IBM Credit was a wholly owned subsidiary of IBM responsible for financing mainframe computers sold by IBM. While some customers bought mainframes outright or obtained financing from other sources, financing computers provided significant additional profit.
When an IBM sales representative made a sale, he or she would immediately call IBM Credit to obtain a financing quote. The call was received by a credit officer who would record the information on a request form. The form would then be sent to the credit department to check the customer's credit status. This information would be recorded on the form, which was then sent to the business practices department, which would write a contract (sometimes reflecting changes requested by the customer).
The form and the contract would then go to the pricing department, which used the credit information to establish an interest rate and record it on the form. The form and contract was then sent to the clerical group, where an administrator would prepare a cover letter quoting the interest rate and send the letter and contract via Federal Express to the customer.
The problem at IBM Credit was a major one. Getting a financing quote took anywhere from four to eight days (six days, on average), giving the customer time to rethink the order or find financing elsewhere. While the quote was being prepared, sales representatives would often call to find out where the quote was in the process, so that they could tell the customer when to expect it.
However, no one at IBM Credit could answer the question, because the paper forms could be in any department and it was impossible to locate one without physically walking through the departments and going through the piles of forms on everyone's desk.
IBM Credit examined the process and changed it so that each credit request was logged into a computer system so that each department could record an application's status as soon as it was completed and sent it to the next department. In this way, sales representatives could call the credit office and quickly learn the status of each application.
IBM used some sophisticated management science queuing theory analysis to balance workloads and staff across the different departments so that no applications would be overloaded. They also introduced performance standards for each department (e.g., the pricing decision had to be completed within one day after that department received an application).
However, process times got worse, even though each department was achieving almost 100 percent compliance on its performance goals. After some investigation, managers found that when people got busy, they conveniently found errors that forced them to return the credit request to the previous department for correction, thereby removing it from their time measurements.

What techniques can you use to identify improvements? Choose one technique and apply it to this situation- what improvements did you identify?

  • CreatedMarch 13, 2013
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