Read Case $1$ and answer the questions that follow

CASE $1$: BANK OF LUKE

Mr$.$ Check is the Director of Retail Lock Box Services for the Bank of Luke, a medium$-$sized Midwestern bank. The Retail Lock Box Department consists of $100$ clerks and $8$ managers and supervisors. Each year, in addition to their handling of retail lock box transactions, the Department generated $$1\mathrm{.}5$ million of fee revenue processing retail credit card and mortgage payments $("$items$")$ for $75$ commercial accounts. The bank has many other commercial accounts that use other companies of$\text{'}$ their item processing. In fact, the Bank recently lost the item processing business for one of its largest accounts to Vader Inc., the largest item processor in the US

The item processing industry has undergone dramatic changes in recent years. Types of items processed include credit card, mortgage, and utility payments $($checks$),$ airline tickets, and coupons. In the past, these items were usually processed by the issuing company $($e$.$g$.,$ airlines would process their own tickets$)$ or by bank item processing departments like the Bank of Luke's. At banks, the processing of payment items was done more as a service to bank customers rather than as a profit$-$making endeavor. Hence, it received little focus from management. Historically, processing was accomplished by verifying the correctness of incoming paperwork and manually sorting, filing, and totaling the items: only the largest banks were highly automated.

Companies specializing in item processing have emerged in the past ten years. Vader, Inc., the largest such company, is a subsidiary of a small bank in Georgia. Each year Vader processes millions of airline tickets and retail payments for hundreds of companies, most of whom are not customers of its hundreds of competitors most of whom are not, customers or its parent bank. Vader uses high$-$speed processing equipment and is highly automated. Processing time is rapid and processing costs are low. In fact, because of this speed advantage, the parent bank is beginning to profit from the float of checks processed. Although industry wide a majority of items are still processed by the issuing company or by small processors, it is expected that large processors. Within five years, it is expected that most of the business will continue to migrate to Vader and other large processors. Within five years, it is expected that Vader and the large processors will dominate this market.

Vader had a significant cost advantage over smaller operations, such as the Bank of Luke, because of the great economies of scale they gain from processing such volumes of items. In addition, Vader benefits from a more constant workload by processing both airline tickets and retail lock box receipts: airline tickets have few peaks and valleys, whereas mortgage payments always peak early in the month with very low volumes the rest of the month. Mr$.$ Check believes that Vader quotes prices of $20$ cents per item to large prospective customers while the Bank of Luke processes items for $40$ cents per item.

The President of the Bank, Mr$.$ Kenobi, has asked Mr$.$ Check to evaluate how the retail lock box service can be made profitable; the service lost $$100,000$ last year. Mr$.$ Check believes that the bank must offer retail lock box services, and it must price the service to be competitive with companies such as Vader. Recognizing that outside expertise will be needed, the President has given Mr$.$ Check a budget to be used to hire a consulting firm. Mr$.$ Check has asked you to visit his office to discuss the proposed engagement. While walking to his office, you observe that the Bank's retail lock box operations remain primarily a manual system, with limited use of modern, high$-$speed equipment and methods. Once in Mr$.$ Check$$s office, you note a picture showing the Department's staff in $2009$; Mr$.$ Check was a supervising clerk at that time. After reviewing some background information with you, Mr$.$ Check raises some questions for you to answer.

a$)$ Discuss the your $($the consultant's$)$ role at the Bank of Luke $(7$ Marks$]$

b$)$ What steps would you take and what information would you gather to diagnose the problems facing the Retail Lock Box Department and to develop solutions to those problems?

$(8$ Marks$]$