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The Donner Company is a manufacturer of printed circuit boards. They need to address several issues in their supply chain operations to improve their service level because net income in the month of September has drastically decreased. Before September, growth was steadily increasing every month. They found that the major problems include unpredictable bottlenecks in manufacturing, lower than expected productivity and lower than expected quality and delivery.
After addressing these major issues, I find that investing in more CNC’s and phasing manual drilling out of the manufacturing process can go a long way to improve the service level of the company. BRIEF OVERVIEW The Donner Company manufactures customized printed circuit boards. The market for electronic devices is increasingly favorable, so management is trying to figure out how to maximize profits in by tweaking their supply chain operations.
There are several problems that will need to be addressed in the areas of manufacturing processes (preparation, image transfer, and fabrication), supervision, order processing, facilities and layout, current operating problems, productivity, and quality and delivery problems. FACTS OF THE CASE The three stages of the manufacturing process are preparation, image transfer and fabrication. In the preparation stage, a 12″ by 18″ standard panel has holes punched in it.
Then, in the image transfer stage, the holes are drilled and then processed through a copper immersion bath, washed and dried and exposed to UV light. In the fabrication panel, each board is reduced to its desired size and shape. The supervisors over the three phases are Diane Schnabs, Bruce Altmeyer and David Flaherty. Schnabs and Altmeyer report to the president and Flaherty reports to Altmeyer. Schnabs keeps track of orders processed an initiated. Altmeyer inspects the customer’s artwork requirements and looks to find design errors.
Flaherty oversees all other aspects of managing from the beginning to the end of customer orders. Other employees are required to interrupt their tasks on average of six to twelve times per day to secure work for upstream processes, ask about a problem or deliver completed assignments. The bottleneck in production shifts from one area of the production process to another, making it increasingly difficult to track the source of the problem. Flaherty had no way of predicting where work would pile up or run out. Flaherty also noted that only the small orders posed minimal problems.
The president felt that job methods could be substantially improved upon, however, Plummer is having trouble effectively analyzing the productivity of the shop. Fifteen percent of a plater’s time was spent walking between tasks. This time could be used for productive work. Searby has noted that Donner Company has had trouble maintaining quality standards and meeting delivery dates. This is clearly a service level issue. Average customer returns increased from one to three percent and shipments average nine days late. ANALYSIS OF THE CASE
Looking at Exhibit 1 – Donner Company Summary of Profit and Loss, it looks as if business has gone well until the last month (September). I cannot be sure of this because I have no records of the previous months of September, or around September, which could indicate seasonal changes in demand. Net income has fallen significantly from the previous month, down $11. 7 million from $14. 8 million. It appears that this decrease is a result of major increases in direct labor and manufacturing overhead and smaller increases in selling and administrative expenses.
Exhibit 2 – Standard Process Flow illustrates the most common sequence of operations. Clearly, drilling is the most time consuming part of the manufacturing process. Manual drilling is the number one most time consuming process and CNC drilling is the second most time consuming process. The next two most time consuming processes are electroplating and inspecting, testing and packing. Exhibit 3 gives some details on the CNC drill, which saves significant manufacturing time as compared to manual drilling.
Exhibit 4 shows the most common order sizes that Donner Company’s clients use. Fifty percent of the orders are for ten or less circuit boards. Eighty percent of the orders are for eighty-four or less circuit boards. The remaining twenty percent of the orders have circuit board numbers ranging from eighty-four to over one thousand. Exhibit 5 gives detail of the value of actual shipments in December. It is troublesome to see that Donner Company is losing money on some of their shipments to customers, as much as $8,000 in one shipment on the 27th. STATEMENT OF THE PROBLEM
The problem Donner Company has is that when there is a bottleneck in production because of the uncertainty of demand, Donner Company cannot adequately respond to these changes for various reasons. These problems need to be resolved for Donner Company to maintain its competitiveness in a fast paced market. KEY QUESTIONS TO BE ADDRESSED -Should Donner Company specializes in larger or smaller orders to buffer against uncertainty? -How can Donner Company anticipate bottlenecks in their manufacturing process? -How can Donner Company utilize the four functions of inventory functionality? Could Donner Company take advantage of geographic specialization? -Could Donner Company utilize decoupling to maintain maximum efficiency? -How well is Donner Company balancing supply and demand? -Could Donner Company buffer for uncertainty better by providing a higher service level? -Is Donne Company providing a high enough service level for their clients? -How does Donner Company’s service level compare to their competitors? -Would providing a higher service level be worth the cost? KEY DECISIONS TO BE MADE -Decide if the manufacturing process could be more efficiently to be modified -Decide if employee training can be improved Decide how to improve upon the order processing system -Decide which layout is most efficient for all the facilities -Decide how to quantify any bottlenecks in the business process -Identify and solve quality and delivery problems -Decide on a service level to maintain ALTERNATIVES AND EVALUATIONS OF ALTERNATIVES Donner Company would benefit from an increase service level. There are bottlenecks in each part off their manufacturing process, and drilling, electroplating and inspecting, testing and packing need to be addressed. How can Donner Company increase their service level?
Donner Company must learn how to manage large orders effectively. Small orders do not give Donne Company problems; the big orders do. They must increase their safety stock of materials and possibly shift their reordering point to increase their service level to where it needs to be. Research can improve the efficiency of the electroplating process. Modifying the process to eliminate walking times for employees could save fifteen percent of the time, or 19 hours. This change may or may not help reduce bottlenecks significantly.
Cutting down on inspecting, testing and packing time could also help reduce overall time spent in the process, thus increasing service level. The president felt that job methods were far ideal. Training of new employees could be done faster to help reduce the three percent product return rate. I’m sure some valuable time could be saved in this part of the manufacturing process. Manual drilling takes significantly more hours than drilling with CNC drills. The return on investment could be invaluable. Investing in more CNC’s would enable Donne Company to eliminate manual drilling, thus also reducing direct labor costs.
This could also reduce the number of returns because errors will be reduced and thus increasing Donner Company’s service level. RECOMMENDATIONS AND PLAN OF ACTION I believe the most valuable change that Donner Company can make is to invest in more CNC’s. The technology is available in CNC’s to significantly reduce drilling time. When the company gets large orders, the drilling part of the process is probably a severe bottleneck, resulting in shipments being nine days late. An $80,000 investment in each CNC can help to increase the service level of the company.