HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

1. Explain if Process II is better than Process I. Based your group answer on the average
time an application is approved.

Process I, we have the following data:

Flow Rate R= 1,000 applications/month
20% of all applications received are approved
Average inventory I =500 applications

Thus, we can conclude that:

Average flow time T =I/R
T = 500/1,000 months = 0.5 month (30 days/month) = 15 days
In Process I, each application spent on average of 15 days with PanaColon Inc. before
receiving an accept/reject decision.

Process II
Type Categories Accept/Rejected Type Approved Rejected
A Excellent 25% A 70% 30%
B Needs More Detail Evaluation 25% B 10% 90%
C Rejected 50%

Furthermore, on average, 200 (1000*20%) applications are with the Initial Review Team,
25 with the Subgroup A Team, and 150 with the Subgroup B Team. Then, each month,
averages of 200 applications are accepted and 800 rejected.

Then we can conclude that for Process II

Throughput R = 1,000 applications/month
Average inventory I = 200 + 150 + 25 = 375 applications

Then, we can deduce that

Average flow time T =I/R
 HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

T = 375/1,000 month = 0.375 month (30 days/month) = 11.25days

Under Process II, therefore, each application spends, on average, 11.25 days with
PanColon Inc. before an accept/reject decision is made. Compared to the 15 days
taken under Process I, this is a significant reduction.

IF THE COMPANY ASKS US FOR MORE DETAILS, THEN WE SHOW THEM THAT,
To find the average flow time over all applications, we can then take the weighted average
of the flow time for each type and find out how much time applications spend in each of
these sub processes.
Flow Rate R= 1,000 Applications/Month
Average Inventory I= 200 Applications

From this information we can deduce that for initial review

I 200
Average Flow Time T = = 1,000 Months = 0.2 Months x (30 days/month) = 6 days
R

Then, each application spends, on average, 6 days in initial review.

TYPE A
Flow Rate RA = 250 applications/Month
Average Inventory IA = 25 applications
We can deduce that
Average Flow Time TA= IA/RA
TA = 25/250 Months = 0.1 Month x 30 (days/month) = 3 days
Type A applications spend, on average, another 3 days in the process with the
subgroup A review Team.
TYPE B
Flow Rate RB= 250 applications/month
Average Inventory IB= 150 Applications
 HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

IB 150  days 
Average Flow Time TB =  Months  0.6 Months   30   18days
RB 250  month 

Then, Type B applications spend, on average, another 18 days in the process with the
subgroup B review team.

Type C applications are rejected by the Initial Review team itself.

Summarizing, we now have the average flow time of each type applications under process
II; Type A, B And C applications spend, on average, 9, 24 and 6 days, respectively
250 250 500
T=  6  3   6  18   6  0  11,25Days
250  250  500 250  250  500 250  250  500

This agrees with our first answer (with shorter resolution) of the average flow time of 11,25
days.
PanaColon Inc may want to define flow units differently (as applications, approved
applications, or rejected applications) Only approved applications represent customers who
provide revenue, and PanaColon Inc would probably benefit more from reducing their flow
time to less than 11,25 days. Process I, the average time spent by an applications in the
process 15 days (regardless of whether it is finally approved). We now find how much time
approved applications spend with PanaColon Inc. with process II.

In the Process II; 70 % of type A applications (175 out of 250 per month, on average) are
approved as are 10% of type B applications (25 out of 250 per month, on average).
Average flow time for approved applications
175
Tapproved=  6  3  25  6  18  10,87days
175  25 175  25

Now the average time an eventually rejected application spend with PanaColon Inc. in
Process II; 30% of type A applications (75 out of 250 per month, on average) are rejected,
 HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

as are 90% of type B applications (225 out of 250 per month, on average), as are 100% of
type C applications (500 per month, on average).
175 225 500
TRejected =  6  3   6  18   6  11,34Days
175  25 75  225  500 75  225  500

Process II, therefore, has not only reduced the average overall application flow time
but also reduced it more for approved customers than for rejected customers.
However, 12.5% of all approved applications (25 that are categorized as type B, out of
200 approved each month) spend a lot longer in process II than in process I (an
average of 24 instead of 15 days). This delay may be a problem for PanaColon Inc. in
terms of service performance. Since approved applications represent potential
customers, a delay in the approval process may cause some of these applicants to go
elsewhere for financing, resulting in a loss of revenue for PanaColon Inc.

Flowchart for PanaColon Inc.

25
TA   3Days  6days  9days 175

250Subgroup A 70% 200/month

Accepted
IA = 25 R=250 Tapproved=
A 30%
25% 25

75
1,000/month
Initial Review 25% Subgroup B 10%
225
IIR = 200 IB =150 R=250
IR B TRejected =
90%
200 50% 150
T  6 Days TB   18Days  6Days  24Days
1,000 250 Subgroup C Rejected
number 800/month
2. Using the historical data (see table below) shown on an expected change in the500
of service applications, explain if the recommended Process II is better than Process I.
 HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

(Assumptions: Use a moving average model with n=2 or n=4, whichever has the smallest MSE, to
estimate January’s service applications demand, which has been estimated as a good proxy of the
steady state service application demand for each of 2011 month.)

Month Demand n=2 (Error)2 n=4 (Error)2

Ene-10 1010        
Feb-10 980        
Mar-10 1200 995 42,025    
Abr-10 1130 1,090 1,600    
May-10 1209 1,165 1,936 1,080 16,641
Jun-10 1206 1,170 1,296 1,130 5,776
Jul-10 1240 1,208 1,024 1,186 2,916
Ago-10 1236 1,223 169 1,196 1,600
Sep-10 1290 1,238 2,704 1,223 4,489
Oct-10 1106 1,263 24,649 1,243 18,769
Nov-10 1203 1,198 25 1,218 225
Dic-10 1250 1,155 9,025 1,209 1,681
Ene-11   1,227 84,453 1,212 52,097
MSE 8,445 6,512

Better MSE n=4 because

MSE= ∑(Errores de Pronóstico) 2/n
is the smallest

PROCESS I:
 HURTADO LARISSA

ORTEGA, MEISSI

PANACOLÓN CASE STUDY PEREGRINA, EDGAR

For n=2; T = 500/1,227 months = 0.407 month (30 Days/Month) = 12.21 days

For n=4; T = 500/1,186 months = 0.412 month (30 Days/Month) = 12.36 days

PROCESS II

For n=2; T = 375/1,227 month = 0.306 month (30 Days/Month) = 9.18 days

For n=4; T = 375/1,212 month = 0.309 month (30 Days/Month) = 9.27 days

Under Process II, received more quantity of applications (according to MAD and
MSE) and spend on average, less time. Compared to the 12 days taken under Process
I, this means profit (Saving Time).