DONNER COMPANY:

Case Analysis
Operations Management
CASE BRIEF
Donner Company was a Printed Circuit Board (PCB) manufacturer which supplied products
catering to various specifications and order size to electronics manufacturers. Donner started
its operations in 1985 and its product portfolio can be broadly classified into 2 segments:

(I) Small quantities of Fast turnaround prototype boards

(II) Large Quantities of simple technology boards

Competitive Advantage of Donner: Donners core team consisted of engineers with vast
amount of industry experience. Edward Plummer and Bruce Altmeyer had developed most of
the companys production processes and applications, several of which were patented by them.
Donner was ahead of its competitors in terms of identifying problems occurring in prototype
production of new designs and also had the capacity to solve them effectively.

Another novelty of Donners manufacturing process was its use of Soldermask over bare
copper (SMOBC) boards. SMOBC became highly popular in the 1980s due to the fact that it
could accommodate more circuit components and provided more reliable circuits.

Manufacturing Process: The Production process for SMOBC consisted of 3 distinct stages:

(i) Preparation Stage: This stage consisted of creating negative replicas of the original
circuit design which were up-scaled to 8 images(boards) per panel. The 36 * 48
copper-clad glass epoxy sheets were then sheared into 8 panels of 12 *18 each, prior
to punching of location holes on the panels.
(ii) Image Transfer: Approximately 500 holes per PCB were drilled using either manual
drilling process or the $80,000 recently purchased CNC high-speed drill. Then the panels
were passed through a Dry Film Photoresist area followed by UV-exposure and etching
stages to get the bare copper conductors. The conductors were then electroplated to
create the desired circuit layout on either sides of the board.
(iii) Fabrication: Panels were processed through soldermask silkscreening for mounting the
components. Separation of individual circuit boards was done either by CNC routing or
the punch press method. The final activities consisted of visual inspection and electrical
testing followed by packaging.

The Process Flow Diagram has been illustrated via Exhibit 1;

Organizational Structure and Information flow: While Edward Plummer presided over the
company, 3 senior personnel shared the supervisory duties.
Diane Schnabs was the order expediter and kept track of all orders in process. She reported to
Plummer.
Bruce Altmeyer was the chief design engineer whose job was to locate and eliminate design
errors while deciding the best means of processing a particular order.
David Flaherty was the shop-floor supervisor whose duties included overseeing all processes of
the manufacturing process and also job scheduling when a particular order was received.
Flaherty reported to Altmeyer.

There were 22 production employees who were cross-trained in various processes to increase
flexibility in the manufacturing workflow.

Problem Statement 1:
How is Donner doing? What problems do you see? Why do these problems exist?

As we can see from the Profit and loss statement of Donner, the Net sales has experienced a
drop of around 13.6% between August and September, 1987. The Profit margin has also fallen
considerably from 10.3% to 2.5% which indicates a rise in production costs. Donners
competitive advantage was also being eroded away by an increasing rate of product returns
(7% pre-shipment rejection in September) and rising delays in order delivery (Average of 9
days in between Aug-Oct, 1987). The Customer return rate also increased from 1%-3% during
this period.

The basis of these problems in the companys operating position were rooted into improper
labor utilization and inefficient handling of various order sizes and specifications. The Problems
and their causes can be segregated into 3 categories Production and Scheduling Problems,
Quality Problems and Delivery Problems.

1. PRODUCTION AND SCHEDULING PROBLEMS:

The employees needed to halt the production process 6-12 times a day to
secure more work from other processes upstream, to seek advice from superiors
and to deliver completed goods.

Most orders reached Flaherty 4 days after the initial bid had been accepted by
Plummer and Altmeyer. Flaherty, on his part delayed the job scheduling till the
arrival of raw materials. This caused significant amount of delay in order
fulfillment and delivery.

The expedition of rush orders (4-day delivery) by Schnabs created serious

scheduling and resource allocation problems as it required the ongoing process
to be halted.
 Individual orders which consisted of varying batch sizes and different circuit
layouts made it difficult to pre-plan the production process as there was no
mechanism to predict where the bottleneck will develop (Shifting Bottleneck
problem).

Some orders required rework on some of the processes while one-fourth of the
jobs were interrupted mid-process on account of design modification
instruction by the customers.

The method used to calculate Standard labor time did not include time spent in
reworking parts which failed quality inspection process. The activity times were
based on industry standards and personal judgements of Plummer and Altmeyer.
This was evident by the significant number of machines lying idle at a given time.

