Case Study: North West Constructive Bank PDF

Preview

Summary

Module: Operations Management Module Number: SOE09103 Module Leader: Claire Lindsay Date of Submission: 8th of November 2017 Case Study: The North West Constructive Bank Table of Content List of figures ....................................................................................................

Description

Module:

Operations Management

Module Number:

SOE09103

Module Leader:

Claire Lindsay

Date of Submission:

8th of November 2017

Case Study: The North West Constructive Bank

Table of Content List of figures .....................................................................................................................3 1.

Introduction.................................................................................................................4

2.

Background information ..........................................................................................4

3. Question 1: What appears to be the volume-variety position of the new centre? Is it different from the old centre? ..................................................................5 4. Question 2: Should the process be redesigned, and if so, which option should be adopted? ..........................................................................................................8 5.

Performance Objectives .........................................................................................12

6. Question 3: How would you recommend that Andy sets about making any changes? ...........................................................................................................................14 7.

Conclusions ..............................................................................................................17

References ........................................................................................................................19

North West Constructive Bank

2

List of figures Graphic 1: The product-process matrix (Slack, 2010, p.106) ...................................................5 Graphic 2: Process Volume Matrix (Silvestro, 1999) ................................................................7 Graphic 3: Process layout of option one (Slack et al. 2013) .....................................................9 Graphic 4: Process layout of option two (Slack et al., 2013) ..................................................10 Graphic 5: Process layout of option 3 (Slack et al., 2013) ......................................................11 Graphic 6: "stowing information" is the bottleneck of North West Constructive Bank (Waller, 2003) ............................................................................................................................16

North West Constructive Bank

3

1. Introduction Every company is characterised by different processes and methods of operation. Most companies aim to reach maximum profit, and therefore they have to optimise their processes. The development and continuous improvement of a company's process flow is an essential part of operations management. This report intends to describe, analyse and assess the process design of the North West Constructive Bank by using theory and different concepts, which were explained in class, to get a professional solution approach.

2. Background information This report deals with the case study "North West Constructive Bank" which is described in the following part: Andy Curtis is the bank's Operations Manager, and therefore he is responsible for the new applications process in the bank‘s new mortgage centre. He heads a project team which planned the merger of the three regional centres into a new centre without subdivisions by region over a period of 12 months. The idea of restructuring is based on the theory of economies of scale:

“An economics principle that refers to situations where the cost per unit goes down as the production volume increases” (Hill, 2012: 117). Positive economies of scale can be attributed to savings in mass production/services. According to Andy Curtis, there was no reason why the centres have to be located close to its market. The team was also hoping for more flexibility when it comes to changes in demand. The merger made it easier to redeploy staff in order to better cope with peaks in demand. The bank's Product Manager also decided to reduce product diversity. This was convenient for Andy's team because a reduction in the variety of products within the new centre also simplifies the processes and thus

North West Constructive Bank

4

reduces complexity. In the beginning, the process in the new centre was no different from the process in the old centres. The only difference was that now all were merged and the only significant change from the old way of working was the grouping together of all the keying in activities associated with the input stage. After the merging, there were problems such as “stowing information” and “the black hole syndrome” which could not have been foreseen before and which will later be described in more detail.

3. Question 1: What appears to be the volume-variety position of the new centre? Is it different from the old centre? Processes are classified keeping in mind both the volume of products and the variety offered. These two dimensions are usually related – but in a reversed way. So lowvolume processes often produce a high variety of products and services, and highvolume operations processes often produce a small variety of products and services (Slack, Brandon-Jones, & Johnston, 2013).

It is common to illustrate the volume-variety relationship by a matrix as the below:

Graphic 1: The product-process matrix (Slack, 2010, p.106)

North West Constructive Bank

5

As the case study talks about a service operation, which classification on service process types is more recent and less standardised than with manufacturing process types (Greasley, 2013). It differs from literature, but it is usual to find out these three categories: •

Professional service: characterised by high levels of customisation, in that each service delivery will be tailored to meet individual customer needs. Due to this level of customisation, it is range on a low volume of processes but in a high variety of products.

•

Service shop: operate with a medium amount of variety and volume.

•

Mass service: operate with low variety and high volume. Also, there will be not much customisation of the service to individual customer needs and limited contact.

Whereas production volume is the crucial variable in the production process model, in the service process model volume is defined as the volume of customers processed. This measure includes customers’ business which may or may not require the presence of a customer, so that, in a bank as the case study, the volume of customers processed includes back office as well as front office transactions (Silvestro, 1999, pp. 400–401).

North West Constructive Bank

6

In the end, a new volume-variety diagonal matrix for the service operations process can be built.

