Group 1 Donner Company Case

OPERATIONS MANAGEMENT

DONNER COMPANY CASE

GROUP 1 Ajay Kumar 1411211 Divya Gupta 1411222 Issac Jojy 1411233 Manish Kumar 1411244 Rachit Gupta 1411257 Somak Bera 1411268

PROBLEM 1

The standard labor hours for each of the different order sizes has been calculated by using the data provided in Exhibit 2 of the case. The formula used for the calculations is: Total Time= Setup Time + (Run Time/Board * Number of Boards) Total Time

1 Board 383.38

8 Boards 694.05

200 Boards 1840.25

*For detailed calculations please refer Appendix 1 PROBLEM 2

CURRENT SCENARIO

In order to understand the state of Donner Company’s current situation, we have used the below

mentioned parameters for the purpose of analysis: 1) Profit and Loss Account 2) Capacity utilization 3) Labor Utilization PROFIT AND LOSS ACCOUNT

We have observed the following key points from Exhibit 1 (P&L Statement) of Donner Company for the period 1985-1987 

Donner Company has been a profitable venture since 1986. The company has been able to improve its Net Profit after Tax on a year-to-year basis. The year 1987 displays a dramatic increase in profits from the preceding two years. However, we observe high variability in the profitability attained by the company in each month of the 1987.

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A sharp negative trend has been observed from August’87 to September’87. The net profits have

decreased by $11.7 million in a period of one month. This can be attributed to the manufacturing and delivery problems which occurred in the month of September as mentioned in the case. 

The direct labor cost for the month of September has been calculate at $8.73 per hour. Total direct labor cost for September: $32,300 Total labor hours available: Number of working days*Number of Employees*Working Hours per day = (21*22*8) = 3696 hours Labor cost per hour: 32,300/3696

CAPACITY UTILIZATION 

In the Make to Order production system followed by Donner Company, many machines remained idle for several hours which resulted in under-utilization of resources.

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The machines needed to setup each time a new order entered into the system. This led to an increase in the manufacturing lead time owing to which the throughput achieved by the company remained much below their maximum available capacity.

LABOR UTILIZATION 

The company employed 22 workers to carry out the entire production process. Many of these employees were cross-trained and capable of executing more than one process which provided flexibility to the system in terms of allocation of resources to different order requirements.

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Typical to Make to Order production system, the utilization of the laborers is highly variable and dependent upon the number and type of orders that enter the system at a point of time. On the basis of the facts presented in the case, the plater wasted 15% of the working time, walking between the desk and tanks which is indicative of poor utilization of resources.

PROBLEMS AND CAUSES

Donner Company started out as a company which excels at developing prototypes and pilot order which were of very small size. Now as per the demand of revenue and scale they are trying to fulfil orders of much bigger size with a setup which is best suited for smaller orders. Hence this is a tradeoff between variety and volumes. Broadly, the problems faced by the Donner Company can be classified under the following: OPERATIONAL INEFFICIECIES

a. The bottleneck of the process is not static, rather it keeps shifting from one order to the other. This is due to the shifting of the workload from one operation to another without any pattern. The variation in the workload depends upon the differences in the size of the order that bypasses some operations and from differences in the circuit designs. b. In addition, the company entertains 4 day rush orders, which require rework at 1 or 2 operations leading to a delay in the process of delivering artwork modifications of a client. This is because the company’s workers are shifted from one operation to another depending on the demand of the

operation. That is, the operations have been designed in a way that some of the workstations are left vacant and some overloaded. c. Moreover, telephone calls from the customer’s engineers who identify a design problem will call up Donner which can lead to disturbance in the operations of Donner. As a result, the customer would require redesigning and rework on the products. d. Donner is not very capable in handling large order sizes. This is evident from the fact that the average flow time for large orders is more comparable to the small orders. e. The main problem with Donner’s operation is that Donner is taking up more orders than what they are capable of handling. This is because their operations allow varying nature of order size. LOWER PRODUCTIVITY OF RESOURCES

f.

Some machines are left idle more often than expected. The standard labor hours do not include time spent in reworking parts that have failed inspection or have been returned by the clients

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g. In addition, the time used for moving from one station to another leads to idle time for workers, which again dampens productivity. h. Each order has different circuit board designs and order size that lead to workers being assigned randomly in the different activities depending on the work load. This naturally leads to workload and scheduling problems i.

The introduction and implementation of new ideas and methods in the operations has led to further confusion, as the increase in the production of a particular station resulted in the piling of work in another leading to more orders getting rescheduling and workers further getting reassigned. This again leads to a decrease in the productivity.

 j.

There are certain large orders of more than 100 boards. For these, the CNC drilling is used. This leads to the workers in the manual drilling being out of work. This idling of manpower leads to productivity loss

k. The workers do not have clarity on the exact kind of work they are expected to do and the time of the work. This leads to difficulty in assessing their performance based on the type of work and the duration of work. QUALITY CONTROL / DELIVERY ISSUES

l.

