3 Process Flow Measures Assignment Problem 1 Solution

3. Process Flow Measures Assignment , Problem 1 Solution 1 1. Bank XYZ receives 20 loan requests per hour on average. Each loan request goes through an initial processing stage, after which an “accept or reject” decision is made. Approximately 80% of the loans are accepted, and these require additional processing. Rejected loans require no additional processing. Suppose that on average 5 loans are in the initial processing stage, and 25 (accepted) loans are in the additional processing stage. 80% 20 25 5 20% Reject Accept

3. Process Flow Measures Assignment , Problem 1 Solution 2 a) What is the average processing time required for a loan request? R = 20 loans/hour I = 5+25 = 30 loans Average processing time = Throughput Time RT= I T = I/R = 30/20 = 1. 5 hours b) What is the average processing time required for a rejected loan? R = 20 loans/hour I = 5 loans Average processing time = Throughput Time RT= I T = I/R = 5/20 = 0. 25 hours

3. Process Flow Measures Assignment , Problem 1 Solution 3 c) What is the average processing time required for an accepted loan (including the initial processing stage)? Initial Stage: As computed for rejected applications the time for the initial process is T = I/R = 5/20 = 0. 25 hours Additional Processing Stage: R = 20 × 0. 8 = 16 loans/hour, I = 25 loans T = I/R = 25/16 = 1. 5625 Average Total Processing Time = = 0. 25 + 1. 5625 = 1. 8125 hours

3. Process Flow Measures Assignment , Problem 2 Solution 4 2. A call center employs 1000 agents. Every month 50 employees leave the company and 50 new employees are hired. 50/month 1000 Agents 50/month a) How long on average does an agent work for this call center? R = 50 people/month I = 1000 people Average working time = Throughput Time = I/R = 1000/50 = 20 months or 20/12 = 1. 67 years

3. Process Flow Measures Assignment , Problem 2 Solution 5 Suppose the cost of hiring and training a new agent is $1000. The manager of this call center believes that increasing agents’ salary would keep them working longer term in the company. The manager wants to increase the average time that an agent works for the call center to 24 months, or 2 years. b) If an agent works for the call center for 24 months on average, how much can the company save on hiring and training costs over a year? Hint: first determine the current annual cost for hiring and training, then determine the new annual cost for hiring and training. 50/month 1000 Agents 20 months 50/month ? /month 1000 Agents 2 years ? /month

3. Process Flow Measures Assignment , Problem 2 Solution 6 Current annual cost for hiring and training: Throughput Rate = 50 people/month = 600 people/year Annual hiring and training cost is 600 (1000) = $600, 000 New annual cost for hiring and training: Average working time = Throughput Time = 24 months = 2 years Throughput Rate R= I/T = 1000 people / 2 years = 500 people/year 41. 7 per month Annual hiring and training cost is 500 (1000) = $500, 000 Annual saving on hiring and training cost is $600, 000 -$500, 000 = $100, 000

3. Process Flow Measures Assignment , Problem 2 Solution 7 c) How much the monthly salary of each agent can be increased? Average # of employees = 1000 Annual saving on hiring and training cost = $100, 000 Monthly saving = $8, 333. 33 8333. 33/1, 000 = $8. 33 per employee/month

3. Process Flow Measures Little’s Law: Auto-Moto Financial Services 8 Auto-Moto receives 1, 000 applications per month (30 working days). In the old process, each application is handled individually, with 20% of applications being approved. 500 were in the process at any time. Average flow time T = ? 1000/month Process Ip=500 200/month 800/month Average flow time T = I/R = 500/1, 000 months = 0. 5 month or 15 days. The firm recently implemented a new loan application process. In the new process, applicants go through an initial review and are divided into three categories

3. Process Flow Measures Practice; New Process, R, I, and T 9 Subprocess A Review 70% Accepted 200/month 30% 25% 1000/month Initial Review 25% 50% 10% Subprocess B Review 90% Rejected 800/month

3. Process Flow Measures New Process: The Same R, But smaller I 10 Subprocess A Review IA = 25 25% 1000/month Initial Review IIR=200 25% 50% 70% Accepted 200/month 30% 10% Subprocess B Review IB = 150 90% 800/month Rejected R = 1000 I = IIR + IA + IB = 200 + 25 + 150 = 375 Inventory reduced to 375 from 500 in the old process. Since R is constant, therefore T has reduced T = I/R = 375/1000 = 0. 375 month or 0. 375(30) = 11. 25 days The new process has decreased the processing time from 15 days to 11. 25 days.

3. Process Flow Measures Flow Time at Each Subprocess (or activity) 11 Average Flow Time for Activity IR. Throughput RIR = 1, 000 applications/month Average Inventory IIR = 200 applications TIR = 200/1, 000 per month = 0. 2 months or 6 days with the initial review team Average Flow Time for Activity A. Throughput RA = 250 applications/month Average Inventory IA = 25 applications TA = 25/250 months = 0. 1 months or another 3 days in subprocess A. Average Flow Time for Activity B. Throughput RB = 250 applications/month Average Inventory IB = 150 applications TB = 150/250 months = 0. 6 months or another 18 days in subproces B

3. Process Flow Measures Routing, Flow Time, and Percentage of Each Flow units 12 One flow unit at very macro level: 1000 flow units/month at very micro level: Two flow units: Five flow units: Accepted-A: Accepted-B: Rejected-IR: Rejected-A: Rejected-B: Application Each specific application Accepted and rejected Accepted-A, accepted-B, rejected-IR, rejected-A, rejected-B IR, A IR, B IR IR, A IR, B TIR = 6 days TA = 3 days TB = 18 days We also need percentages of each of the five flow units

3. Process Flow Measures New Process: Intermediate Probabilities 13 Subprocess A Review T=3 25% 100% Initial Review T=6 25% 50% 70% Accepted 20% 30% 10% Subprocess B Review T = 18 90% Rejected 80%

3. Process Flow Measures New Process: Intermediate Probabilities 14 Subprocess A Review T = 3 25% 100% Initial Review T = 6 25% 50% 17. 5% Accepted 20% 7. 5% 2. 5% Subprocess B Review T = 18 22. 5% 50% Rejected 80%

fa 09. som 416. 01 -c@csun. edu 3. Process Flow Measures Flow Time of the Accepted Applications 15 Under the Original Process – the average time spent by an application in the process is 15 days (approved or rejected) In the new process: On average, how long does it take to approve an applicant? On average, how long does it take to reject an applicant? Accepted-A: IR, A Accepted-A(T) = 6 + 3 = 9 Accepted-A(%) = 17. 5 Accepted-B: IR, B Accepted-B(T) = 6 + 18 = 24 Accepted-A(%) = 2. 5 Average Flow time of an accepted application = [0. 175(9)+0. 025(24)]/(0. 175+. 025) = 10. 875 In the new process, the average flow time has been reduced from 15 to 11. 25. In addition, the flow time of accepted applications has been reduced to 10. 875. That is what the firm really cares about, the flow time of the accepted applications.

3. Process Flow Measures Flow Time of Rejected Applications 16 Rejected-IR: IR Rejected-A: IR, A Rejected-B: IR, B Rejected-IR(T) = 6 Rejected-IR(%) = 50% Rejected-A(T) = 6+3 = 9 Rejected-A(%) = 7. 5% Rejected-B(T) = 6+18 = 24 Rejected-B(%) = 22. 5% Average Flow time of a rejected application = [0. 5(6)+0. 075(9)+0. 225(24)]/0. 8 = 11. 343 Check our computations: Average flow time of an application 0. 8(11. 343)+0. 2(10. 875) = 11. 25