Blog post

New FICO Credit Score May Lead to Unintended Consequences

By Andrew White | April 03, 2015 | 1 Comment


When a production plan operates with a notable proportion of the schedule ‘past due’, it appears logical to many that the way to reduce the past due backlog is to increase lead times.  The idea being that if you increase lead times, the time set aside to complete the order’s increases, so the backlog should fall.  This is intuitive, but it is also wrong.

By increasing the lead time, the backlog actually gets worse, not better.  The result is even more ‘hot lists’ or even ‘hotter lists’ for the ‘really, really important orders’.  The backlog increases immediately since orders due in the future now have an earlier start date due to the longer lead time.  For some orders that new start date will now be in the past!  Even if no orders have new start dates in the past, the immediate workload will still increase as all orders now have an earlier start data.  Thus no pressure is relived at all.

Back in the 1970’s and early 1980’s MRP training and research showed that the counter intuitive approach is best: reduce lead times.  By reducing lead time orders in the schedule, fixed by the due date, are now scheduled to start later.  Thus the backlog might even be eliminated as past due ‘start dates’ might now be in the future.  The reduction of lead times thus reduces workload and backlog, and gives you a chance to validate priority work in the now valid dated production plan.

So it was alarming to read in today’s US print edition of the Wall Street Journal: New FICO Credit Score Uses Alternative Data. Since the economy is not growing as fast as we would like, and since consumer spend is a big part of GDP, why don’t we make it easier for those that currently don’t qualify for credit, to get some credit?  In other words, why don’t we lower our standards and let those that have demonstrated an inability to pay their debts, to dig a hole for themselves?  This change in data (used to determine credit worthiness) will water down credit qualifying criteria though it seems intuitive: it will lead to increased credit that could lead to increase demand and we all want that.  Like product lead times it is intuitive but it is wrong.

Rather than water down the criteria for borrowing we should raise them!  We need to get our financial system into a fit state so that it is reliable and trustworthy.  And capable of providing funds to those that want to invest in order to grow the economy.  By lowering the threshold we are just stoking the behavior that leads to irresponsible borrowing.  This is one of the root causes of the mess we find ourselves in now.  We should raise credit thresholds, and focus on growing the economy through policy that sets examples for others to emulate.

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1 Comment

  • Patrice says:

    Nice try but you reasoning is fundamentally flawed: the change is definitely not about lowering any standard, it’s about accessing the rapidly growing portion of the population that waits as long as possible before entering the banking system. And, incidentally, it is also about trying to counter the major disruption that you don’t seem to see coming but that FICO is certainly feeling.