Quality of the products has been affected due to the large order sizes. This is evident from the fact that % of customer returns increased from less than 1% to about 3% since August 1987.

m. There is also a delay in the product delivery, at an average delay of 9 days. This would lead to continuous loss of sales, as the company’s competitors are able to promise 4 -week deliveries on

small orders. n. 6% of the orders required re- work because the end products did not meet the customers’ specifications which is a significant proportion and would require resources from normal production and hence delay the overall processing time of orders o. One main reason for deteriorating quality is the president stating that a more strict system would not be possible as product standards vary from one order to another. It is imperative that the company sets standards. Else, numbers like the pre-shipment reject rates increase, leading to 6% total loss will further aggravate. PROBLEM 3 1.

Parallel preparation of CNC drill, while Preparation stage is going on: From Exhibit 4 it is seen that

CNC drill has a set up time of 240 minutes. For large batch sizes, above

200,

once

Artwork Generation (a computer

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dependent

process is complete), an employee can start preparing the CNC drill leading to savings of time. This leads to a saving of Inspect & Shear + Punching Holes savings of (32.5 +22.5 ) 55 minutes. ’

2.

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Improvement of standards in operations: The case cites the Plater in plating operations who used

to waste 15% of his time travelling hitherto. So there is no proper structured methodology to bring about change. 3.

Concentrate on production of both large quantities and small quantities of turnaround prototype by having two different production lines:

Exhibit 4 of case tells us that out of 5761 boards were produced in September 1987, and out of these 76% came from large batches (of boards greater than 200 in order size). The amount of time taken by them is 9% of total time (546 minutes). So if large batches can be put on a separate production line the issue of i) shifting bottlenecks, ii) delay in average number of days for large orders which is presently 9 days can be removed. iii) Efficiency of employees can be enhanced from present 41% to a greater value. iv) There would be no need to change delivery time. Quality: Because of two different product lines the processes will be better defined, and this will

4. 

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lead to lesser %age of rejection and improvement in quality. Apart from this there is no mention of quality processes, and they can be exploited to improve the quality of the shipped out printed circuit boards. Additional Inventory Donner should carry some inventory to minimize the lead time from the moment the bid is received. Now, to understand which raw material and how much of it to carry, it should base on the strategy followed in taking up the orders. If the strategy focuses on small orders only, it makes sense to carry over a percentage of the commonly used raw material for such orders. The 80-20 rule can be used to know which all inventory to carry. For example, in September, Donner received a total of 60 orders from customers, where 80% of these orders were below 100 boards. Only 20% of the orders were for more than 100 boards. If Donner decided to focus on small orders of less than 100 boards, then it would make sense to carry about 20% these raw materials: stock codes A, B, C, D, E, F and K. If Donner decided to focus on orders more than 100 boards, then the following stock codes should be carried: A, D and M. As mentioned earlier, stocking some of these raw materials should minimize manufacturing lead time as it will not be easy to locate the entire amount once an order is received. Acknowledging the fact that it would not be possible to stock all raw materials, certain core raw materials should be stocked to avoid valuable days being lost in the present ordering system. Naturally as a result of this, the costs for this will be realized with sales figures increase.

APPENDIX 1

OPERATION

SETUP TIME

RUN TIME

ORDER SIZE

1 Board

8 Boards

200 Boards

PREPARATION Artwork Generation

29

0

per panel

29

29

29

Inspect and Shear

20

0.5

per panel

20.063

20.5

32.5

Punching Tooling Holes

10

0.5

per panel

10.063

10.5

22.5

Manual

15

0.08

per board per hole

55

335

-

CNC Drill

240

0.004

per board per hole

-

-

640

10

0.75

per panel

10.094

10.75

28.75

Panel Prep

5

0.2

per panel

5.025

5.2

10

Laminate and Expose

20

2

per panel

20.25

22

70

Develop

20

0.2

per

20.025

20.2

25

IMAGE TRANSFER Drill

Metallization

Dry Film Photoresist

5

panel

Electroplate

25

8.5

per panel

26.063

33.5

237.5

Strip DFPR

5

0.2

per panel

5.025

5.2

10

Etch & Tin Strip

10

0.2

per panel

10.025

10.2

15

Solder mask

45

1.5

per panel

45.188

46.5

82.5

Solder Dip

30

0.5

per panel

30.063

30.5

42.5

Punch Press

50

1

per board

51

58

250

CNC Router

150

0.5

per board

-

-

-

45

1.5

per board

46.5

57

345

Minutes

383.38

694.05

1840.25

Hours

6.3897

11.568

30.6708

FABRICATION

Profile**

Inspect, Test, Pack

**Calculation for Optimal Order Size for choice of Profile Type 50 + 1*X = 150 + .5*X; gives X as equal to 200. So if the number of boards is greater than 200 it makes sense to go with CNC Router for profiling as it leads to lesser time.

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