DONNER COMPANY

Operations Management Case Analysis

Prepared by:

RAJAT ABROL (1916001)

JATIN MANIYA (1916035)

GULAM NABI (1916040)

VINAY RAO (1916042)

PUSHPARGHYA PAKRASI (1916043)

Process flow diagram of Donner

Preparation Stage

Punch
Customer Order Raw Artwork Inspect &
Tooling
Order Material Generation Shear
Holes

Image Transfer

Drilling DFPR
DFPR Panel Etch & Tin
Manual Metallization Laminate & DFPR Develop Electroplate Strip DFPR
Pre Sttip
CNC Drill Expose

Fabrication

Profile Inspect,
Solder
Solder Dip Puch Press test &
Mask
CNC Router pack

How is Donner doing?

We have analysed the Donner case on the following premises:

 Financial status of the company

 Labour utilization rate
 Total capacity utilization
 Current operating problems

Company financials:

Donner has started registering profit from the 2nd year of its operations i.e.
1986. The profits have continued to increase exponentially until August 1987.
In September we observe that there is a sharp dip in profit as compared to
previous months. This might be because of the problems or concerns listed.

 Productivity
  Quality
 Delivery

Donner company - Trend of Financials

$145.00

$95.00

$45.00

$-5.001985 1986 Jan-July 1987 Jul-87 Aug-87 Sep-87

Net Sales COGS Gross profit

Overhead costs Net Profit before Tax

Section 1: Trend of Financial metrics

Overhead costs (selling expense, Admin expense and Total Selling &
Administrative have increase slightly over the years which impacts Net profit

Note:

 Data from Exhibit 1

 1985, 1986 and Jan-July 1987 have been normalized for number of
months (12 months for 1985 & 1986 and 7 months for Jan-July 1987).
Data used in above chart placed in appendix

Despite of having problems with manufacturing quality, productivity and

delivery, Donner has managed to be profitable.

Labour utilization:
The production process of Donner is identified as made to order. Donner is
capable of handling orders with high degree of variability in quantity and size
of the order facilitated by cross-trained workers. This offers great amount of
flexibility in handling customer orders, as the manpower is deployed as and
when required. This was demonstrated in the case when workers engaged in
manual drilling were shifted to other tasks.
However, utilization calculated across all the 3 stages comes to 40% (refer to
Section 2: Utilization calculation). So, there is opportunity to improve utilization.
Utilization is also brought down by factory layout design (as indicated by plater
spending 15% time in walking between desk and tanks)

Total capacity Utilization:

<Include points>

Current operating problems:

Productivity, quality issue leading to returns & deadline misses are the issues
on the surface as highlighted by Donner management. A detailed analysis is
done in following section.

Problems with Donner Company: -

1. High variability in the order mix received on any given day is resulting
inefficient utilization of the workforce or available man-hours (from
below table in Section 2 we can see only 40% of man-hours available is
being utilized), because work is assigned randomly to each worker.
Additionally, there is a labour utilisation inefficiency that has come to
light recently (because of Wednesday’s events) where three workers
assigned to manual drilling had run out work.
2. The Plater worked at a desk inspecting panels and then carried the
panels to the plating times 18 feet away. Inserted them, and return to
inspect more panels. She interrupted her work at the desk every 3 or 4
mins, to inspect the panels in one of the tanks.
Altmeyer thought 15% of Plater’s time was spent simply walking
between the desk and the tanks
3. Since August, customer returns had increased from 1% to 3% (post-
delivery rejection rate). The company’s pre-shipment rejection rate has
amounted to 7%. Out of which, the incomplete operation rate is 6% (this
has to be reduced from 6% to 0%)
4. Amongst recent failures, a big problem with respect to the company’s
delivery efficiency was that their shipments had started averaging nine
 days late. The delays were a result of the incomplete operation rate of
6% which were reworked
5. Flaherty delays the scheduling decision for several days until the raw
material arrives from the vendor. He only then estimates the labour
required in each step, examines the work in process, critical points, and
estimates the difficulties in meeting the new order’s expected shipping
dates

Man Hour No. of

Stage Role Supervisor Total Hours Operations Utilization
Available workers
Preparation Design Engineer Bruce Altmeyer 66.2 4.3% 176 37.6% 1
Image Transfer Shop Supervisor David Flaherty 1073.2 70.1% 2640 40.7% 15
Fabrication Expeditor Diane Schnabs 392.4 25.6% 1056 37.2% 6
Total 1531.8 100.0% 3872 39.6% 22

Section 2: Utilization calculation

Assumptions:

1. 22 working days in a month

2. Each working day has 8 working hours
3. 8 new recruits are not being considered in the above calculation, as they are not
adequately trained.

