A large automobile company pays its dealer service centres if a part has to be replaced on one of its cars. The company then claims back the cost of doing this from parts suppliers. It has a small department that manages this process. This department processes 300,000 warranty claims a year with an average value of 50. The average time from the automobile company paying the dealership service centre through to sending its own claim to the parts supplier is 30 days. However, 2 per cent of all claims are incorrectly processed. These claims take, on average, 90 days to get right. A number of suggestions have been made to speed up this process and, by doing so, save money. Special software could be used in the process that could reduce by half the number of mis-processed claims. Dealer service centres could send in warranty claims every day, thereby cutting three days from the total process time. A new computer system could be used that allows anyone in the department to process any type of claim at any time, rather than batching them until there is a sufficient number for each parts supplier to send them all in one batch. This could cut down the process time by ten days. Assuming that the company currently pays interest of 6 per cent on its loans, how much money would it save by implementing all these ideas?

A large automobile company pays its dealer service centres if a part has to be replaced on one of its cars. The company then claims back the cost of doing this from parts suppliers. It has a small department that manages this process. This department processes 300,000 warranty claims a year with an average value of 50. The average time from the automobile company paying the dealership service centre through to sending its own claim to the parts supplier is 30 days. However, 2 per cent of all claims are incorrectly processed. These claims take, on average, 90 days to get right.

A number of suggestions have been made to speed up this process and, by doing so, save money. Special software could be used in the process that could reduce by half the number of mis-processed claims. Dealer service centres could send in warranty claims every day, thereby cutting three days from the total process time. A new computer system could be used that allows anyone in the department to process any type of claim at any time, rather than batching them until there is a sufficient number for each parts supplier to send them all in one batch. This could cut down the process time by ten days. Assuming that the company currently pays interest of 6 per cent on its loans, how much money would it save by implementing all these ideas?