Operation Management Assignment 2

Manzana Insurance Case

1. What are the problems faced by the Fruitvale branch of Manzana Insurance? Identify some
key parameters on which they are not competitive vis-a-vis their competitor Golden Gate?
Problems faced by the Fruitvale branch of Insurance are as follows:
Turnaround time (average) has increased, thereby increasing the complaints from agents
and loss of renewal business.
o Fruitvale branch has one of the highest agent to underwriting team ratio (76:3)
which is on higher side in comparison to 20-25 times normally.
Tough competitions from Golden Gate in terms of response time, marketing campaign
and price war making Manzana Insurance loose the market share.
Capacity utilization is not optimized, increasing the time taken to finish an insurance
order and creating higher backlogs.
Uneven workload over time idle time & stretched days
Backlogs- operating activities are carried out on priority basis, instead of FIFO, thereby
delaying RERUN delivery.
Fear of agents leaving Manzana for other competitors, mainly Golden Gate Casualty.
Tough competition from Golden Gate in terms of response time
Financial Performance Issues
o Revenue Stagnation
o Increase in ordinary insured losses
o Increased operating expenses
o Continuous decrease in branch profits with losses in first two quarters of 1991
Only 15% of RAPs converted to RUNs
Branch managers need of more personnel is not accepted by headquarters.
Key parameters on which Fruitvale is not competitive compared to Golden Gate:
Fruitvale focuses on the products earning more profit, whereas Golden Gate focuses on
all products equally to maintain customer satisfaction, so customer loyalty is high for
Golden Gate.
Golden Gate is pioneering the changes related quick processing and delivering of
insurance, currently it announced turnaround time of 1 day, 50% decrease from its former
TAT. Fruitvale lags behind in implementing changes.
Golden Gate issued more number of new policies (375) as compared to Manzana (326).
Fruitvales turnaround time is 3 times higher than Golden Gate.
None of the renewals of Golden gate are late as compared to 44% of Fruitvale.
Fruitvale lost 47% of its existing customer base; Golden Gate lost only 15% for renewals.
2. Can you use the notion of process flow and capacity analysis to study the existing situation in
their Fruitvale Branch?
Process Flow in normal situation:

Originating
Agent

Distribution
Clerk
(4)
68.5 min

Underwritin
g Team
Underwriter
Technical
Assistant
(3)
43.6 min

Rating
Raters
(8)
75.5 min

Policy
Writing
Writers
(5)
71 min

RUN
Mean flow time = 68.5 + 43.6 + 75.5 + 71= 258.6 min (taken from Exhibit4 of case)

Originating
Agent

Distribution
Clerk
(4)
43.5 min

Underwritin
g Team
Underwriter
Technical
Assistant
(3)
22.6 min

Rating
Raters
(8)
65.5 min

Policy
Writing
Writers
(5)
54 min

Rating
Raters
(8)
75.5 min

Policy
Writing
Writers
(5)
50.1 min

Rating
Raters
(8)
64.7 min

Policy
Writing
Writers
(5)

RAIN
Mean flow time = 43.5 + 22.6 + 65.5 + 54 = 185.6 min

Computeriz
ed ticker
system

Distribution
Clerk
(4)
28 min

Underwritin
g Team
Underwriter
Technical
Assistant
(3)
18.7 min

RERUN
Mean flow time = 28 + 18.7 + 75.5 + 50.1 = 172.3 min

Originating
Agent

Distribution
Clerk
(4)
50 min

Underwritin
g Team
Underwriter
Technical
Assistant
(3)
38 min

RAP
Mean flow time = 50 + 38 + 64.7 = 152.7 min
Above calculations are justified in case of smooth operation. As we have bottleneck at
Underwriting as RERUNs are not processed until any other product is there in queue.
Capacity Analysis:

Review and
Distribution
26.7

Underwriting

Rating

Policy Writing

Average time
20
46.7
27.5
required
Capacity
30
22.5
60
37.5
Available
Capacity
89%
88.8%
79.33%
73.33%
Utilisation
This analysis is carried out considering 40 requests every day. But, as we have backlog of 82
products, we need to deploy more workforce to minimize the backlog and turn around time.
No. of processes that are late:
RUN
RERUN
0
468

RAP
0

Total no. of request: (From exhibit 6 of case)

RUN
RERUN
Quarterly
326
1531
Daily
4.18 (5)
19.63 (20)

