The main problem is that the so called FIFO system is not applied consistently. The stock of RERUNS is therefore high and remains high. This causes the problem that new requests can only be processed after the stock is handled, which increases TAT considerably. 2. What operational problems is Manzana facing? How might they be connected to the deteriorating profits experienced over the past five years? Manzana is facing the following operational problems: 0 The four departments are not in tune with one another.
The flow of requests between the different departments needs coordination. 0 The backlog is very high according to Exhibit 3, containing 82 requests-in-process. This high backlog is caused by: o The Weighted average processing time per request’ (Exhibit 4) is based on design capacity not taken into account that the effective capacity might be lower (answer question lc). Therefore the utilization percentage is at least for Distribution and Underwriting team 1 near 100%. o In calculating the Weighted average processing time per request’ the ‘Standard Completion Time’ (SCT) is used.
The SCT that is used is questionable, as we have explained in the answer of question lc. Therefore the utilization percentage is at are not using the FIFO system consistently. They prioritize their activities as follows: 1. RUNS, 2. RAPS, 3. RAINS en 4 RERUNS. The reward system mainly focuses on processing RUNS en RAPS. This is feeding this prioritization. o The three underwriting teams are not utilized evenly 0 Because of not consequently using the FIFO system RERUNS are in increasing numbers no longer processed before the expiration date of the current policy.
The number of renewals that aren’t processed in time actually increases from 205 in the First quarter op 1989 to 468 in the second-quarter of 1991. Therefore insurance agents have more time and opportunity to offer new policies of he competitors (i. e. Golden Gate) to people whose policies were too renewed at Manzana. Agents receive 25% commission for each new policy and 7% commission for each policy that is being renewed. On the other hand insured people are open to new policies (from other insuring parties as well) and are inclined to go for a new policy because of the lack of service provided (late service and high TAT).
The number of contracts that are lost in 1989 amounts to 849 whereas in 1991 this number had risen to 1717, and furthermore risen to 926 in the first six months of 4 1991. A prognosis for the whole of 1991 would be twice as much, adding up to a staggering amount of 1852 lost contracts. As a consequence the average Turnaround Time (TAT) for all requests increases to 8,2 days in September of 1991 (as discussed in our answer of question 1 c). The most important competitor of Manzana/Fruitvale, Golden Gate Casualty, promises clients a TAT of one day for the different kinds of requests guaranteeing a 10% discount in case of delay.
The Financial Summary in Exhibit 5 clearly shows that the operational problems are affecting the branch profit of Manzana/Fruitvale. As the Fruitvale branch was enerating a profit of $ 1 . 765. 000 in the first-quarter of 1989 the profit had decreased in the first-quarter of 1991 toa loss of $ 121. 000. The analysis of the reasons for this downfall leads us to the following factors: 0 The focus on RUNS and RAPS is visible in the revenue of ‘New Policies’. These revenues increased from $ 1. 485. 000 in the first- quarter of 1989 to $ 2. 171. 000 in the second-quarter of 1991 (an increase of 46%).