Recommendations to Plummer: -

1. A change in strategy to produce both large and small quantities of

boards from simple technology, with separate production lines is
advisable. This can help generate more sales. There will be an increase in
on time delivery and a reduction in delays in the system
2. The arrangement of the machines causes a significant waste of the
operator's time. This can be solved by arranging them in an order similar
to the process sequence. The machining process and the plating and
etching processes can be separated by a physical barrier
3. For order size of 6 boards or above (calculations in section: Section 3:
Break-Even Analysis) it is recommended to use CNC drilling machine which
will reduce the total production time. As the setup time for CNC Drill
machine is the highest (4 hours) the CNC machine should be set up in
parallel with the other processes. Currently, Donner is leveraging CNC
drill only for order sizes greater than or equal to 140, manual drill is used
for anything below that (exhibit 2 and 4)
 4. Similarly, for order size of 200 boards or above (calculations in section:
Section 3: Break-Even Analysis), Donner should use CNC router machine for
profiling over Punch press procedure. For orders below 200 boards,
Punch press should be used as CNC router takes 2.5 hrs for setup
(exhibit 2)
5. The quality inspection should be strengthened in order to control the
number of returns. Instead of deploying quality check at final stage,
stage level monitoring can be implemented. This will ensure quality
issues are picked up early instead at the end stage
6. Flaherty should keep scheduling ready while raw material arrives in
order to avoid further delay. This will result into expedited execution
and will process the orders fast and delivery dates can be improved
7. Keeping an inventory of raw materials would help solve problems with
procurement
8. In the above table we have identified and therefore suggesting for
number of worker/s required at each stage with a dedicated supervisor
being assigned to each of the stage for smooth operation. It evident
from the Exhibit 2 (given in the case) as well that Image Transfer stage is
creating bottleneck (to be more precise: the drilling process). Therefore,
deploying more workers at that stage would be helpful.

Section 3: Breakeven analysis

Finding minimum order size for using CNC drill against manual
drill
Let’s say the order size is N, then breakeven point will be given
by
15 + .004*500* N = 240 + 0.080*500*N
N = 5.92 ~ 6
Thus, if order size is greater than 6, CNC drill will be employed,
otherwise manual drill will be
used. However, Donner’s policy is to use CNC drill only when
the order size is great than 100
Finding minimum order size for using CNC drill against manual
drill
Let’s say the order size is N, then breakeven point will be given
by
15 + .004*500* N = 240 + 0.080*500*N
N = 5.92 ~ 6
Thus, if order size is greater than 6, CNC drill will be employed,
otherwise manual drill will be
used. However, Donner’s policy is to use CNC drill only when
the order size is great than 100
Finding minimum order size for using CNC drill against manual
drill
Let’s say the order size is N, then breakeven point will be given
by
15 + .004*500* N = 240 + 0.080*500*N
N = 5.92 ~ 6
Thus, if order size is greater than 6, CNC drill will be employed,
otherwise manual drill will be
used. However, Donner’s policy is to use CNC drill only when
the order size is great than 100
1. Finding optimal order size for using CNC drill vs Manual drill

Drill Procedure Setup Time (min) Run Time (min)/hole

Manual 15 0.080
CNC Drill 240 0.004

Assuming order size be an order with X number of boards, the

breakeven point is determined by
 15 + 0.080*500*X = 240+ 0.004*500*X
 15 + 40X = 240 + 2X
 X~6

This means, if the order size is greater than 6 CNC drill can used and for
order size less than 6 manual drill procedure to be used. This can help in
expediting the current process so as to avoid any delay. The current
strategy used at Donner (based on Exhibit 2 & 4) for order greater than
or equal to 140 is using CNC drill and the one less than 140 is being done
using manual drill method.

2. To find the optimal order size for choosing CNC Router over Punch Press
procedure.

Profile Setup Time (min) Run Time (min)/hole

Punch Press 50 1
CNC Router 150 0.5
 Assuming order size be an order with X number of boards, the
breakeven point is determined by
 50 + 1.000*X = 150+ 0.5000*X
 50 + X = 150 + 0.5X
 X ~ 200

This means, if the order size is greater than 200 boards CNC router can
used and for order size less than 200 boards punch press procedure to be
used.

Appendix: data used in section1 chart

Financial metrics 1985 1986 Jan-July 1987 Jul-87 Aug-87 Sep-87

Net Sales $ 20.50 $ 33.71 $ 46.84 $ 85.70 $ 144.40 $ 124.80
COGS $ 17.37 $ 28.54 $ 39.13 $ 67.40 $ 117.20 $ 109.00
Gross profit $ 3.13 $ 5.17 $ 7.71 $ 18.30 $ 27.20 $ 15.80
Overhead costs
(selling expense, Amin expense, $ 7.42 $ 9.98 $ 12.80 $ 23.80 $ 24.80 $ 25.40
Total selling & Admin)
Net Profit before Tax $ -0.58 $ 0.18 $ 1.31 $ 6.40 $ 14.80 $ 3.10