manzana case report- praveen_revised
TRANSCRIPT
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.
Hence the structure should be aligned more towards the profitability and not on the type of
policies.
1
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
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 47%. Also, the salary plus payment structure for the
employees at Manzana favored processing of new requests, RERUNs were given least priority.
To reduce this high loss rate the RERUN operation along with RUNs was given highest priority
2
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
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:
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
3
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
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.
4
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
Appendix:
Table 1:
MODEL PRIORITIES TAT ( days ) BOTTLENECK
1
RUNs – 1
4.8 UnderwritingRAPs – 2RAINs -3RERUNs -4
2
RUNs – 1
1.94 UnderwritingRAPs – 1RAINs -1RERUNs -1
3
RUNs – 1
1.20 UnderwritingRAPs – 2RAINs -2RERUNs -1
Shift in resources ( Optimal Case )
RUNs – 1
0.67 DistributionRAPs – 2RAINs -2RERUNs -1
5
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
Table 2:
PROFIT CALCULATION FOR BASE CASE
REQUEST TYPES NUMBER GROSS PROFIT PER POLICY
TOTAL
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 )
REQUEST TYPES NUMBER GROSS PROFIT PER POLICY
TOTAL
RUNS 1243 4942.0 6142946.4
RAINS 901 590.7 532248.7
RERUN 4766 5715.8 27241618.9
TOTAL PROFIT $ 33916814.0
6
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
Table 3:
CALCULATION FOR MOST PROFITABLE TYPE OF REQUEST
REQUEST TYPES#
REQUESTSPREMIUM PER
POLICY ( $ )
TOTAL PREMIUM
( $ )
COMMISSION FOR AGENT ( $ )
PROFIT ( $ )
RUNs 100 6662.58 666257.67 166564.42 499693.25
RAINs 100 645.63 64563.11 0.00 64563.11
RERUNs 100 6205.08 620508.00 43435.56 577072.44
7
Team 4 – Praveen Khanna , Raajesh Khumar , Vinesh , Vivek
8