Reference no: EM132302870
Case 1: Morelia Mortgage Company
The Morelia Mortgage Company (MMC) is a medium-sized mortgage lender that has continued to do well, despite the “meltdown” in the mortgage lending industry. Prior to the economic downturn, MMC was a principal supplier of lending services to Southwestern Desert Homes, a builder of residential communities in several major cities throughout the southwestern United States. Because it carefully selected clients who were able to make substantial down payments for homes, and it avoided sub-prime or variable-rate mortgage lending, MMC has been shielded from the effects of “toxic mortgages” on its balance sheet. In fact, MMC expanded its mortgage refinancing and home remodeling credit operations to two shifts, as other lending company’s ability to take on new clients contracted. Soon, they were working six days per week and hiring additional workers.
Not long after MMC began its second shift operations, it received some complaints about long mortgage processing times. This information alarmed Pete Purnell, CEO of Morelia Mortgage. He had retired early from a bank in a cold Midwestern city and decided that he wanted to relocate to the desert Southwest. He had hiked in the mountains and played golf during the first six months, but then realized that he needed more of a challenge than the recreational activities could provide. That was when he started Morelia Mortgage, using his experience in the mortgage and home loan business. MMC, under Pete’s leadership, soon built a reputation as a high-quality, if somewhat conservative, lender. Among other things, the company was known for the capability of its well-trained and dedicated employees, who could generally complete the loan process in around 2–3 workdays. Thus, Pete never felt the need to consider formal process control approaches. Now many customers were complaining that it took a week or two to close on a loan, even with an excellent credit score. In view of the recent complaints, Pete suspected that the rapid expansion to a full two-shift operation, the pressures to produce higher volumes, and the push to meet requests from high-profit customers was causing a breakdown in their quality.
On the recommendation of the V.P. for loan processing, Pete hired a quality consultant to train the process managers and certain loan workers in statistical process control methods. As a trial project, one process manager wanted to evaluate the capability of a critical operation that she suspects might be a major source of the delays. The nominal specification for this processing operation is 15.5 hours with a tolerance of 5 hours. Thus, the upper and lower specifications are LSL= 10.5 hours and USL= 20.5 hours. The consultant suggested inspecting five consecutive processing times, per loan worker, in the middle of each shift over a 15-day period and recording the completion times for loans that they had finished processing. The table in the worksheet Morella Mortgage Case in the workbook CaseData), shows 15 days’ data collected for each shift, by loan worker.
Case 1 Questions:
1. Interpret the data in the MMC Case worksheet in the Excel workbook CaseData, establish a state of statistical control, and evaluate the capability of the process to meet specifications. Consider the following questions: What do the initial control charts tell you? Do any out-of-control conditions exist? If the process is not in control, what might be the likely causes, based on the information that is available? What is the process capability? What do the process capability indexes tell the company? Is MMC facing a serious problem that it needs to address? How might the company eliminate the problems of slow loan processing?
2. The process manager who initiated the trial project implemented the recommendations that resulted from the initial study. Because of her success in using control charts, MMC made a decision to continue using them on that process. After establishing control, one additional sample was taken over the next 20 shifts, shown in second part of the table in the MMC Case worksheet. Evaluate whether the process remains in control, and suggest any actions that should be taken. Consider the following issues: Does any evidence suggest that the process has changed relative to the established control limits? If any out-of-control patterns are suspected, what might be the cause? What should the company investigate?