Graphic 2: Process Volume Matrix (Silvestro, 1999)

So on, the old branch was characterised by:

•

Being a service that required a diverse and complex process task. With high contact time and customisation, much front office-oriented and well process oriented.

•

The process flow was intermittent between the front and back-office operations.

•

Going into the volume-variety range, it is counted with a medium range of variety of products as well as a not so high, but still a quiet range of volume operations compared with another kind of service processes.

That means the previous branches were more of a mix of professional service and service shop. Nevertheless, in the volume-variety matrix built before, the new North West branch office will be located somewhere more close to the mass services process type than the older ones.

North West Constructive Bank

7

The result is a new branch where the volume of customers per unit per period is higher than in the case of independent offices. The customisation and the product focusing of the previous branches more accorded to a professional/service shop type has remained lower, as the idea of the new portfolio is to create a more standardised range of products, so the contact time also decreases and the workflow became quicker. Also, the branch is more back-office orientated, where most of the work is now done in the office rather than in reception. All in all, the new process type achieved means a less product orientation of the branch, putting the customisation of the products offered aside and improving the workflow, helping the office's processes being quicker.

4. Question 2: Should the process be redesigned, and if so, which option should be adopted? In summary, after the redesign of the process, the North West Bank has two main problems: the process layout causes the bottleneck effect and the “black hole syndrome” that results from the physical and virtual files. The process layout is the connection between input and output. It is about the transformation of the input into the output (Ilgen, Hollenbeck, Johnson, & Jundt, 2005). Based on this case study, the customers who want to get a mortgage are the input, and the output is the commitment and the receipt of the mortgage. The redesign results in a more confusing process because they try to implement two types of resources into separate departments, fragmented in three areas. In particular, these are the files and fax machines. First of all, three different options were actively considered by the management team. These options have to be evaluated against each other:

North West Constructive Bank

8

The first option keeps the process as it is at the new centre, with a standard data entry stage serving all regions, and with the three regions each having their own underwriting, offer and completion stages working in series. With this option, the existing way of work would not be disrupted, and the organisational coherence of the three teams would be maintained. The local knowledge of the regional property markets would still exist. Moreover, the filling room is on the other side of the office. Hence, some departments have to walk through the western area to the scanning machines. This leads to a high loss of time and a permanent work interruption for the western area (Slack et al., 2013). However, there would be no interaction, learning and development within the different teams, because of the subdivisions of the areas. Consequently, option one is not suitable for a high-volume-process as mentioned previously.

Graphic 3: Process layout of option one (Slack et al., 2013)

North West Constructive Bank

9

Option two is a complete reorganisation of the whole process by abandoning the current regional structure and organising four sequential teams around each of the four stages. The employees from the same departments of the different centres have now been merged. It is more appropriate for this high-volume process and allows skills to be developed, because of the reorganisation of the whole process and a large number of the staff (Slack et al., 2013). Nevertheless, with option two, the local knowledge of the regional markets would get lost, and employee motivation could decrease because well-operating teams would dissolve. This can have a negative impact on the corporate culture (Sullivant, 2016).

Graphic 4: Process layout of option two (Slack et al., 2013)

North West Constructive Bank

10

Finally, option three is a reorganisation into four teams around the four stages of the process, but operating the underwriting stage and offer stage in parallel. It would be the most radical change where the throughput times and reaction times would be short. However, in comparison to options one and two, the contrary arguments are predominating. Because it is the most radical design, the process would be precarious, because of the possibility of loss, high levels of recycled applications and, at the same time, ensure the short throughput times.

Graphic 5: Process layout of option 3 (Slack et al., 2013)

The main aim of the bank was to achieve economy of scale with a high volume process. On this account, the most successful solution would be option two. There are several reasons for this decision: First, option two has a bright and constant workflow in one direction (Slack et al., 2013). To avoid the extra movement from the files to the fax machines, it would be possible to locate the files in the centre of the office or to buy new fax machines for each team. This would be easy because fax machines are not expansive and they are easy to set in. Moreover, to cope the demand increase, option two is more suitable because this layout design corresponds to the characteristics of a high volume variety.

North West Constructive Bank

11

After the evaluation of the three options, there are significant new approaches to recommend Andy to improve and optimise the workflow. Through the development of the mass process type, it is essential to establish the new process type to reach a favourable economy of scale. Additionally, it is essential for the employees to practise their skills and to motivate and build harmonic teams. Moreover, the employees have to learn more about the local knowledge of each regional market and should share information between colleagues to benefit from each other's experience. For long-term improvement, the company should make standard operating processes for offer stage. All of these factors are relevant to deal the shift from low to high volume with a reduction of the variety of products at the same time.

