ordered by Donner throughout eptember $t is
suggested that Donner should carry some inventory to minimize the
lead time from the moment the bid is accepted until it reaches
0laherty To determine which raw material Donner should carry
depends on the strategy followed $f Donner followed a strategy that
focuses on small orders only, it makes sense to carry over a
percentage of the commonly used raw material for such orders
(suggested 7+E, which follows the A+H7+ rule) To illustrate1 in
eptember, Donner received a total of + orders from customers,
where A+E of these orders were below 6++ boards 2nly 7+E of these
orders were for orders above 6++ boards $f Donner decided to focus
on small orders (ie orders of less than 6++ boards), then it would
make sense to carry about 7+E the following raw materials1 stock
codes ", %, C, D, 3, 0 and possibly M as well $f Donner decided to focus
on orders of 6++ boards and above, then the following stock codes
should be carried by the firm1 ", D and possibly & "s mentioned
earlier, stocking some of these raw materials should minimize
manufacturing lead time as the firm will not be at the mercy of locating
the entire amount once an order is received $n addition, 0laherty will
not have to wait for = days to begin planning for each pro<ect

$t is worth mentioning that despite the fact that A+E of orders received
from customers in eptember were for small volume boards, B+E of
the total number of circuit boards manufactured was for orders of 6++
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 afford to lose
the customer base for each type of orders if they decided to drop one

18
$t is clear however that Donner needs to carry some inventory
(regardless of their strategy) "ssuming a monthly cost of 7E (cost of
carrying inventory), and assuming that Donner carried over some
inventory from "ugust (to show total impact on total cost and cost per
unit), we note the following1

@e-reviewing e"i!it . (5#! summary), the cost of materials in

eptember was F=7,++ $f Donner carried inventory from "ugust,
then we add an additional 7E to eptember.s materials cost1 F=7,++
9 7E I FA*7, which means that the new cost of materials for
eptember will be e'ual to F=8,=*7 The new calculations are
depicted on e"i!it 13$ $t is apparent that by adding the additional
cost of carrying inventory, total cost of materials becomes higher,
which also means that the cost of materials per unit is increased from
F8B to F*= This also has a direct effect on total variable cost
(increased from FA+ to FAA=*), as well as total net profit before
ta9, which is reduced from F86& to F77*& Certainly, adding another
cost, as the cost of carrying inventory, will have an effect on the
bottom line> however it may be a strategy Donner prefers to
implement to reduce lead times and enable the manufacturing process
to begin sooner, given that there are no bottlenecks or any other
problems within the manufacturing process You have to spend money
to make money, especially if you are planning for long term existence.
 The appropriate volume of inventory Donner needs to carry can be
determined by utilizing the A+H7+ rule, which means that (by looking
into eptember.s orders) Donner may choose to carry 7+E inventory of
the most commonly ordered raw materials (A+E of total volume of
each core raw material)

19
7e'ommendations

%ased upon my analysis of Donner.s current situation and problems,

the following are recommendations that $ deem as appropriate for the
company.s survival1

7e'ommendation #1%

Cange strategy +rom 'urrent position to one i'

'on'entrates on produ'ing only small uantities o+ +ast turn-
around SMOBCs$

Currently, Donner is fulfilling low-volume (6++ or less), high-volume

(more than 6++) and e9pedited (A or less) &2%C orders "lthough
diversification of a product line is sometimes a desirable business
strategy to pursue, there are several compelling reasons for Donner to
concentrate on fulfilling one type of order, namely those that are low-
volume and fast turn-around1

0irst, e9celling at its core competency as a manufacturer of &2%Cs is

the primary reason Donner has managed to not only survive, but to
flourish in this highly competitive and volatile industry (consisting of
appro9imately *+ firms in the  alone) Donner has successfully
maintained its competitive edge by asserting itself as a leader and
enhancing various manufacturing processes and e'uipment

econd, by continuing to serve the specific market segment of small

'uantities of fast turn-around &2%Cs, the firm will not be re'uired to
seek out new customers or to develop a new core competency (either
activity is burdened with uncertainty, time-consuming and additional

20
costs) $n short, the firm could continue to supply large and prestigious
firms such as $%&, "T#T or Digital 3'uipment in addition to the smaller
electronics firms> thus allowing Donner to target all manufacturers in
the electronics industry (for low-order volumes)

