OPERATIONS MANAGEMENT
Case Analysis:
Manzana Insurance: Fruitvale Branch
Submitted to
Prof. Anshuman Tripathy
Section C - Team 12 Sameer Kumar Gupta
(1311195)
Saurabh Kumar
(1311196)
Supriya S. K. Sehgal
(1311197)
Shanmuga Sundaram P
(1311198)
Rajesh D
(1311188)
Shashank Shekhar
(1311200)
Manzana Insurance: Fruitvale Branch Introduction Manzana Insurance Company was founded in 1902 and it grew steadily to become the world’s second largest home and property insurer. It operated through three major autonomous branch offices in California, Oregon and Washington. Each branch operated within a defined territory and was treated as an independent profit and loss centre. Fruitvale was one of its smaller branches. Manzana specialised in commercial insurance with the Fruitvale branch handling four types of underwriting requests viz request for new policy, renewal, policy endorsement and price quotes. However since 1970 the company’s performance began deteriorating. It was eventually acquired by Banque du Soliel in 1989 which led to a new management and reorganization. This did not e nd the company’s woes. With the entry of new entrants and stiff competition in the in surance industry, Manzana’s FrUItvale branch is facing several issues which need immediate attention. The problems faced by the Fruitvale branch and recommendations to overcome the same will be discussed in the following analysis.
Concerns Faced by Manzana’s Fruitvale Branch Manzanas FRuitvale Branch has reported a degrading performance financially and operationally in the first two quarters of 1991. Declining profits and threat of loss of customers to competitors are its primary concerns. The major concerns faced by the branch and their causes can be summarized as follows: 1) Long Turnaround Time (TAT ) Turnaround time is defined as the time between the receipt of a RUN (new policy request) and issuance of the final policy. It is a measure of the company’s speed in response to a request. TAT for Manzana’s Fruitvale branch has increased from 3 days to ______. This is one of the major concerns facing the company. With intense competition in the insurance industry, this factor became a point of differentiation for a company with a smaller TAT. Manzana’s competitor-Golden Gate Insurance had announced achieving a TAT of one working day. If this target is achieved they would have a straight advantage in the eyes of agents. Agents referred policies which had a smaller TAT to consumers which would mean a huge loss of business for Manzana.
2) Intense Competition Golden Gate entered the insurance industry in 1970s and was backed by one the largest retailers in the world as their corporate parent. They succeeded in gaining a considerable market share through intensive market campaigns and price wars. The two insurance companies viz Golden Gate and Manzana have always been at loggerheads fighting it out for the first position. They now pose a new threat to Manzana’s Fruitvale Branch by their latest announcement of reducing TAT to one working day and thereby leading to loss of potential customers. Thus this intense competition in the insurance industry is also one of the company’s major concerns. 3) Large Backlog of Policies This issue stemmed out of the basic inefficiency in the operating procedures of Manzana ’s Fruitvale Branch. It followed a modified First in First out (FIFO) procedure to tackle its four types of policies. RUNs and RAPs were given preference over RERUNs and RAINs. This was
done because new policies were considered more profitable as compared to renewals. The direct implication of this was that Manzana now had a huge backlog of renewals to be cleared which seemed impossible with the current modified FIFO in place. 4) Increasing Renewal Loss A huge pile of backlogs in clearing renewals led to increasing renewal losses for Manzana’s Fruitvale Branch. The renewal loss rate inceased to 30.79% in the year 1991. Out of 2081 RERUNS, Fruitvale lost 926 renewals losing out on the corresponding revenue. 5) Inefficient Labour Distribution Manzana’s Fruitvale Branch has 3 underwriting teams which together serve 76 agents. However the capacity utilization across the 3 branches is uneven. Underwriting Team 3 is underutilised while Team 1 is highly loaded and hence the workload distribution needs correction for Manzana’s Fruitvale Branch. 6) Salary Scheme Manzana introduced a new salary scheme called ‘Salary/Plus’ in 1990 with a view to retaining senior underwriters, being courted by their competitor. However this scheme created new problems. Under this scheme every employee got an annual salary plus an extra incentive payment for each new policy written. This factor could have contributed to new policies being favoured over renewals leading to backlogs and renewal losses. This issue hence required looking into.
