â€œDel, every wire transfer request is processed firstcome-first-served. Some of these wires are for millions of dollars, while others are under $100,â€ said Betty Kelly, a 28-year-old manager of Cash Movement (CM). She continued, â€œIâ€™m also concerned that all wires regardless of dollar amount go through the same quality checkpoints and whether we are staffed correctly.â€
Betty left her boss Del Carrâ€™s office with many related issues on her mind. As Betty sat down in her office chair, Steve Breslin, supervisor of outgoing wires, said, â€œBetty, last week we processed a wire for $80,000 incorrectly to Houston Oaks Bank, and now they wonâ€™t give it back. What should we do?â€ â€œSteve, give me the information, and Iâ€™ll call the bank now,â€ said Betty. The rest of Bettyâ€™s day was spent recovering this money and discussing several personnel issues.
The Cash Movement (CM) operating unit is responsible for transferring money for BankUSA and any of its customers. Over 80 percent of all transaction requests are for individual customers, and the remaining requests are for commercial (business) customers. For example, a customer will sell stock and request that cash funds be sent to another institution such as a mutual fund, credit union, or another bank. The customer will request his or her local customer investment manager (CIM) to transfer money into or out of the account. The CIM will then request by e-mail or fax that Cash Movement process the transaction. All wires must be settled on the same day.
The average demand for outgoing wires is 306 wires per day for a 7.5-hour workday. Therefore, the cycle time for this demand rate using Equation 8.2 is computed as follows:
Cash Movement employs 21 people, with three managers, 11 associates in outgoing wires, two associates in incoming wires, three associates in checks, and two associates in other areas. The average annual salary per associate is $30,000 with an additional 30 percent for benefits and overhead costs. Overhead costs include the cost of leasing/ renting the building, operation of common areas such as the cafeteria and meeting rooms, utilities, insurance, and photocopy services.
Process workflow is documented in Exhibit 8.19, with 47 detailed steps consolidated into 16 logical workgroups/ activities. The processing times in the last column are based on stopwatch time studies. The weighted average time per outgoing wire is 7.05 minutes. A total of 11 people work in this process. The assembly line could be balanced using the original 47 steps if the times per step were given (they are not), but Betty thought she would begin by trying to balance the line using a more aggregate grouping of work with 16Â workgroup activities. The 16 work activities are performed in a series or sequentially, but how they are grouped does make a difference.
The first stage is external to the internal Cash Movement process and involves the front-room interaction between the customer (client) and the CIM. Here, an electronic transfer request can range from a few minutes to hours trying to help the customer decide what to do, and may include a visit to the customerâ€™s home or office. This external work activity is not part of the internal process assembly-line balance. The process begins at work activity 1 and ends at work activity 16.
A wire transfer request can â€œfailâ€ in several ways, with cost consequences to the bank. For example, if the wire is processed incorrectly or is not completed on time, the customerâ€™s transaction may fail. The effect of a failed transaction includes the customer being upset, customers leaving the bank forever, customers referring friends and relatives to other banks, and the possible financial loss of processing the transaction the next business day at a new security price. BankUSA may have to compensate the customer for a failed transaction in terms of customer losses due to lost interest earnings on daily price changes plus processing fees. The average processing fee is $50 per wire. Moreover, any failed transaction must be researched and reprocessed, which constitutes â€œinternal failure costs.â€ Research and reprocessing costs per wire are estimated at $200. CM processes about 1,500 outgoing wires per week, with about one error every two weeks. Errors happen due to CM mistakes but also are caused by other BankUSA departments, other financial institutions, and customers themselves. The information flow of this electronic funds transfer system is sometimes quite complex, with BankUSA having only partial control of the value chain.
Specific types of errors include the same wire being sent out twice; wire not sent out at all; wire sent with inaccurate information on it, including dollar amount; or wire sent to the wrong place. No dollar amount has been assigned to each type of failure. The largest risk to Cash Movement is to send the money twice or to send it to the wrong institution. If CM catches the error the same day the wire is sent, the wire is requested to be returned that day. If a wire is sent in duplication, the receiving institution must receive permission from the customer to return the money to BankUSA. This results in lost interest and the possibility of long delays in returning the money or BankUSA having to take legal action to get the money back. For international transaction requests that are wired with errors, the cost of getting the money back is high. These costs are potentially so high, up to several hundred thousand dollars, that five quality control steps are built into the cash management process, as shown in Exhibit 8.14. All wires, even low dollar amounts, are currently checked and rechecked to ensure completeness and accuracy.
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â As Betty, the manager of Cash Movement, drove home, she wondered when she would ever get the time to analyze these issues. She remembered taking a college course in operations management and studying the topic of assemblyline balancing (she majored in finance), but she wondered if this method would work for services. She decided to begin her analysis by answering the following questions.
Case Questions for Discussion:
1. What is the best way to group the work represented by the 16 workgroups for an average demand of 306 outgoing wires per day? What is your line balance if peak demand is 450 wires per day? What is assembly-line efficiency for each line-balance solution?
2. How many people are needed for the outgoing wire process using assembly-line-balancing methods versus the current staffing level of 11 full-timeequivalent employees?
3. How many staff members do you need for the outgoing wire process if you eliminate all rework?
4. What are your final recommendations?