In this next few series of posts
we’re going to use a case study to demonstrate how to use the TOC Thinking
Process (TP) tools. This posting sets
the stage for future posts on these tools.
Take a look at the following scenario that Bruce Nelson has put together and then let's hear from some of you on how you would handle this analysis
to help Bill Smith solve these problems.
Jonah Course: A company for analysis
The
Dome Company has been in business for 35 years.
It is a privately held company owned by a father and two sons. The father is Bill Smith, and his two sons
are John and Don. Bill acts as the CEO,
and his two sons are Vice Presidents.
John is the VP of Operations, and Don is the VP of Administration. Both of Bill’s sons have attended college and
graduated with business degrees. Bill
attended some college but did not graduate.
Bill originally started the business in his garage and it has grown to
the point that it is currently producing revenues of about $10M a year. The raw materials (RM) are about $6M a
year. The operating expenses are about
$3M a year. Net profit (NP) is about 10%
or $1M per year. However, in the last 18
months revenues and profits have begun to shrink.
The
company makes electronic components for the high end electronics industry. Most products are standard off-the-shelve,
with a few custom design products. The
custom design products can generate a nice profit margin. They have a fairly modern manufacturing
facility of about 20,000 sq ft. and employ about 60 total people. Of the 60
about 40 are in the manufacturing/production organization. The remaining 20 are in all of the support
organizations including engineering, quality, purchasing, human resources,
sales, etc. In the past, their products have
met or, exceeded the industry standards for quality. However, lately they have
had an increase in product returns for quality problems. Current product pricing seems competitive and
their prices are similar to the competitor’s.
Dome is convinced that their pricing is already “rock bottom” and they
don’t want to start a price war in the industry. They are making only small margins on some products
right now.
Recently,
in a morning staff meeting George, the Director of Sales, complained about the
loss of sales to competitors and how they are taking business away from
Dome. George centered his complaint on
the fact that Dome IS NOT getting the orders delivered on time. George says it is extremely hard to talk with
customers and take new orders when customers have doubts that Dome can deliver
on time. Some of Dome’s customers are
even asking them pay a penalty if they deliver late. George wants to put pressure on production to
make products faster in order to meet the customer demand.
George
also complained about the slow response of Dome to design new products. He claims that their competitor’s can design,
and start production on new products 2 to 3 months faster than Dome can. Their competitors
can establish a solid customer base for the new products before Dome can even
finish the design.
The
Production Manager, Pete, responded to George’s complaint of late orders. Pete stated that the plant is currently
working 2 shifts, 10 hours per shift, to reduce the backlog and ship on
time. Pete complains’ that the high
percentage change orders, even after the order has started production, has
become a big problem lately. Some order
changes require starting production over again.
Pete estimates this happens 5 - 10% of the time. In Pete’s mind it isn’t production that is
causing the problem, its sales for not getting the order right the first
time. Pete says production can make the
order, if they just had the correct order information to begin with.
Greg,
the Quality Manager addresses the increase in quality problems. Greg says the he’s not sure why the increase
in quality problems has occurred.
However, he suspects it might be an issue with production because they
are trying to build products too fast and not taking the time necessary to make
sure the quality is right. Products that
might not have passed inspection in the past are being rushed through the
system in order to meet demand. Greg
believes that production needs to slow down and do it right. Greg is convinced that the quality problem
will go away if production would just do it right.
This
staff meeting has been reduced to a finger pointing exercise and everyone is
blaming everyone else. Bill calls the
meeting back to order. He realizes now
that there is a serious problem in his company, but he’s not sure what it is,
or exactly how to fix it. He must find a
way to correct this problem. Bill calls
you to do an analysis of his company and tell him how to correct the problem. Anybody have an idea for how to do this
analysis for Bill?
Bob Sproull
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