Manzana

1. The Fruitvale Branch of Manzana Insurance is experiencing loss of business due to late renewals, and long lead times on new policies and quotes. These problems have created an opportunity for a competitor to take market share. Incorrect interpretation of company income for new policy versus policy renewals has placed an overemphasis on new policies that is causing loss of profitability.

The company has official priorities with respect to turn around time and processing order of insurance policies. Officially, the company policy is to use a first-in-first-out (FIFO) system to process policy requests. However, these priority rules are not followed. In practice, new policy requests are given priority over existing policies. The employee compensation plan does not support FIFO, due to the 25% commission paid on new policies. The turnaround and scheduling time calculations are skewed to use an exceptionally high 95% of worst case Standard Completion Time (SCT) to determine the average processing time. The combination of these factors has created a situation where product priorities and scheduling inaccuracies are causing Manzana to be unable to meet company production and profitability goals.

2.

From the analysis, there is no bottleneck resource, however, Underwriting Team #1 is operating at the highest capacity. When the data in Exhibit 6 is analyzed, it is obvious that there was been a dramatic increase in the number of lost renewals beginning in 1990. This is a result of the 1990 underwriting department reorganization, specifically, the assigning of agents to specific underwriting teams. Exhibit 7 reveals the nature of the problem: individual underwriting departments can have too many policies to process if the assigned territory is has a high number of policy request, while the other underwriting teams may have excess capacity. Additionally, in Exhibit 3, the calculations indicate the total TAT as 8.2 days, but this assumes that the downstream activity waits for the upstream activity to complete before starting. For example, Underwriting starts work after 0.6 days during which time the distribution clerks clear their backlog. These calculations must also be based upon the assumption that policies move from one department to another in batches equal to total number of policies in the department. Also, the company uses 95% SCT per request to estimate processing time. I believe this is too conservative and the mean would be a more accurate basis for estimation purposes.

The company professes to use a first in first out (FIFO) inventory control policy, when interviews with department heads reveals that that policy is not followed. The departments tend to prioritize the processing of new policies (RUN's) under the mistaken understanding that new policies are more profitable for the company when in fact renewals offer a higher incremental income, $5771 vs $5043 (see appendix A). The emphasis on RUN's causes downstream