 Third, senior management has cited the firm.s ability to anticipate and
resolve problems encountered during the design and production of
small volumes of &2%Cs as one of its strengths and distinguishing
features when compared to the competition Coupled with
management.s desire to continue fulfilling low-volume orders (where
they e9perienced no problems with re<ects or on-time delivery), the
firm should pursue a policy of serving this market segment with vigour
since it possesses both the e9perience and confidence to assure a high
degree of success

0inally, although only a three-year old firm, its profits have grown
consistently year-on-year, as shown in following graph1

21
 Donner Company Net Proit !eore Ta"

$33,500

35000

30000

25000

20000

15000
Sales in USD $2,100 Year 
10000
Sales

5000

0 1985 1987
1986

-5000
-$6,900
-10000
1 2 3
Year  1985 1986 1987
Sales -$6,900 $2,100 $33,500
 Year 

 $t is interesting to note that they have already e9ceeded last year.s
earnings in the first nine months of this year (6BA) uch financial
facts are further evidence that the firm is clearly well positioned in the
industry of producing small 'uantities of fast turn-around &2%Cs,
while avoiding the possible problems that are associated with large-
volume orders (ie bottlenecks, sudden changes to the designs by
customers, which may result in long idle time)

Operational and Strategi' 9mpli'ations

$f the firm decides to pursue a policy of producing only small volumes

of 'uick turn-around boards, it will en<oy productivity gains, better
labor utilization and improved 'uality assurance, which will make
Donner a more competitive and efficient firm %elow are listed the
impacts, positive and negative, which will be e9perienced in specific
areas of the firm.s operations in the pursuit of this strategy1

22
 • Materials
Currently, raw materials are being :simmered; by those who are
fulfilling e9pedited orders, namely by "rthur Dief uch a practice may
consistently lead to an order remaining as a ork in 5rogress ($5)
order, in the firm.s manufacturing stream for longer than necessary
$5 are further delayed as it awaits another shipment of raw materials
that were originally ac'uired for its use but now consumed by the
:rush; orders 0ulfilling only small-volume, 'uick turn-around orders
would re'uire the firm to either hold larger inventories of raw materials
or to ac'uire materials in a more timely fashion, but would decrease
the probability of this inefficient process from continuing to hamper the
entire manufacturing process

• ,a!or utili:ation%
 The :simmering; of materials also has the added disadvantage of
increasing the amount of labor re'uired to produce a board hen a
$5 is interrupted by an e9pedited order, it may incur additional set-up
costs $n addition, workers then remain idle until the machine heHshe
was using is made available again (after the rush order has been
completed) Therefore, small 'uantity orders should alleviate such a
problem since all orders being filled by the firm will be of similar size
and have similar delivery dates, thus eliminating the :special status;
given to rush orders and reducing the idle time, which amplifies
workers. productivity

• Capa'ity%
 The ability of the firm to increase its production capacity is being
hampered by the :shifting bottleneck;, which appears throughout
various stages of the manufacturing process without any particular

23
pattern This phenomenon mainly occurs due to the variation in the
order sizes and the unremitting interruption of current work flow (work
in progress) in favor of rush orders Thus, by adapting a small order
volume only policy, which will eliminate both the great difference in
order size and the concept of the :rush; order, the firm.s
manufacturing throughput will improve significantly

• 9n+ormation 0lo%
"s shown in e"i!it 2, David 0laherty, the shop supervisor, has the
greatest number of informational in and out flows " high proportion of
information, both inter-departmental and inter-firm, has to pass
through 0laherty "llowing him to operate effectively and efficiently
will have tremendous impact on Donner.s overall performance
0laherty had indicated that due to the sizeable variations in order
types, work in progress remain in the manufacturing stream for longer
than necessary %y making the order-types as uniform as possible,
0laherty should find it easier to plan resources and share information
0urthermore, carrying inventory of necessary raw materials should
alleviate the need for long lead time to plan for work

++e't o+ suggested strategy on per+orman'e 'riteria%

Donner.s management is concerned with the firm.s performance in the

following areas1
• *uality
• &rodu'ti(ity
• 0inan'ial

• Deli(eries

24
ince all these items are inter-linked, an improvement in one area will
lead to an improvement in all hould the firm decide to produce only
small 'uantities of fast turn-around &2%Cs, it will be able to fi9 the
flaws in all of these areas ince new employees typically take only
appro9imately 8 N months to become proficient in their assigned
areas and if the order size is small, managing the orders would be
easier taff could work either individually or in teams to ensure their
orders are of high 'uality and free of errors, from the moment the
order is received till the moment it is shipped to the customer The
productivity and morale of workers should also benefit from this as the
floor staff are given more responsibility for assuring their orders
efficiently move along the manufacturing process

