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What is the process capability?
EMPORIA MORTGAGE COMPANY
The Emporia Mortgage Company (EMC) is a medium-sized mortgage lender that has continued
to do well, despite the “meltdown” in the mortgage lending industry. Prior to the economic
downturn, EMC was a principle supplier of lending services to Southeastern Desert Homes, a
builder of residential communities in several major cities throughout the Southeastern United
States. Because it carefully selected clients who were able to make substantial down payments
for homes, and it avoided sub-prime or variable-rate mortgage lending, EMC has been shielded
from the effects of “toxic mortgages” on its balance sheet. In fact, EMC expanded its mortgage
refinancing and home remodeling credit operations to two shifts, as other lending company’s
ability to take on new clients contracted. Soon, they were working six days per week and hiring
Not long after EMC began its second shift operations, it received some complaints about long
mortgage processing times. This information alarmed Peter Purnell, CEO of Emporia Mortgage.
He had retired early from a bank in a cold Midwestern city and decided that he wanted to
relocate to the desert Southwest. He had hiked in the mountains and played golf during the first
six months, but then realized that he needed more of a challenge than the recreational activities
could provide. That was when he started Emporia Mortgage, using his experience in the
mortgage and home loan business. EMC, under Peter’s leadership, soon built a reputation as a
high-quality, if somewhat conservative, lender. Among other things, the company was known for
the capability of its well-trained and dedicated employees, who could generally complete the
loan process in around 2-3 work days. Thus, Peter never felt the need to consider formal process
control approaches. Now many customers were complaining that it took a week or two to close
on a loan, even with an excellent credit score. In view of the recent complaints, Peter suspected
that the rapid expansion to a full two-shift operation, the pressures to produce higher volumes,
and the push to meet requests from high-profit customers was causing a breakdown in their
On the recommendation of the V.P. for loan processing, Peter hired a quality consultant to train
the process managers and certain loan workers in statistical process control methods. As a trial
project, one process manager wanted to evaluate the capability of a critical operation that she
suspects might be a major source of the delays. The nominal specification for this processing
operation is 15.5 hours with a tolerance of 5 hours. The consultant suggested inspecting five
consecutive processing times, per loan worker, in the middle of each shift over a 30-day period
and recording the completion times for loans that they had finished processing. The table in the
worksheet EMC Case in the workbook EMC data.xls (found on the class website), shows 100
days’ data collected for all shifts.
Select a random sample of 30 from the dataset (EMC Case worksheet in the Excel workbook
EMCData.xls) and describe the process for selecting your random sample. Interpret the data,
establish a state of statistical control, and evaluate the capability of the process to meet
specifications. Consider the following questions: What do the initial control charts tell you?
Do any out-of-control conditions exist? If the process is not in control, what might be the
likely causes, based on the information that is available? What is the process capability? What
is the fraction of nonconforming? What do the process capability indexes tell the company? Is
EMC facing a serious problem that it needs to address? How might the company eliminate the
problems of slow loan processing?