How Manufacturing Cycle Time Cuts Into IMB Profits (and how to fix it)

Piggy bank with up arrows.
Improve manufacturing cycle times by strategically managing processes

As we chase business efficiency and maximized profits (and what a struggle it’s been lately!), there’s a critical, often overlooked factor that demands our attention. Manufacturing cycle time. 

Today’s blog dives into cycle time and unravels how extended cycle times in loan manufacturing production can escalate operational expenses, augment risks related to interest rate fluctuations, and tarnish customer experiences. Each of these factors individually, and more so collectively, can substantially erode your profits.

We’ll also tackle how to combat the adverse effects of prolonged cycle time to help you manage it better and significantly impact your bottom line.

So, What’s Manufacturing Cycle Time?

In the simplest terms, cycle time refers to the length of time a loan file sits idle during processing. This can happen at multiple stages – from underwriting to post-closing. 

Imagine a loan file sitting on a desk, waiting for someone’s review or a missing document. It’s like money sitting, not earning its keep, or even worse, losing its value.

For IMBs, where every second and every dollar counts, excessive cycle time can translate directly into increased costs and decreased profits. 

The Costly Impact of Cycle Time

While we’ve defined cycle time, it’s crucial to understand just how it can start eating away at your business’s financial health. This holdup impacts everything from operational costs to client relationships. Here’s a closer look:

Increased Operational Costs

Longer loan manufacturing production  times mean more hours spent per loan, which translates to higher labor costs per loan. If your team is busy handling backlogs, they can’t focus on processing new loans.

Coupon Liquidity Risk

IMBs must be especially vigilant about coupon liquidity risk, which can be exacerbated by prolonged cycle times. The longer it takes to process loans, the greater the risk that the market’s appetite for certain note rates may have shifted or those particular note rates have become illiquid. Even if the loan is hedged against rate movements, some buyers might not want that coupon anymore. In addition, there’s no perfect hedge, which creates more pressure and risk on the IMB. 

Customer Satisfaction

Today’s customers demand quality, which means keeping interactions and processes  friendly, speedy, and seamless. Delays can lead to unhappy customers, negatively impacting your referral business and future client base.

Tackling the Cycle Time Dilemma

Recognizing the negative implications of extended loan manufacturing production time is one thing. Taking decisive action to mitigate these effects is another. There are several strategic approaches to help IMBs effectively address and reduce it, boosting both efficiency and profitability.

Embrace Technology

Leveraging technological advancements is a priceless cornerstone in helping IMBs reduce dwell time. These are some of our favorite tech tools that can revolutionize your workflow. 

  • Loan Origination Software (LOS). Implement a robust LOS that offers a seamless, end-to-end loan processing experience. A good LOS can help track a loan’s progress, highlight bottlenecks, and save time. 
  • Warehouse Lending Automation. A warehouse banking solution like Fund IT provides automation and AI-powered algorithms to help make quick, data-driven decisions, improve efficiencies, and increase productivity. 
  • AI Underwriting Systems. Utilizing AI in underwriting transforms data analysis, enabling more accurate risk assessments in less time. These systems learn from decisions to continuously improve production processes. They can  reduce the likelihood of errors, helping to maintain a consistent and speedy underwriting process.
  • Robotic Process Automation (RPA). RPA tools take over repetitive, rule-based tasks, freeing up your staff for higher-level work. By automating tasks like data entry and document verification, RPA can significantly cut down on manual processing time and reduce overall cycle times. 

Streamline Communication

Effective communication is vital in curtailing cycle time. By enhancing the way your team and your clients interact, you can drastically cut down on processing delays. 

  • Internal collaboration tools. Use tools like Slack or Microsoft Teams for quick, effective communication between departments. Less formal than emails, these platforms can speed up clarification requests and decision-making.
  • Direct borrower communication. Establish a clear, direct line of communication with your borrowers. Mobile-friendly platforms that allow for secure messaging gather required documentation swiftly, reducing idle time.

Optimize Your Workflow

Streamlining your operational processes is key to mitigating cycle time. Some practical steps to ensure your workflow is as efficient and effective as possible are:

  • Clear process maps. Having well-defined processes for each loan type can significantly reduce delays. Ensure everyone knows the steps, who’s responsible for what, and the expected turnaround times.
  • Continuous training. A well-developed team moves agilely. Regularly train your staff to keep them up-to-date with the latest regulations, technology, and best practices. A well-trained team is a swift team.

Outsource Wisely

Consider outsourcing specialized tasks like document verification, which can be time-consuming. Outsourcing can reduce your team’s workload, letting them focus on core activities.

Monitor and Measure

You can’t manage what you don’t measure. Regularly track the cycle time of each loan stage and analyze the causes of delays. Use this data to tweak your processes continually. 

Improve Loan Manufacturing Production Times by Strategically Managing Processes

Reducing cycle time is about being smarter in how you manage your workflow, technology, and team. Small changes can lead to significant improvements in how quickly you turn around loans, positively affecting your profit margins.

Keep an eye on your cycle time, and you’ll enjoy a more productive team, happier customers, and a healthier bottom line.

Want to know more about partnering with Fund IT for your automated warehouse lending? Let’s talk!