Manzana Insurance

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Since the profit margin of RUNs was considered higher than that of RERUNs, RUNs were given priority over RERUNs. However, RERUNs are the highest number of requests that come into the system. From 1989 to 1991, revenues of both RUNs and RERUNs were increasing over the three years. Assuming there are 4 personnel receiving bonuses for any RUNs, rate of increase in gross profit for RUNs is higher than that of RERUNs ($465 and $535) as the bonus policy increased the cost of RUNs (-$304 and $467). Detailed calculations are shown in Appendix C. Appendix C also evaluates the means and coefficient of variations of RUNs and RERUNs’ processing time at each department. Although the total variances (Cp) in writing a new policy and renewing a policy are very close, the total mean time and standard deviations of RERUNs are much lower than that of RUNs. Therefore, RERUNS are easier and more profitable to handle in terms of processing time and its variation. Based on the above assessment of the rules, it does not make sense to give priority to RUNs over RERUNs.

7. In 1990, Manzana instituted a policy of passing on requests to a particular underwriting team based on the territory where requests were generated, to improve service. Do you think this policy is affecting the current loss rate? How? Be specific.

As shown in Appendix D, the utilization in underwriting team 1, underwriting team 2, and underwriting team 3 were 91.06%, 89.17%, and 73.24% respectively. This unbalanced utilization shows an uneven workload in each team as a result of the variability in demand, and caused a relatively long queue length and wait time in underwriting team 1 and 2. Comparing underwriting team 1 with the aggregated demand setting, the utilization was 84.5% and the total time a request stays in the underwriting teams drops from 0.70 to 0.16 days. An aggregated setting is even more efficient than the team with the lowest utilization (team 3). Due to the variability in demand among territories, the policy resulted in the loss of requests, especially renewal loss.

8. Compute the average inventories and resulting flow times due to variability and utilization for each of the processes in the Manzana flow for the first six months of 1991. What do you infer from these calculations.

As shown in Appendix A, the average inventories in the distribution clerks and underwriting team 1 were high, while the average flow time for the underwriting team 1 and 2 were high.

Manzana should allocate more resources to underwriting team 1 and 2 or hire an additional underwriting team to reduce the critical path of the system because there were the bottleneck of the system. High average inventories and flow times were caused by high demand and high utilization in Manzana. Manzana can also aggregate the underwriting teams’ demand received by sending a request to the team with the shortest queue. It is an attempt to reduce variability in demand among all underwriting teams. Ultimately, average inventories and flow times will reduce.

9. Prepare a specific action plan to deal with Fruitvale’s problems, including minimizing turnaround time, assuming no personnel can be added. Is it feasible for Fruitvale to meet Golden Gate’s challenge of one-day turnaround? Should Bill Pippin prepare an updated resume?

Based on our analysis, several steps should be implemented by the Fruitvale branch:

1. Aggregate demand inflow to all underwriting teams

Variability in demand to all underwriting teams will reduce by aggregating demand inflow. That is a request will be sent to the team with the shortest queue. With this effort, average flow time and average inventories will decrease in the underwriting department. Therefore, TAT will be reduced and Manzana’s customer satisfaction will increase so as its profit.

2. Enforce FIFO policy on all requests

The enforcement of a straight FIFO policy on all requests not only can increase the profit of Fruitvale, but decrease the TAT radically. FIFO policy can reduce the high variability in processing time caused by prioritized requests. A lower variability in processing time will reduce average flow time and average inventory.

3. Re-allocation of capacity

There is unbalanced utilization with uneven workload between each territory, which is the primary cause of long queue time. Manzana should allocate employees from departments with low utilization to the heavily utilized departments. For example, Fruitvale can hire employees from the policy writing department and the rating department to form a new underwriting team or increase the capacity of the underwriting teams.

Appendix A – Inflow rates, utilizations, average flow times, and average inventories

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Appendix B – TAT of a RUN for the Week Ending 6 September 1991

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Appendix C – Variability and profitability of a RUN and a RERUN

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Appendix D – Fruitvale branch performance in 1990

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