2n-time delivery will improve as a result and will be more uniform

throughout the month, rather than the current unorganized shipping
strategy (as illustrated in the chart below)1

25
 #al$e o a%t$al shippments in Septem&er' 1987

140000 

124836
120000 

100000 

80000  80276
   D
   S 71463   71639
70312
   U 69188
  n 63627 62337
   i 60000 
  e
  $ 53557
   l
  a
   # 36389 44560
40000  36536 40341

  28734   30610
26339
28050
20000  17909 17939
15683
13987 13216
11118   9930 10070
8430
4057 5926   3952 5561
16962226 2395 2560 2275
0  -1188 -684 -147 176 -1327

  1 -7975
  9  /
-20000 

11- 12- 13- 14- 15- 18- 19- 20- 21- 22- 25- 26- 27- 28- 29-
1-Sep 4-Sep 5-Sep 6-Sep 7-Sep 8-Sep
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
Daily 11118 -1188 4057 1696 2226 8430 2395 -684 2560 5926 -147 3952 13216 10070 5561 2275 176 -1327 -7975 17939 44560
u!ula"i#e 11118 9930 13987 15683 17909 26339 28734 28050 30610 36536 36389 40341 53557 63627 69188 71463 71639 70312 62337 80276 124836
Dates

Daily Cumulative

"lso favourably affected will be the financial health of the firm since it
will be able to bill its customers sooner and will carry smaller inventory
of work in progress

7e'ommendation #2%

Cange strategy +rom 'urrent position to one i'

'on'entrates on produ'ing only large uantities o+ simple
te'nology !oards$

Currently, Donner holds a position in both the contract and captive

manufacturing markets hile initially focusing on small 'uantity
specialized circuit boards for e9perimental devices and for pilot

26
 production runs (proto-types), the e9perience Donner has gained over
the last three years would facilitate the firm to concentrate on the
large 'uantities of imple Technology boards This will enable Donner
to utilize their current core competency and resources, and focus on
gaining new strengths, yielding improved 'uality and on time delivery

0ocusing on the captive market will mean that Donner will be in a

position to further support its larger customers (ie $%&, "T#T, etc)
with orders larger than 7++ boards (B+E of total orders received in
eptember)

Operational ; Strategi' 9mpli'ations

• ,a!or <tili:ation%
Donner.s current labor use will re'uire changes "s the chart below
shows, significant time is saved per board when using the CC Drill
and @outer (for orders over 7++ boards)> hence no re'uirements for
manual drill or punch press 3mployment could be reduced or workers
could be re-deployed to work in other areas in the firm (Donner.s
management cited the fact that workers are well cross-trained and
able to perform different functions throughout the manufacturing
process)

Septembers Production Data September Total

Std Production

2peration etup(mi @un 2rders %oards etup @uns  Total

n) (min) (min) (min) /ours
&anual 6* ++A *6 B8 * 8,== 8A
Drill + +
CC Drill 7=+ +++ B =,A7* 7,6+ B,*+ 6BA

27
 =

 The increase in batch size will reduce the time per average board for
manufacture and subse'uently reduce labor time $n addition,
previous calculations of breakeven points depicted the very fact1 the
larger the order size, the less time the process flow looked using the
CC machine, as opposed to manual processes 5erhaps Donner
should purchase a second CC machine to accommodate this new
strategy (advantageous for large-volume orders)

• Capa'ity%
"s previously mentioned, capacity is dependent on the order size,
product mi9 and technology choices %y choosing to manufacture <ust
the large 'uantity simple technology boards, product mi9 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 $n effect, there should be more
control over the raw material stock levels as more time is available to
source and locate raw material ( as delivery time for large orders is
typically less restrictive) 0urthermore, raw material re'uired for large
orders should be freed from the continuous :simmering; by rush
orders This being said, a new strategic policy should be applied with
relation to the stocking levels of raw materials to satisfy large orders
(ie carry certain percentage of inventory as previously e9plained)

