Flow Loans has a customer demand of 600 loan fixed rate loa

• Flow Loans has a customer demand of 600 loan fixed rate loan refinancings per week (approximately $100M)

• The office operates:

– 5 days per week, 1 shift per day, 9 hours per shift

– Each shift receives a 30 minute paid lunch

– Each shift receives 2 - 15 minute paid breaks

– This includes appraisers who work in the field

• The average process uptime is 95% (due to network failures and system downtime)

• The capacity of each step in the process is:

Process step/ Gross capacity/ # people

– Application/ 2 apps/hour/person/ 8 people

– Processing/ 1.5 apps/hour/person/ 12 people

– Appraising/ 0.5 apps/hour/person/ 24 people

– Closing/ 1 apps/hour/person/ 16 people

Questions:

1) What is the net operating time (hours per week)?

2) What are the takt rate (applications/hour) and takt time (minutes/application)?

3) Where is the bottleneck in the process?

4) What is the current capacity of the process (applications per hour)?

5) What could be done to increase capacity?

Solution

1) Net operating time/week = 95% of (Total working hours per week – paid lunch time – paid breaks) { as system uptime is 95%}

= 0.95*((5*9*60)-(30*5) – (15*5)) { assuming maximum value of paid break i.e 15 minutes}

= 2351.25 minutes = 39.19 Hours.

2) Takt rate = Demand/Net operating time = 600/39.19 = 15.31 ~ 16 applications/Hour

Takt Time = Net operating time in minutes/Demand = 2351.25/600 = 3.92 minutes/application

3) Capacity of each step = No. of people employed in the step*no. of applications processed per person per hour So, calculating the capacity of each process:

Clearly, among the above processes, Appraising has the least capacity of 12 applications/hour which is also less than our takt time for the total processes. So, Appraising is the Bottleneck in the process.

4) Capacity of the process = bottleneck capacity = 12 Applications/Hour

5) In order to increase the capacity, workforce for appraising process need to be increased. But before that, a thorough analysis should be done to unearth the reason for very less productivity per person per hour in the appraising process. This analysis should then be used to improve the efficiency of the workforce employed in this process. Also, as our takt rate is 16 Applications/Hour, workforce could be borrowed from other processes which exceed the required takt rate and put into appraising process.