Capacity Utilization th
Currently, Manzana uses 95 percentile of SCT for turnaround time and capacity calculation. It is a very conservative measure and may not be representative of the actual time taken on an average for processing the requests. To prove this, the capacity utilization for the th complete cycle of process is calculated by using the 95 percentile of SCT as the time taken by each functional unit (such as Distribution, Underwriting, etc.) for completing a request and found to be 124.2% (Appendix-1). Mean time taken for processing the request could be an alternative measure (as it makes more sense intuitively) and when that is used for calculating the capacity utilization, it turns out to be 74.75% (Appendix-2). To check whether each individual functional unit is being either over or under-utilized we can use the WAT (weighted average time taken by each unit in processing a request). It is evident from the capacity utilizations of each unit (Appendix-3), that there is no bottleneck in the whole process, as none of them has a utilization of more than 100%. It can also be observed that the utilization level across the units is not uniform which gives room for possible idle time for few employees. UT1 is loaded to the maximum extent (97%), while UT3 team is underutilized, being loaded only 70%. Further, the Policy Writing (PW) team is utilized only 64% of its available labour time.
TAT calculations: For calculating the TAT, we should consider the mean time, since 95% SCT will account for so much of leeway, while the intent is to reduce the service time. The time considered to clear out the pending processes is estimated based on the mean time for each process: Distribution – 570 minutes / (4 Dc * 7.5 * 60 minutes ) = 0.3 day
Underwriting – 0.89 day to clear the existing inventory and 0.59 day to clear the inventory from DC – There is no wait time for the underwriters Rating – 1.6 days totally – The rating clerks need not wait for the inputs from the previous operations. Rating inventory - 0.2 From Underwriting – 1.1 From distribution – 0.3 Policy writing – If the entire process is available at the policy writing desk, then there is no waiting time. However, there are cases when the clerks are waiting for the input from the previous rating desk. Hence, there is a delay. We calculate the service time, assuming that there is an incoming batch here from 3 sets of sources 1.
Inventory – 0.1 + waiting time 0.1
2.
Rating inventory – 0.2 + 0.9 waiting
3.
Underwriting inventory – 1.0
4.
Distribution inventory – 0.3
So, the total time taken to process the 82 existing processes is 2.6 days. We will get intermittent output at various timeframes because of balancing. Also, it takes on an average 70 more minutes to pass a new incoming RUN while 54 more minutes to process a new RAIN and 50.1 more minutes for rerun. For a RAP, since it does not involve the policy writing stage, a new RAP can be done in 1.6 days and 64.7 minutes.
Recommendations: The recommendations are: 1. Pooling of the Underwriting Teams so as to distribute the workload more evenly across the three teams. Appendix 3 shows the calculations in detail 2. Redistribution of the workforce to 3. The calculations in Appendix-10 show
APPENDICES Appendix-1 Request Type
DIST (m/r)
UW (m/r)
R (m/r)
PW (m/r)
Total (m/r)
No of Total reqs. time (m)
RUN RAP RAIN RERUN
128.1 107.8 68.1 43.2
107.2 87.5 49.4 62.8
112.3 88.7 89.4 92.2
89.3 0 72.1 67
436.9 284 279 265.2
350 1798 451 2081
152915 510632 125829 551881.2
Available Capacity Time (m) Utilization (%) 1080000 124.19
Capacity Utilization (%) = (1341257.2/1080000)*100 = 124.19% Appendix-2 Request Type
DIST (m/r)
UW (m/r)
R (m/r)
PW (m/r)
Total (m/r)
No of reqs.