28
 • 9n+ormation 0lo%
"nalyzing all processes within the company, by far the most fractured
and comple9 (and confusing) is the information flow ( e"i!it 2 ) The
ma<ority of the returned boards were a result of the firm missing or
failing to complete one or two re'uired design specification Currently,
until an order is shipped, 0laherty 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 6BA.s pre-shipment re<ection rate
amounted to E, causing a large amount of rework This information
flow policy must change from being centered on 0laherty 0laherty.s
role should be redefined and restructured to improve the flow of
information and communication $n addition, the current process of
e9pediting rush orders through the manufacturing process is adversely
affecting the rest of the production process and increasing the
information over load 0ocusing on only large volume boards should
allow for enhancements within information flow

++e't o+ suggested strategy on per+orman'e 'riteria%

" new 4uality strategy should be adopted "rthur Dief (senior worker)
could be used in this role due to his knowledge of the entire
manufacturing process and the fact that he had a zero return rate
 There are various 'uality control strategies that could be implemented
throughout the entire manufacturing process to detect (early) and
prevent product defects, and to monitor the entire manufacturing
process (ie si9 sigma, 5C or T4&) orkers should be trained to

29
utilize such methods and to utilize new technologies 5roductivity
should be increased due to the decrease in bottlenecks throughout the
manufacturing process @egarding the financial performance of
Donner, if the sales manager (earby) can generate the desired sales
and focus on the large 'uantity simple technology boards, there should
be a marked improvement in Donner.s financial health The on-time
delivery should be enhanced significantly due to the company.s new
strategic policy of concentrating on the large 'uantity boards, as well
as the reduction in product returns and re-works

$n summary, by adopting this strategy and focusing on this segment of

the market, Donner should be able to compete with those current
producers in the :Captive &arket; $t is critical that consistent sales
numbers can be achieved $f Donner lost one or two large customers in
this specialized and highly competitive market, revenue will seriously
be compromised 0urthermore, Donner must be prepared to turn down
a significant number of small orders These small orders represent a
large portion of the established customer base (A+E)> and those
customers have been the backbone of Donner.s business
&anagement and workers will need to ad<ust their mentality to focus
on larger orders and be willing to avoid those smaller orders

7e'ommendation# 3%

Cange strategy +rom 'urrent position to one i'

'on'entrates on produ'ing large ; small uantities o+
simple te'nology !oards4 troug te use o+ to
separate produ'tion lines$

30
Currently, Donner is already operating and manufacturing for both
segments of the market with considerable success and a solid
customer base /owever, in serving both the low # high volume
markets, it is becoming increasing evident that the production
processes and facilities are under significant stress $t is also clear that
the present production facilities have been designed primarily around
small order size production (since Donner originally started as a
producer for contract markets) "t the same time, Donner is trying to
adapt itself, workers and facility to cope with the diversification in
product lines (the penetration of :captive markets;) !loyd earby.s
sales forecast looks very promising for the company, yet this will only
be realized if the company can achieve faster delivery time, coupled
with fewer work in progress and re-works " large part of the problem
in meeting these faster delivery times and the increased number of re-
works and work in progress appears to be the effects that :rush
orders; have on the entire production process ork in progress ($5)
is usually delayed in order to e9pedite these rush orders in a delivery
time of four days ith the additional 6A++-s' feet of factory space
available in the near future, it may be the best time make a strategic
move to develop two separate production facilities, with two separate
product lines This e9tra production line should be designed to meet
small volume # rush orders The e9isting production line can then be
fully devoted for large volume production purposes and Donner should
purchase a second CC machine and run two separate production lines
to accommodate this new strategy (advantageous for large-volume
orders)

$f two production lines are established, it will simplify the production

process and make it more efficient, increase the workers. productivity,
improve delivery dates and increase volume of work secured in both

31
the contract and captive markets, thus increasing the overall customer
base

Operational ; Strategi' 9mpli'ations

• ,a!or <tili:ation%
"t the present time, Donner.s workers are only working productively
for only 8 hours of their working day and idle (unproductive) for *
hours (8B total hours in eptember, however only 6*86 hours are
actually worked for the month of eptember) This issue stems from
three main problems1

• 0irst1 there is considerable time wasted through the fre'uent

stop # start manufacturing process directly resulting from rush
orders
• econd1 inade'uate operational organization of current
production facilities
•  Third1 ineffective communication and flow of vital information
from 0laherty

 Through the strategic move of introducing a second production line, it

will be feasible to improve productivity from each work, as work should
be able to flow continuously through each production line without
interruption 0urthermore, adopting a parallel manufacturing process
will result in less manufacturing lead time and faster completion of
orders, which will enhance on-time delivery $n addition, workers can
be deployed more effectively in each production line, as <ob functions
will become more defined leading to less confusion and less time
wasted as the case in the current manufacturing process

