Monday, March 18, 2013

Focus and Leverage Part 193

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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