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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.
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.
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"Manzana Insurance Fruitvale Branch." 123HelpMe.com. 23 Mar 2019
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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 problems because the renewals (RERUNS) are delayed to the point that there is insufficient time to process them on time which results in lost policy renewals.
3. There are several areas where Manzana can improve productivity. I suggest altering the structure of the underwriting department to allow for overflow work to be transferred between teams as needed. The company must implement and enforce a standard priority system, which includes placing a higher priority on policy renewals than new policies. With the company following a standard priority system, the work will flow through the departments smoother, and renewals can be processed before they expire. Policies should be moved between departments in smaller batches, a batch size of one would be ideal.
The Fruitvale branch has not take advantage of the increased productivity the computer system is providing. The 95% SCT should be reconsidered for 2 reasons. First, the mean time to process is a better representative time for estimation purposes. Second, the computers have reduced policy-writing time because policy pages are pre-written and just assembled to create the individual policy.
I recommend a few changes to the office personnel structure as well. Since the actual writing of the policy is now a generic task due to the computer system, the rating department and the policy writing departments should be merged. This will make available some personnel to be transferred to the distribution department and the to the underwriting teams to increase their productivity. The underwriting team will become a bottleneck when batch sizes are reduced to increase throughput (see appendix B), and the distribution department is saddled with the additional task of distributing state insurance information and checking the quoted rates against competitor's rates.