Question

Market Makers Inc. (MMI) provides a range of services to its retail clients—customer service for inquiries, order taking, credit checking for new customers, and a variety of related services. Auto Supermarket (AS) is a large auto dealer that provides financing for the autos and trucks that it sells. AS has approached MMI to manage the inquiries that come in regarding these loans. AS is not satisfied with the performance of the call center it currently uses for handling inquiries on these loans and is considering a change to MMI. MMI has been asked to estimate the cost of providing the service for the coming year.

There are two types of loans at AS, one for autos and SUVs and another for light trucks. The loans for auto and truck buyers typically have different types of customers and loan terms, so the nature and volume of the inquiries are expected to differ. MMI would use its own call center to handle the AS engagement. The MMI call center’s annual costs are as follows:

Call center costs
Salaries	$	4,223,555
Utilities		2,487,446
Leasing of facilities		1,985,513
Other expenses		819,036
	$	9,515,550

MMI’s call center is staffed 12 hours per day with 60 call staff always available. Each staff member has a paid 10-minute break for each hour worked, and an unpaid 1-hour break for a lunch/dinner during each 12-hour shift. Thus, the call center has 12,045,000 minutes (11 hr × 50 min × 60 staff × 365 days) available for calls during the year.

AS and MMI work together to estimate the number of calls and time required for each call, based on AS’s prior experience with its current call center.

Inquiries	Total Calls Answered				Average Number of Minutes/Call				Total Time (minutes)
Inquire re: rates and terms
Autos		80,000				6				480,000
Trucks		32,000				7				224,000
Inquire re: loan application status
Autos		45,000				5				225,000
Trucks		6,750				11				74,250
Inquire re: payment status
Autos		39,000				3				117,000
Trucks		12,000				4				48,000
Inquire re: other matters
Autos		29,000				11				319,000
Trucks		8,500				15				127,500
										1,614,750

Suppose that in addition to the call center engagement outlined earlier, MMI also provides the following annual service to 10 other clients:

	Total Calls Answered				Average Number of Minutes/Call
Platinum Regional Bank		234,000				6.0
Healthwise Software Inc.		66,788				5.0
Johnson Manufacturing		122,665				4.0
Lesco Online Shopping		233,756				6.0
Babcock Insurance Service		55,455				5.5
Garcia Electric Supply and Service		38,956				3.4
Gilbert’s Online Garden Supplies		145,902				4.5
Financial Planning Services Inc.		68,993				11.0
Porter’s Camera and Optical		198,440				5.5
Jordan Auto World Inc.		965,887				3.5

Required

1. What is the level of idle capacity at MMI, not assuming that AS becomes a customer?

2. Assume that AS comes back to MMI with a revised proposal. The revised proposal includes call center activity as described above, but in addition, AS wants MMI to provide error-checking services for those who apply for loans at AS. MMI would use some of the call center staff, after appropriate training, to complete the processing of the credit checks. AS expects the following service to be needed:

Processing Credit Checks	Requests				Minutes/ Request
Auto		45,600				7
Truck		12,500				12

What would be the idle capacity with the revised proposal? What would be the cost of the idle capacity?

Answer 1