Total time (m)
RUN RAP RAIN RERUN
68.5 50 43.5 28
43.6 38 22.6 18.7
75.5 64.7 65.5 75.5
71 0 54 50.1
258.6 152.7 185.6 172.3
350 1798 451 2081
68.5 50 43.5 28
Available Capacity Time (m) Utilization (%) 1080000 74.75
Capacity Utilization (%) = (807326.5/1080000)*100 = 74.75% Appendix-3 Distribution Clerks
4.00
Process
RUNs
RAPs
RAINs
RERUNs
Mean times
68.50
50.00
43.50
28.00
Quantity (per day, all workers)
2.92
14.98
3.76
17.34
39.00
Total Time Required (per day, all workers)
199.79
749.17
163.49
485.57
1598.01
Weighted Average Time (all distribution activities) Available Time (labour minutes per day)
40.97 1800.00
%age Utilization of labour time
89%
Total
Underwriting Team 1 Workforce
1 team
Mean times
RUNs
RAPs
RAINs
RERUNs
Total
Underwriting
43.60
38.00
22.60
18.70
122.90
Quantity
1.35
6.34
1.63
5.30
14.63
Total Time Required
58.86
240.98
36.91
99.11
435.87
Weighted Average Time
29.80
Available Time (labour minutes per day)
450.00
%age Utilization of labour time
97%
Underwriting Team 2
Workforce
1.00
Mean times
RUNs
RAPs
RAINs
RERUNs
Total
Underwriting
43.60
38.00
22.60
18.70
122.90
Quantity
0.83
4.28
1.04
7.00
13.15
Total Time Required
36.33
162.45
23.54
130.90
353.23
Weighted Average Time
26.86
Available Time (labour minutes per day)
450.00
%age Utilization of labour time
78%
Underwriting Team 3 Workforce
1.00
Mean times
RUNs
RAPs
RAINs
RERUNs
Total
Underwriting
43.60
38.00
22.60
18.70
122.90
Quantity
0.73
4.37
1.08
5.04
11.23
Total Time Required
31.97
165.93
24.48
94.28
316.67
Weighted Average Time
28.21
Available Time (labour minutes per day)
450.00
%age Utilization of labour time
70%
Underwriting (Pooled Teams) Workforce
3 teams
Process
RUNs
RAPs
RAINs
RERUNs
Total
Mean times
43.60
38.00
22.60
18.70
122.90
Quantity
2.92
14.98
3.76
17.34
39.00
Total Time Required
127.17
569.37
84.94
324.29
1105.76
Weighted Average Time
28.35
Available Time (labour minutes per day)
1350.00
%age Utilization of labour time
82%
Rating Clerks
8.00
Process
RUNs
RAPs
RAINs
RERUNs
Total
Mean times
75.50
64.70
65.50
75.50
281.20
Quantity
2.92
14.98
3.76
17.34
39.00
Total Time Required
220.21
969.42
246.17
1309.30
2745.10
Weighted Average Time
70.39
Available Time (labour minutes per day)
3600.00
%age Utilization of labour time
76%
RAPs
RAINs
RERUNs
Total
Policy Writing Writers
5.00
Process
RUNs (including those or.
as RAPs) Mean times
71.00
0.00
54.00
50.10
175.10
Quantity
5.20
0.00
3.76
17.34
26.30
Total Time Required
369.20
0.00
202.95
868.82
1440.97
Weighted Average Time
54.79
Available Time (labour minutes per day)
2250.00
%age Utilization of labour time
64%
Appendix-4
Process
Head Total Net Income Earned Total Renewals processed
Revenue calculations (per unit labour time) RUNs originating as RUNs originating as RERUNs RUNs RAPs Amount ($) Amount($) Amount($)
RAINS
12009090
1765144
1381856
2081
350
274
Amount($) 291000 451
Average Revenue per renewal
5770.827
5043.269
5043.269
645.2328
Labour Time Spent per renewal Average Revenue per renewal per unit time
191
302.2
1073.024
185.6
30.21375
16.68851
4.700052
3.47647
Appendix-5 Mean Policy Processing Times by Departments Mean times
RUNs
RAPs
RAINs
RERUNs
Distribution
68.5
50
43.5
28
Underwriting
43.6
38
22.6
18.7
Rating
75.5
64.7
65.5
75.5
Policy Writing
71
0
54
50.1
Appendix-6 6 months consolidated data for various processes 1991 data (6 Process months)
Per day values
RUNS Policies Processed (RUNS originating as RUNS)
350
2.92
Policies Processed (RUNS or. As RAPS)
274
2.28
Total RUNS processed
624
5.20
Late
0
0.00
Requests Processed
1798
14.98
Late
0
0.00
RAPS (Total, including RAPs completed as RUNs)
RAINS (Total, including RAPs completed as RUNs)
Requests Processed
451
3.76
Late
3
0.03
RERUNS Requests Processed
2081
17.34
Late
893
7.44
Total Requests Processed
4680
39.00
Late
896
7.47
Renewals-number lost
926
7.72
Appendix-7 Revenue from different processes Revenues
Total
Total Comm.
Total Net Income
New policies
4196
1049
3147
Endorsements
291
0
291
Renewals
12913
903.91
12009.09
Total
17400
1952.91
15447.09
Appendix-8
Process Head Total Net Income Earned Total Renewals processed Average Revenue per renewal Labour Time Spent per renewal Average Revenue per renewal per unit time
Revenue calculations (per unit labour time) RUNs originating as RERUNs RUNs RUNs originating as RAPs Amount ($) Amount($) Amount($)
RAINS Amount($)
12009090
1765144
1381856
291000
2081
350
274
451
5770.827
5043.269
5043.269
645.2328
191
302.2
1073.024
185.6
30.21375
16.68851
4.700052
3.47647
