2) Analyze and assess the operations system of Manzana (system for processing insurance requests as depicted in Exhibit 2) by taking the following questions as a lead:

a) How do the various jobs (RUN, RERUN, RAIN, RAP) flow through the system? How much time do they take?

The figure below shows the flow through the system of the various jobs (RUN, RERUN, RAIN and RAP) taken exhibit 2 into account.
The red numbers in the figure show the daily processed requests on average based on the data of 1991 which can be found in exhibit 7. The daily requests that are coming into the system are calculated by adding all various jobs (RUN’s, RERUN’s, RAIN’s and RAP’s) processed in the first 6 months and dividing this outcome by 120 (E.g. 6 months x 4 weeks x 5 days).
This means that the teams can process 39 requests on average per day. (350+1798+451+2081)/(6*4*5) = 4680 / 120 = 39 requests per day on average.

All further calculations can be found in the table below.

|Task |Calculation in # of requests per day |Outcome in # of requests per day |
|Calculate generated RERUN |(2081)/(6*4*5) |17.3 |
|RUN/RAP/RAIN |(350+1798+451)/(6*4*5) |21.7 |
|Total # requests per day |(350+1798+451+2081)/(6*4*5) |39 |
|Underwriting Team 1 |(162+761+196+636)/(6*4*5) |14.6 |
|Underwriting Team 2 |(100+513+125+840)/(6*4*5) |13.2 |
|Underwriting Team 3 |(88+524+130+605)/(6*4*5) |11.2 |
|Total # requests per day |(350+1798+451+2081)/(6*4*5) |39 |
|RAP from Rating dept. |(1798)/(6*4*5) |15 |
|Reject |85% |12.7 |
|Accept |15% |2.3 |
|Rating dept. to Policy Writing |(350+451+2081)/(6*4*5) |24 |
|Total Policies |Rating dept. to Policy Writing + RAP’ s |26.3 |
| |accepted (24+2.3) | |

*Used all figures of exibit 7

[pic]

b) What is the throughput efficiency of a RUN?

Flow time efficiency = Theoretical processing time / Flow time
1. The theoretical processing time can be calculated by using the mean figure in exhibit 4 per department. 68.5 + 43.6 + 75.5 + 71.0 = 258.6 minutes
2. The processing time can be calculated as follows by using the information on page 1 of the case study. All teams are working 6 days per week, 7.5 hours per day which corresponds to the following: Turnaround time = 6 days = 6 * 7.5 hours per day = 45 hours = 45*60 minutes = 2,700 minutes

The flow time efficiency can be calculated by dividing both outcomes and multiply by 100%.
Flow time efficiency of a RUN = (258.6 / 2,700) * 100 % = 9.6 %

The policy processing times (in Minutes) per Department from exhibit 4 are summarized in the table below:

|Daily processing |Distribution dept. |Underwriting Teams |Rating dept. (in |Policy Writing dept.|Total processing |
|times |(in min.) |(in min.) |min.) |(in min.) |time (in min.) |
|RUNs |68.5 |43.6 |75.5 |71 |258.6 |
|RAINs |43.5 |22.6 |65.5 |54 |185.6 |
|WAPT* |41 |28.4 |70.4 |54.8 |194.6 |
|Distribution |4 clerks * 7.5 hours *|41 |1,800/41 = 43.9 |39 |39/43.9 = 88.8 % |
| |60 min. = 1,800 | | | | |
|Rating dept. |8 raters*7.5860 = |70.4 |3,600/70.4 = 51.1 |39 |39/51.1 = 76.3 % |
| |3,600 | | | | |

* = The joint capacity of all Underwriting teams = 2,700/170.4 = 3 * 15.8 = 47.4 request per day
** = The joint utilization of all Underwriting teams = (92.4 + 83.5 + 70.8) / 3 = 82.2 %

c) Which resource is the bottleneck?