32
"lso, it is clear that the current manufacturing process results in
having too many responsibilities lie on the shoulders of very few
people (namely1 0laherty) ith two production lines in operation
simultaneously, David 0laherty could be made responsible for the large
volume production line, with "rthur Dief (as a senior and e9perienced
worker) managing the smaller production line "rthur Dief is, clearly,
valuable to Donner "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 flow, delivery and, in essence, the bottom line

0urthermore, if Donner adopted this strategy, $ would also recommend

applying a parallel process flow as it will result in reduced
manufacturing lead time Current process flow is se'uential in nature
"ssume an order size of 7++ boards (where CC drill will be utilized),
the se'uence of the process flow is as follows1

Artwork generation – 29 minutes to

set up

Inspect and sheer – 325 minutes

!unch too"ing ho"e – 225 minutes

#$# dri"" – set up time 240 minutes

"nalyzing the current process, it is evident that it takes a total of 87=

minutes from the time an artwork is generated until CC drilling

33
commences During such time it is also evident that there is a total of
** minutes of idle time that occurs at the CC drilling station The
worker who is responsible for the CC 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 CC set up (which takes 7=+ minutes)

%y applying a parallel process flow, this idle time can be reduced

significantly The new process may look as follows1

Art work generation – 29 minutes

Inspect and
%heer –
325
minutes

!unch #$# dri"" – #$# run –

too"ing 185 640
ho"e – 225 minutes to minutes
minutes set up

 The moment artwork generation is completed, two copies are passed

onto both stations1 inspect and sheer as well as the CC drill, so that
the worker responsible for setting up the CC machine may begin his
set up process without waiting (being idle H unproductive) for **
minutes (the time spent on inspect # sheer and punch tooling
processes) This amounts to a total of ** minutes saved on production

34
cycle time (87= min vs 7B min proposed under the parallel process
flow) @educed cycle time will translate into better efficiency and
productivity, which will add to Donner.s bottom line and improve the
on-time delivery process

 The parallel process flow can be utilized at any stage of the production
cycle, regardless of the order size $t is another method to improve
productivity $n addition, eliminating any non-value-added processes
from the manufacturing process will improve productivity (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)

• Capa'ity%
 The capacity of Donner.s current production facility is not being fully
realized, as it is not fully optimized for low or high volume circuit board
manufacturing %y utilizing two production lines, each can be
optimized for their respective production purposes, and potential
bottlenecks will be easier to identify and resolve This strategic move
should allow Donner to achieve the potential sales volume of F8 million
by 6BAA as, predicted by the sales manager

• Materials%
Donner.s current delivery problems stem from several reasons,
including re-works, rush orders and the effect they have on $5s, and
also the inade'uate inventory policy e9isting within the company
David 0laherty had acknowledged that he often delayed his scheduling
for several days until the raw materials arrived from the vendor "s
previously analyzed, it is understandable that it would not be possible
to stock all raw materials, but a certain core raw materials should be

35
stocked to avoid valuable days being lost in the present order
processing system, as well as to avoid vendors. volatilities The costs
incurred by carrying inventory should be realized with sales figures
increase, improved 'uality and on-time delivery

• 9n+ormation 0lo%
 The current information flow within Donner can be described as
incredibly inade'uateK "dopting this strategy will succeed only if
information flows faster and becomes more readily available Gust as
there are bottlenecks in the production process, there are also
bottlenecks in the current information system 2rders are taking up to
four days to reach 0laherty, after the bid has been accepted This
e9cessive time period is adding to the e9isting delivery problem "s
previously described, Donner will hold certain levels of inventory of
specific raw materials> which will lead to a shorter lead-time of
manufacturing and information to 0laherty, as well as to his workers
 The amount of inventory carried can be determined by the A+H7+ rule,
which means that Donner could hold 7+E inventory of core raw
materials based upon A+E of their individual order sizes in eptember
(Donner could determine a monthly baseline or, should they elect to,
'uarterly baseline to determine appropriate level of inventory) "lso,
by improving information flow and simplifying the process, Donner
could become a market leader in the delivery time of its products, as
well as in 'uality and fewer product return rates

• *uality and on-time deli(ery%

2nce the new strategic move is adopted by Donner, a new 'uality
strategy should also be adopted Currently, there is not one specific
person responsible for ensuring 'uality standards are met /owever,
by implementing highly effective 'uality control measures (si9-sigma,

36