Inefficient job methods meant that people working on the plating operation
spent 15% of their time in walking between the inspection panels and the
plating desks. The constant pressure to deliver output and meet sales targets
prevented introduction of new job methods. Also whenever a new job method
was implemented it resulted in improvement in production at one stage while
workload piled up in some subsequent stage due to queueing (as arrival rate at
subsequent process exceeded its capacity).

2. QUALITY PROBLEMS:

Inefficiency in the production process resulted in higher percentage of failure in

quality control checks. This in turn lead to an increase in customer returns from
1% - 3% since August.

There were no uniform quality standards across the production process as the
units-in-progress were subjected to individual inspections by the worker
involved in each stage.

Rigorous imposition of quality standards was not possible as the quality criteria
varied across customers and their tolerance levels for a particular order.

The pre-shipment rejection rate was 7% in September; out of which almost 90%
was because Donner had skipped some of the operations in the manufacturing
process. This again can be circulated back to the production and job scheduling
problems.
 3. DELIVERY PROBLEMS:

The shipping policy employed by Donner involved clearing out most of the
inventory at the end of the month. This caused severe backlog in product
delivery as can be witnessed from the fact that average deliveries over the
period of August-October 1987 was delayed by 9 days.

Another consequence of the above shipping policy was Donner required to hire
8 additional workers in August to handle the increasing volume of deliveries
pending. These workers will take 3 more months to become flexible across
various production functions thus increasing the labor costs for Donner.

In a nutshell, we can say that all the processes Order taking, order processing, order
fulfillment and order delivery, contributed to the poor downward trend in Donners sales
volume and profit margins over the last 2 months. According to sales manager Lloyd Searby,
Donner would fail to achieve $ 2 million sales in 1988 if it had to begin to promise 4-week
delivery for orders less than 1000 boards as competitors were promising 3-week delivery for
similar orders.

The primary reason for the above problems was that Donner was not geared up for
variable order processing. It accepted all orders from batch size 1 to 1050 each of which
required variable Turn Around Time (TAT).

Another reason was the underutilization of the CNC drill machine. As we will prove via
Exhibit 2, Donners policy of using the CNC drill only if batch size was greater than 100
was a faulty one. The Break-even analysis reveals that Donner can use the CNC drill
whenever batch size is greater than or equal to 6 (if no parallel processing is feasible) or
56 (whenever parallel processing is possible).

Problem Statement 2:
What specific actions do you recommend Plummer take to address these problems?

We propose the following solutions to the problems outlined earlier.

STAGE WISE ANALYSIS AND RECOMMENDATIONS (QUANTITATIVE)

Here we will analyze the 3 multi-step stages in the production process e.g. the Drilling stage,
the DFPR stage and the Profiling stage. We performed a Break-even analysis of the drilling
(Exhibit 2) and profiling stage (Exhibit 3) and a bottleneck analysis of the DFPR stage (Exhibit 4).
 Drilling Stage:

Donners policy of using the CNC drill when the batch size is greater than 100 is a flawed
one as our analysis shows. For lack of information we cannot determine if the Manual
drilling process is simultaneously possible or not. In case of sequential process, the
break-even order size is 6 and in case of parallel processing it comes out to be 56. If
order size is greater than 6 or 56 we will apply CNC drill as it will lead to lesser TAT for
larger orders.

According to our analysis in exhibit 2. The total TAT reduces by 29% if the decision rule
is applied. This will reduce the amount of labor utilization leading to freeing up workers
for other processes.

Dry film Photo Resist stage (DFPR stage):

We have analyzed the DFPR (exhibit 3) activity area by segmenting the orders into 3
segments based on order sizes of 8,80 and 800 each. The bottleneck in this case is the
lamination and UV curing stage which has the lowest capacity and hence highest
utilization. Here we see that Donner is better off accepting orders of larger batch sizes
as the process capacity increases. In this case we are assuming that the next stages have
enough capacities to handle the growing arrival rate from the DFPR stage.

Profiling stage:

Donner has properly segregated the profiling operation according to order size. Here we
evaluate the break-even point in exhibit 4. Our decision rule of using the CNC Router
only if the order size is greater than 200 boards is validated by Donner who use the
same decision criteria to optimize this step.

Operation
Strategy
Process Board Size<6 6<=Board Size<200 Board Size>200
Drilling Manual Drill Y N N
CNC Machine N Y Y

Profiling Punch Press Y Y N

CNC Router N N Y
GENERAL RECOMMENDATIONS (QUALITATIVE)

Inspection and Quality Control:

The quality control specifications should be standardized across the production process.
The standards must be approved by the customers of Donner. In addition to standards
for raw material and finished products, certain internal standards must be specified by
the administration to prevent individual subjectivity of workers must be eliminated.
Donner can achieve a potential improvement of 6% in productivity which resulted in
reworks arising out of incomplete operations.