When looking at the last column of the table above there can be seen that both the Distribution department and Underwriting Team 1 have the highest utilization percentage, respectively 88.8% and 92.4%, and can therefore be seen as the bottlenecks within the process because they are almost working on full capacity.

d) What is the capacity of the system?

The capacity of the system normally is determined by the department that takes the longest time and runs at (almost) full capacity, thus the current bottleneck, which would be Underwriting Team 1 with an utilization of 92.4% as can been seen in the table corresponding to question C & F. Nevertheless, Underwriting Teams 2 and 3 are not working on full capacity. The entire Underwriting dept. has a combined capacity of 47.4 requests per day.
In this case the capacity of the system is determined by the department that has the lowest daily capacity within the process which is the Policy dept. of 41.1 requests per day.

e) What is the utilization of the various resources?

The answer on this question is given in question C and can be found in the corresponding table.

How can the current system be improved?

- Combine the three Underwriting teams in order to decrease the overall utilization and therefore the bottleneck will be lifted.

- Alignment of SOP’ s (Standard Operational Procedures) will improve the current system due to the fact that all teams have their own way of working at this moment and it therefore will not be efficient in the future if the three teams will directly start to work together with their own procedures, priorities and incentives. It therefore could be wise to train them so they will all start on the same level.

. (3) Are there any flaws in the way Manzana calculates its estimated turnaround times? Which other method would you suggest? Would that method lead to a significant difference in estimated turnaround time?

Look-up the possible calculation methods.

(4) Assess the scheduling (generation of jobs) and sequencing (priority policy) of the various jobs. Which improvements would you suggest?

Current situation, preferred situation. How to get there?

Ways to improve the organization of personnel.

1. Eliminate the regional alignment of the underwriting staff.

There is little evidence in the case that any benefit is derived from organizing the underwriting staff along geographic lines. To the contrary, there is evidence that it may be detrimental. A process flow based on territorial alignment creates unnecessary operating bottlenecks. An analysis of the three underwriting teams indicates that Team 1 processed more policies and had a much higher productivity level than Team 2 and Team 3 (Exhibit 1).

2. Reduce staff in Rating and Policy Writing.

The new system will create operating efficiencies that will allow for some minor staff reductions. These staff reductions will improve branch profitability. Exhibit 1 shows that the Rating and Policy Writing departments are operating at 76% and 64% efficiency. The case states that rating had become "purely mechanical," and the amount of time taken to write a policy had decreased significantly in recent years. In addition, the automation of assembling policies and pricing risk will further reduce processing time. Analysis supports a reduction of rating staff by 24% and policy writing staff by 36%. This translates to a staff reduction of two employees in each department, which is reflected in the recommended organization chart above.

3. Combine administrative jobs into a restructured Administration department.

Policy Writers, Distribution Clerks, Record Clerks and Copy/Mail Clerks all perform administrative duties, many of which are related. Cross training can be provided to allow administrative personnel to function in multiple roles. This will create operational efficiencies.

4. Allow Administrative Clerks to report directly to the department manager.

In the existing system, administrative clerks report to Policy Writers. In the new system, all clerks will report directly to the Administration department manager. This change should encourage them to be more proactive and allow them a better chance to take on additional responsibilities. The manager will also be in a better position to oversee the work of all employees.

5) It is fair to say that Manzana Insurance – Fruitvale Branch is not doing well. Make a list of problems that Manzana is facing. What are the root causes of these problems? Which of these root causes are related to Operations management? Also make clear how the various problems and root causes are interconnected.

Current Organizational problems that Manzana is facing resulting from the information that is given in the case study in order of priority:

1. Average Turnaround Time (TAT) is too long In order to help customers choose an insurance company that fits their wants and needs it is useful to have the turnaround time which is an important pointer in service quality. As can be seen in the case study, Manzana has a large competitor namely Golden Gate which guaranteed a one day TAT instead of a six day TAT that Manzana is offering. Besides, Manzana is already working at a faster rate than the Standard Completion Time (SCT) of 95% which is used to compute the TAT, see exhibit 4. This results in overplaying their TAT which hurt Manzana’s changes to win market share. Manzana’s goal is to modify the system in order to decrease the TAT.

