One Hour Loan offers customized loans. Customers call a toll free number with a specific loan request, and obtain a response within an hour. One Hour Loan's business process includes five activities which must be conducted in the sequence described below. (The time required for each activity is shown in parenthesis):
Activity 1: Answer customer call and record key information. (4 minutes)
Activity 2: Gather and format the information (obtain credit scores, organize customer specific needs) for analysis (5 minutes)
Activity 3: Analyze the information: Check the credit worthiness, and decide loan amount and APR to offer. (7 minutes)
Activity 4: Perform final checks on loan offer (2 minutes)
Activity 5: Call customer back with the new loan offer and close. (4 minutes)
The whole process is conducted by three workers in a worker paced line. The assignment of tasks to workers is the following:
W1 does Activity 1.
W2 does Activities 2 and 3.
W3 does Activities 4 and 5.
• What is the bottleneck of the process? Please show your work.
• How much time will it take to process 100 loans? (Assume that the process starts with an empty production line)
• What is the utilization of worker 3? (You can assume that the process operates at capacity and you do not have to consider any empty system effects).
• What is the average labor utilization of the workers? Assume the process operates at its capacity and there are no empty system effects.
• What are the direct labor costs for one loan application? Assume a wage rate of $20 per hour.
To increase the production rate, One Hour Loan is considering two alternatives:
Alternative I: To hire a new worker to help any one (and only one) of the workers without changing the tasks performed by each worker.
Alternative II: To redesign the assignment of tasks to workers. For this, the company is evaluating to re-assign Step 2 from W2 to W1.
• Suppose that Alternative I is chosen. Which worker should the new employee assist?
• What would be the costs of direct labor of one loan application under the solution depicted above? Assume there is sufficient demand (system operates at its capacity) and there are no empty system effects.
• What would be the direct labor costs for Alternative II?