Another minor bottleneck might be that a single senior employee was assigned to
complete the last steps of inspection, testing, packing and shipping. We can assign 1 out
of the 8 newly employed workers to expedite this stage which will reduce the shipping
backlog in Donner.

Layout restructuring:

The production layout must be optimized to reduce non-value adding activities in the
process flow. The interruptions arising out of securing more work from upstream
processes, advice-seeking and manual delivery can be reduced by proper layout design.

Operations like plating can be facilitated to ensure that the subsequent processes are
arranged adjacently to minimize waste time in manufacturing.

Order Processing and shipping policy:

There is a very basic flaw in the order procurement stage of Donner. It is that the
information flow is very much skewed towards Plummer and Altmeyer. Flaherty, who
was the most vital cog in the actual production process, was the last to receive the order
intimation. This system can be optimized by keeping Flaherty in loop with the order
details simultaneously with Altmeyer and Plummer. The 4-day information delay can be
eliminated so that Donner can meet its 3-week delivery promise.

The shipping policy also needs to be modified to reduce the amount of shipping delay.
The shipping should be spread across the month and not concentrated near the end of
the month. This will reduce the average delay in shipping by reducing piling up of
deliverables.

MAJOR STRATEGIC RECOMMENDATIONS

Based on the above major incremental suggestions we crystallize our recommendations into 3
strategy decisions which Donner can implement to eliminate its problems.
 Accept only large orders (>200 boards): As shown in our analysis these types of orders
will require CNC drill machine and CNC router to operate. The Cycle time of CNC
mechanism is much lower than that of manual drill and punch press method. This will
ultimately lead to higher productivity as throughput time will be reduced. Also since as
proven by Exhibit 4, larger order leads to higher capacity for DFPR stage thus generating
benefits of Economies of scale.

One disadvantage of this recommendation is that the number of orders with batch size
>200 was only about 14% of the total orders. Thus, while large volume orders will
definitely contribute to topline growth, it may prove difficult for Donner to acquire new
customers.

Accept only Small orders (6<Order size<200): As shown by our analysis these types of
orders require CNC drill machine and Punch press profiling method to maintain low lead
times. As evident in the September sales data, 45% of the orders lay between this range.
Hence, it would not a problem for Donner to acquire customers. Information flow
managed by Flaherty will become easier because the order sizes have been made more
uniform.

One disadvantage of this approach is lower topline growth as the sales volume will be
low. Hence Donner must ensure that it charges premium for these kinds of products to
generate healthier bottom-line growth. Other recommendations such as better
inventory management (procurement and stockholding of frequently used materials),
quality control standards and layout modification must also be applied to reduce
customer reject rate and pre-shipment reject rate to as low as possible.

Separate 2 production lines, one each for small and large order sizes: A third strategic
move could be to use two separate production lines: the existing one for large volume
production processes and the new one to be used to meet small volumes and rush
orders. Additional 1800sq. ft. space available will be utilized and the labor utilization
ratio (currently staggering at 41%) will improve (Exhibit 5). Additional workers on
training will supplement the work process on two production lines. Also, information
and communication flow can be improved by dividing the responsibility of Flaherty and
handing over the new production line to a senior and experienced person like Arthur
Dief. This strategic move is instrumental in reaching sales target of $3 million by 1988 as
predicted by Searby.

Similar to second recommendation, better inventory management (procurement and

stockholding of frequently used materials), quality control standards and layout
modification must also be applied to reduce customer reject rate and pre-shipment
reject rate to as low as possible. This can be accommodated in higher sales.
 EXHIBITS

Exhibit 1: Process Flow Diagram of Donner company

Receive master Produce negative Repeat individual Repeat images on

Preparation

artwork from image replicating images on each panel

customer circuit pattern panel
Raw material

Inspect visually Shear laminate Punch location

for any defects into panels holes

Configure Transfer Pin a panel Drill circuit Create Metallization

board per pattern of to drill board holes CNC
customer conducting table CNC/ machine
specification & Drill program
insulating press diskettes
strips
Image transfer

Wash Scrub Coat Apply Expose Pass Electroplate Tin flash

panels panels panels with artwork panel through exposed plated
DFPR film on to UV DFPR copper over
coated light developing conductors copper
panel machine