2. Large number of late renewals At this moment the RERUN’s are being held aside until the day before the due date of the policy (so the policy writing dept. is too late) due to the fact that the agents expect orders to be fulfilled before the actual expiration date of the old policy. Besides, all departments have their own priorities at this moment and their own financial incentives. Now you can see that late renewals cause a large loss which is a considerable portion of the total loss of the business.

3. Large backlog of policies to be processed The Rating dept. has a large backlog due to the fact that the Underwriting dept. constantly has late RERUN’s. Also in this case it has to do with different priorities per department that results into downstream problems.

4. Inefficient operational workflow Manzana currently has an inefficient operational workflow due to the fact that the utilization and distribution of all employees/ staff is not optimal.

5. None of the departments has clear Standard Operating Procedures (SOP’s) All departments use the procedures they find best and most efficient within their working environment. However, due to misalignment of procedures not all departments are at the same level with respect to company procedures and policies.

6. Salaries and bonuses do not match with success The so called ‘Salary Plus’ bonus program rewards managers for every new policy written which can damage the quality of these policies as some employees will focus on quantity instead of quality. The focus than will be on the new policies instead of the renewals that yield less for the business. As can be seen on page 5 of the case study it says that issuing new commercial policies are considered the most profitable as they commanded the highest premiums.

(6) What plan of action would you, as Bill Pippen, recommend to John Lombard when he gets back into the office in a week? How would your plans resolve the problems? How hard is it to implement your plans?

a. Summary of the problems + solutions

b. Implementation?

Problem 1: Average turnaround time (TAT) is too lengthy. Goal: Modify system to decrease turnaround time. The new system will automate and streamline certain tasks and track the processing status of requests. These changes should create efficiencies that will lead to shortened turnaround time. In addition, TAT calculations will be periodically reviewed and revised to ensure that new processing efficiencies are accurately reflected.
As a result – loss of sales, less competitive advtange -> higher costs. Link to strategy.

Goal: streamline current system, by improving operations and organization structure.

SUBPROBLEMS: organization structure + organization of processes is not optimal (utilization of staff, regio’s er uithalen) + prioriteiten van de staff en beloningen van staff aanpassen. New application takes 1/3 longer to process than rerun. So wrong priorities.

Problem 2: Large number of late renewals

Goal: Modify system to decrease the number of late renewals.

The new system will deliver RERUNs to the originating agents with sufficient time before expiration. The prioritization of processing requests will be controlled by the system using a modified FIFO approach. Processing will be monitored so that alerts are generated when processing falls behind schedule. Problem 3: Large backlog of policies. Goal: Modify system to decrease backlog of policies. The new system will automatically calculate processing due dates and assign processing priorities to each request that enters the system. A new computerized workflow will help standardize and enforce prioritization. Goal create more synergie in the process. By implementing better FIFO or software processes. Problem 4: Organization structure and operations workflow are not optimal. Goal: Align staffing with needs of the new system. A structural reorganization will facilitate implementation of the new system. The suggested changes are discussed in the Organization Design section below. Problem 5: Departments do not adhere to documented procedures. Goal: Document and standardize procedures. Updated procedures will be developed along with the new system. Training will deliver documentation and emphasize the importance of adhering to it. In order for efficiencies to be realized, proper procedures must be observed and maintained. Problem 6: Salaries and bonuses are not aligned with profitability. Goal: Provide management with profitability analysis of new and renewal policies. A profitability analysis report will show that a new compensation structure should be developed to place emphasis on profitability rather than on a specific type of policy.

http://pages.stern.nyu.edu/~mpalley/samplephase2.pdf