5. Performance Objectives To be able to evaluate the changes in the process, the five performance objectives are used: Quality, speed, dependability, flexibility and cost (Slack et al., 2013). A company defines its corporate strategy and then sets the operational performance targets that must be achieved to achieve the strategy. Hence, they configure its operating environment to achieve one or more of five operational performance targets. The following part considers the five different objectives of the case study.

According to Andy Neely (2007) quality is more than concordance to a specification. "It is also how well a product performs its intended function, the desirability of the product's features and the reliability of a product” (Nordmeyer, 2017). Since in the case it is not a product but a service, it is difficult to define specifications. The mortgage procedure cannot be checked for its content quality as each procedure is individual. For example, it could be tested if there is an error-free processing or whether specific rules and standards of lending are being adhered to or whether the customer is satisfied with the advice he has received, although no further details are given in the case study.

North West Constructive Bank

12

Speed objective refers to issues as the time required to deliver one or more services. In the case is only one process. To get the minimum throughput time they have to measure how long it takes from "input" to "completion". The case study does not provide any information on throughput time. However, it can be assumed that throughput times have been shortened due to the new arrangement of the scanners and data storage and the shortened distances there. Dependability is when products or services are delivered to the customer on time and under the agreed conditions. This means in the case that the Bank has to guarantee a smooth process. For this, the process resources must be planned correctly. Also if demand is expected to rise, there must be enough employees and scanning machines must be redundant to avoid bottlenecks or process interruptions. According to Neely, flexibility is when the company can quickly adapt the product lines or services to new requirements and meet them. In the case, the bank has a mass service, a decrease in volume would be easier to manage than a change in variety, as it would create new processes for the new products.

One speaks of "cost objectives" when one considers only the unit costs. The higher the variety of products/services, the lower the quantity produced/processed and the higher the unit costs. Since the bank only has one service and therefore speak of a mass service, the unit costs are correspondingly low.

North West Constructive Bank

13

6. Question 3: How would you recommend that Andy sets about making any changes? In the following extract, the given case study is examined concerning bottleneck by applying the theory. Additionally, there will be presented an opportunity how the North West Constructive Bank could manage it. Derek L. Waller defines (2003: 677) “a bottleneck (…) [as] a constraint (it limits the flow of wine from the bottle) (…) [which] common usage in the supply chain is often to describe a situation where there are material or units accumulating upstream because the next operation has insufficient capacity to accept the load". Bottlenecks are always in a company, “a manager must identify and manage them” (Heizer & Render, 2011: 320) by focussing on N. Slacks et al. (2013) following five steps of TOC1 : 1. Identify the system constraint, which means to identify the weakest part of a system. 2. Decide how to exploit the constraint by reducing any non-productive time at the bottleneck. 3. Subordinate everything to the constraint to achieving more effectiveness. Another important theory to mention concerning the bottleneck is the concept of drum, buffer, rope, which is very useful to manage it: The bottleneck drum sets the beat by determining the throughput. It is significant for a company that the bottleneck has the every time the buffer of needed resources (inventory). Finally, the rope means the communication between the different process steps to help the units pull through the system (Heizer & Render, 2011). In contrast, there is an important aspect of knowing, how not to achieve the goal of reducing the bottleneck: the increase of capacity nonbottlenecks have the result of having more inventory, which means extra costs for the company. 4. Elevate the constraint (only if steps two and three were not successful).

1

According to J. Heizer et al (2011: ) the theory of constraints (TOC) means “a body of knowledge that deals with anything that limits an organization’s ability to achieve its goals.”

North West Constructive Bank

14

5.

Start again from step1, because “identifying and managing bottlenecks is a

required operation task, but bottlenecks cannot be ‘eliminated’. A system will always have one” (Heizer & Render, 2011: ). This is a probably a reason why the management of a bottleneck is commonly the most expensive part to maximise the effectiveness of a process (Beckman & Rosenfield, 2008).

Additionally, the bottleneck “also impacts the timeliness of output produced as well as cost and quality” (Swink, 2011: 61). Because of determining the time which units spend in the process, the bottleneck influences Little’s Law, which is in accordance to M. Swink (2011) defined as the relationship between flowtime, inventory and the throughput.

It can be challenging to identify future bottlenecks in a mass process -like the given case study- because the input -the needed information about the bank's customercan vary widely from day-to-day. By preferring lower utilisation rates, Andy Curtis is better able to cope with this complexity of identifying future -day-to-day-inputdependent- bottlenecks. As a result, he can handle the problem of unexpected surges in demand in a much better way, like the ...