Chemically strip Chemically etch Chemically strip

Processing

DFPR from panel copper from glass tin from circuits

epoxy base

Process Dip panel CNC routing

panels into molten Separate
through solder bath circuit Inspect Electrically
soldermask boards individual test boards
silkscreening boards
Fabrication

20-ton
punch press
Package
boards

Ship boards
 Exhibit 2

BREAK-EVEN ANALYSIS OF THE DRILLING PROCESS

If Parallel processing is not applied
Setup Time Run time/ hole No. of No. of Holes= No. of Standard Completion
Method (mins) (mins) Boards Boards*500 Time
Manual Drilling 15 0.08 x 500*x 15+ 0.08*500*x
CNC Drilling 240 0.004 x 500*x 240+ 0.004*500*x
Calculation of break-even point : Equating SCT of both processes we get x=5.92; Hence the decision rule is as follows -> if
batch size greater than or equal to 6 apply CNC drill else apply manual drilling method

If Parallel processing is applied (Time taken for drilling 56 boards= 7 panels and 8 boards each)
Setup Time Run time/ hole No. of No. of Holes= No. of Standard Completion
Method (mins) (mins) Boards Boards*500 Time
Manual Drilling (7
nos.) 15 0.08 56 500*56/7 335
CNC Drilling 240 0.004 56 500*56 352
If Parallel processing is applied (Time taken for drilling 57 boards)
Setup Time Run time/ hole No. of No. of Holes= No. of Standard Completion
Method (mins) (mins) Boards Boards*500 Time
Manual Drilling (7
nos.) 15 0.08 57 500*56/7 + 500 375
CNC Drilling 240 0.004 56 500*57 354
Calculation of break-even point : Equating SCT of both processes we get x=56; Hence the decision rule is as follows -> if
batch size greater than or equal to 56 apply parallel manual drill else apply CNC drill machine

Benefits of the above decision

The drilling time according to the current job distribution turns out to be 54.42%. Using the above proposed decision
rule we can segregate the orders based on batch size. According to September's data there are 25 orders with batch size
less than 6; the total number of boards to be manufactured using manual drill is 65. Total SCT for Manual drilling process
is 49.58 hrs. Similarly, for CNC Drill process, the SCT is 329.86 hrs. The total TAT for drilling process is 379.44 hrs.
(previously it was 833.6 hrs). Thus it brings about a reduction of 54.48 % in the drilling activity stage for a month (based
on September snapshot). The total TAT reduces by 29% as a result of this decision.

Exhibit 3

BREAK-EVEN ANALYSIS OF THE PROFILING PROCESS

Method Setup Time (mins) Run time/ board (mins) No. of Boards Standard Completion Time
Punch Press 50 1 x 50 + 1*X
CNC Router 150 0.5 x 150 + 0.5 * X
Calculation of break-even point : Equating SCT of both processes we get X=200; Hence the decision rule is as follows -> if
batch size greater than or equal to 200 apply CNC Router else apply Punch Press method
NOTE: Donner is already applying this rule in its Fabrication stage
 Exhibit 4

BOTTLENECK ANALYSIS OF PHOTOLITHOGRAPHY PROCESS

Small Order Size ( 8 boards)
Setup Time Run time/ panel No. of Standard Completion Time
STAGE (mins) (mins) Panels (mins) Capacity
Panel Prep 5 0.2 1 5.2
Laminate and 2.7 Panels
Expose 20 2 1 22 /Hour
Develop 20 0.2 1 20.2
Large Order Size ( 80 boards)
Setup Time Run time/ panel No. of Standard Completion Time
STAGE (mins) (mins) Panels (mins) Capacity
Panel Prep 5 0.2 10 7
Laminate and 12
Expose 20 2 10 40 Panels/Hour
Develop 20 0.2 10 22
Large Order Size ( 800 boards)
Setup Time Run time/ panel No. of Standard Completion Time
STAGE (mins) (mins) Panels (mins) Capacity
Panel Prep 5 0.2 100 25
Laminate and 27
Expose 20 2 100 220 Panels/Hour
Develop 20 0.2 100 40

As we can see in the DFPR/Photolithography stage the Laminate and expose stage has highest activity time and hence is
the cycle time for this entire stage. As we can see this stage has economies of scale; hence larger the order size, the
more is the Production capacity

Exhibit 5

WORKFORCE UTILIZATION
Total no. of workers currently 22
Total no. of working days in September 1987 21
Total no. of working hours per day 8
Total no. of hours spent in work 22 * 21 * 8 = 3696
Total hours spent on process as per Exhibit 2: Standard process flow 1531.7
Workforce Utilization 1531.7/3696= 41.44%