Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

MANZANA CASE REPORT

Problem Definition:

This case study focuses on the operational inefficiencies of the

Fruitvale branch of Manzana Insurance Company. The major areas of concern

includes: high Turnaround time (TAT), the turnaround time is the total time

taken to process a request. At present Manzana’s TAT is around six days

compared to one day TAT of its major competitor Golden Gate Insurance firm.

To reduce the TAT time to less than one day at par with its competitor, the

current bottleneck process in the system is identified and the work flow is

balanced. The inappropriate work force distribution at Manzana makes some

workers to be idle and others being stretched to work, making the system

inefficient.

There is significant proportion of policies which are being renewed late,

this is primarily because the policies which are required to be renewed

(RERUN) are being intimated to the customer only in the last day which

results in loss of business. The issue is addressed by notifying the customers

30 days prior to the due date giving sufficient time to the customer to renew

the policy.

The various departments in Manzana have different priorities resulting

in backlog of policies. The system is prioritized based on the profit

generation of various processes, with priority given in the following order

RUNs, RAPs, RAINs and RERUNs. The salary plus program offered to retain

workers in Manzana is not aligned towards the profitability of the company.

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Hence the structure should be aligned more towards the profitability and not

on the type of policies.

As Manzana faces a stiff competition, there are chances that they

might lose business if the agents tend to look out to do more business with

Golden Gate Insurance.Hence it is highly important for Manzana to

implement some of the above suggestions so that they can stay in business.

Analysis:

The process flow for the operations at Fruitvale branch of Manzana was

analyzed using the simulation software Extend. The processes were

simulated with six different cases and the results were compared to settle on

the optimal case (refer appendix – Model 1). The present operating condition

is considered to be the base case and the simulation results depicted its TAT

to be 4.8 days, here underwriting is the bottleneck operation with utilization

of 99%. (Refer appendix – Table 1) The profit from the operations was

around 26.7 million dollars and its maximum queue length was 83 requests.

The two other cases were simulated with change in priorities alone. In the

second case the current system was modified with equal priority given to

RUNs, RAPs, RAINs and RERUNs, the TAT was reduced from 4.8 days to 1.94

days. Though there is a significant decrease in the TAT, still it is incompetent

when compared to its competitor’s TAT.

RERUNs are the highest number of requests that come into the system,

but since the profit margin of RUNs is higher when compared to RERUNs,

they were given the lowest priority which had resulted in renewal loss rate of

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

47%. Also, the salary plus payment structure for the employees at Manzana

favored processing of new requests, RERUNs weregiven least priority. To

reduce this high loss rate the RERUN operation along with RUNs was given

highest priority and second priority to other two processes (refer appendix –

Model 2). The TAT was reduced from 1.94 days to 1.2 days.

In all the above three cases the bottleneck was the underwriting

process at territory 1 and the policy writing team was underutilized. To

balance the work flow the resources were shifted from policy writing to form

another underwriting team in territory 1. This reduced the TAT to 0.67 days

with maximum queue length of 8 requests. The reduction in TAT is highly

important for Manzana to stay in the business and retain its market share. If

this TAT is not reduced the agents might slowly turn towards its competitor,

Golden Gate. This presents an optimal case with TAT less than a day,

increase in profit by $2.9 million and reduction of lost orders from 3035

requests in the base case to 2455 requests (Refer appendix – Table 2).

The agent’s commission structure of 25% per policy for RUNs and 7%

per policy for RERUNs has a significant impact on the profitability of

Manzana. Though RUNs generate highest revenue per policy the higher

commission given to agents makes RUNs less profitable when compared to

RERUNs. (Refer appendix - Table 3). The profit calculation has been made by

considering 100 requests of each type. The calculations depict that out of

different policy types RERUNs has the highest profitability.

Conclusion and Recommendations:

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

The key problems identified in the Fruitvale branch of Manzana are

high TAT, inappropriate work force distribution and backlog of policy

requests. The above problems have been addressed by changing the

priorities and shifting of resources to the bottleneck operation. The TAT has

been reduced to less than a day which would make Manzana at par with its

competitor and hence it would be assured of its market share. The number of

requests for RERUNs has been high compared to the other requests, by

assigning equal priority to RUNs and RERUNs and shifting of resources the

problem of backlogging, high TAT, inappropriate work force distribution has

been solved. The suggestions involve only shifting of existing resources and

hence there is no implementation cost involved. Though some of the other

solutions would also reduce the TAT, the optimal case suggested above

would result in higher profits, less number of orders lost, balanced work flow

and no implementation cost making Manzana a fierce competitor in the

insurance market.

A detailed plan is certainly necessary for a successful implementation

of the suggestions, however the case study does not expose to other details

like wages paid to workers and cost of overtime. Once these additional

information are collected, a better clarity would be obtained before

implementing these suggestions. In addition to the changes suggested, an

increase in the commission rate to the agents from the existing rate of 7%

for renewal requests, would entertain them to bring more RERUNs and hence

increase the revenues for Manzana.

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Appendix:

Table 1:

BOTTLEN
MODEL PRIORITIES TAT ( days )
ECK
RUNs – 1
RAPs – 2 Underwritin
1 4.8
RAINs -3 g
RERUNs -4
RUNs – 1
RAPs – 1 Underwritin
2 1.94
RAINs -1 g
RERUNs -1
RUNs – 1
RAPs – 2 Underwritin
3 1.20
RAINs -2 g
RERUNs -1
Shift in RUNs – 1
resources RAPs – 2 Distributio
0.67
( Optimal RAINs -2 n
Case ) RERUNs -1

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Table 2:

PROFIT CALCULATION FOR BASE CASE

GROSS PROFIT
REQUEST TYPES NUMBER TOTAL
PER POLICY

RUNS 1276 4942.0 6306033.5

RAINS 912 590.7 538746.7

RERUN 4214 5715.8 24086483.9

TOTAL PROFIT $ 30931264.1

PROFIT CALCULATION FOR OPTIMAL CASE (AFTER SHIFT IN

RESOURCES )
GROSS PROFIT
REQUEST TYPES NUMBER TOTAL
PER POLICY

RUNS 1243 4942.0 6142946.4

RAINS 901 590.7 532248.7

RERUN 4766 5715.8 27241618.9

TOTAL PROFIT $ 33916814.0

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Table 3:

CALCULATION FOR MOST PROFITABLE TYPE OF REQUEST

PREMIUM
# TOTAL COMMISSIO
REQUEST PER PROFIT
REQUES PREMIUM N FOR
TYPES POLICY ($)
TS ($) AGENT ( $ )
($)
499693.
100 6662.58 666257.67 166564.42
RUNs 25
64563.1
100 645.63 64563.11 0.00
RAINs 1
577072.
100 6205.08 620508.00 43435.56
RERUNs 44

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Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Model 1: Base case

Exhibit: 1 Extend Model of Base

Case

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 Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek

Exhibit: 2 Extend Model after shifting the resources

Model 2: Optimal case (After shift in