RAIN
3
RAP
936
12 (12)

RAIN
209
2.68 (3)

Total time taken for Review and distribution = 5*68.5 + 20*28 + 12*50 + 3*43.5 = 1633 min
Total time taken for Underwriting
= 5*43.6 + 20*18.7 + 12*38 + 3*22.6 = 1115.8 min
Total time taken for Rating
= 5*77.5 + 20*75.5 + 12*64.7+ 3*65.5 = 2870.4 min
Total time taken for Policy Writing
= 5*71 + 20*50.1 + 12*0 + 3*54 = 1519 min
We have enough capacity to meet current demand if there were no backlog. But dont have
enough capacity until late RERUN (468) and RAIN (3) are cleared.
We have to use a different cumulative process flow, so that RERUNs are cleared without
affecting daily operations. And so current capacity utilization and process flow notion has to be
modified.
3. What are your recommendations for Manzana Insurance Fruitvale Branch?
Recommendation 1: Manzana Insurance can start utilizing the capacity at its optimum level by
increase the working hours of processes which comes first in the chain so that the processes in
the later stage does not have to remain idle waiting for the requested product to reach there.
They can make the workers work for 6 days a week instead of 5 days until backlog is cleared.
Recommendation 2: Changing the attitude of employees by showing that even if RERUN is
earning less profit, it constitutes more than 50% of the request. Considering revenues earned per
minute:
Revenue
Agent Commission
Net Revenue
RUN
6724
1681
5043
RERUN
6205
434.35
5770

RAIN
RAP

645
0

0
0

645
0

Net revenue
Total mean time
Net revenue/min
RUN
5043
259
19.5
RERUN
5770
172
33.49
RAIN
645
185.6
3.48
RAP
0
153
0
We can see that net revenue per min work done on RERUN is highest (33.49). So we get higher
return on effort in case of RERUN.
Recommendation 3: Underwriting team waits till last date to obtain up-to-date information for
appraisal of RERUN, which leads to renewal losses. Hence early initiation of the RERUN is
critical to minimize the losses due to delayed communication to customers.
Recommendation 4: Implementation of FIFO approach will give all requests equal priority
leading to reduced backlogs and increases revenues lost due to late renewals. FIFO approach
helps in reducing the time wasted in sorting and prioritization and processing would be easier.
Also this system doesnt allow policy writers to do simple jobs first and longer/difficult requests
later. FIFO system enables smooth flow of requests from distribution to policy writing
Recommendation5:
Turnaround Time (TAT): Mean time should be used to calculate TAT instead of 95% SCT as
mean time reflects the true picture of the time taken which includes buffer time. The TAT
calculated using mean time = 4.7 days while SCT time shows 8.2 days.
Also in steady state TAT = I/R= 82/40= 2.05
TAT should come down as processing happens parallel in steady state in contrary to the TAT
addition of all stages.
Consideration of Pooling of Resources: Yes or No Justification??
Capacity utilisation of each territory can be calculated from Exhibit7 as shown below
Underwriting Team1
RUNS

RAPS

RAINS

RERUN

Territory-1

162

761

196

636

Mean Time

43.6

38

22.6

18.7

7063.2

28918

4429.6

11893.2

Total Time (min)

Average Time to Process Request (min)

Daily No.of Request
Total Daily Time
Total Time Available
% Utilization

1755

52304
29.80285
14.63
436.0157
450
96.89237

Underwriting Team -2
RUNS

RAPS

Territory-2
100
513
Mean Time
43.6
38
Total Time (min)
4360
19494
Average Time to Process Request (min)
Daily No.of Request
Total Daily Time
Total Time Available
% Utilization
RUNS

RAPS

Territory-1
88
524
Mean Time
43.6
38
Total Time (min)
3836.8
19912
Average Time to Process Request (min)
Daily No.of Request
Total Daily Time
Total Time Available
% Utilization

RAINS

RERUN
125
840
22.6
18.7
2825
15708

RAINS

1578
42387
26.86122
13.15
353.225
450
78.49444

RERUN
130
22.6
2938

605
18.7
11313.5

1347
38000.3
28.21106
11.23
316.8102
450
70.40227

From the above tables its very clear that Underwriting Team -1 is heavily loaded in comparison
to other two territories. Also we understand that each team has its own expertise in their
territories which adds up to faster client service delivery.
Pooling of resources is beneficial in effectively managing the total requests pending and received