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Manzana Insurance
Problem:
Loss of business due to late renewals, long
lead times on new policies and quotes
Competitive pressure (long lead times have
created opportunity for competitor to take
market share)
Overemphasis on new policies causing loss of
profitability (insurance losses)
Using Littles Law:
Lead time = WIP/TP
WIP = 82 policies
Throughput = 39 policies/day
=> Leadtime approximately 2 days
Turnaround Time
Worst case scenario quoted for each operation
(95% SCT)
E.g. distribution of RUNs avg 41, 95% SCT
128.1 minutes
Final turnaround time 2-3 times actual lead
time
=> loss of business
Priorities
Should be first come, first served
Changed by underwriters to RUN, RAP, RAIN,
RERUN
=> RERUNs done at end of day (rather like
producing a batch size = 1 days demand)
RERUNs released one day before due why?
Queuing Inputs
Processing time to a station: p
Time between arrivals to a station: a
Utilization: p/a
Squared coefficient of variation: CVp, CVa
Process flow diagram
Number of workers at each station
2
Note that there are actually 5
products:
RUNs
RAPs that are accepted (15%) RAP/RUN
RAPs not accepted
RAINs
RERUNs
Processing Rates (Exhibit 4)
RUN RAP/RUN RAP RAIN RERUN Avg.
DC 68.5 50 50 43.5 28 41
UW 43.6 38 38 22.6 18.7 28.4
R 75.5 64.7 64.7 65.5 75.5 70.4
PW 71 71 0 54 50.1 54.8
Labor input per policy 258.6 223.7 152.7 185.6 172.3 194.6
Hours 4.3 3.7 2.5 3.1 2.9 3.2
Calculating Utilization for
Distribution
Arrival rate = 39 policies per day
Distribution service rate per day:
41 min/policy on average
7.5 hours * 60 minutes * 4 DC clerks = 1800
min/day available
=> Distribution capacity 1800 min/day / 41
min/policy = 44 policies/day
Utilization = arrival rate/service rate = 89%
Utilization for all oper ations
DC 0.89
UW 0.82
R 0.76
PW 0.64
But policy creation is not all that
the distribution clerks do!!
Distribution was also responsible for
analyzing and disseminating data
published each month by the state
insurance commissioner, researching
and verifying insurance rates quoted by
local competitors, and overseeing the
rating operations
Adding in extra DC work (e.g. 30
minutes/clerk/day)
DC 0.96
UW 0.82
R 0.76
PW 0.64
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Standard Deviation of Processing
Times (from Exhibit 4)
DC UW R PW
RUNs 30.7 32 20.5 10.3
RAP/RUN 24.9 24.5 13.6 10.3
RAPs 24.9 24.5 13.6 0
RAINs 9.2 11.7 15.9 8.6
RERUNs 6.2 19.8 9.7 9.5
Distribution of Demand
%
RUNs 0.07
RAP/RUN 0.06
RAPs 0.33
RAINs 0.10
RERUNs 0.44
Estimating the CVa
Utilizations fairly high => CVp at previous
station decent predictor for CVa at current
station
Assumption: CVa to DC = 1
Queuing Inputs
DC UW Rate PW
SCVa 1.00 0.05 0.12 0.01
SCVp 0.05 0.12 0.01 0.01
Uti l i zati on 0.96 0.82 0.76 0.64
serv rate 41 28.4 70.4 54.8
m 4.00 3 8 5
Wq for the M/M/m queue

=
+

1
1
1 ) 1 ( 2 m
q
m
W
For the DCs:
m = 4
1/(m ) = 1/44
= 0.96
Hence, expected waiting time estimated at 0.52 days,
or 235 minutes at the first operation
Adjusting for the low CV of processing times (SCVa =
1, SCVp = .05) => 123 minutes
Lq = 123 min/pol * 39 pol/day / (7.5*60 min/day)
~ 11 policies
=> Ls ~ about 12 policies (case: 16 policies at DC)
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Queueing Results
DC UW Rate UW
Wq - min 123.15 2.90 1.30 0.11
Ws - min 164.15 31.30 71.70 54.91
Lq 10.67 0.25 0.11 0.01
Ls 11.63 1.07 0.87 0.65
Only DC results are consistent with WIP
numbers in Exhibit 3
Note that UW teams are dedicated (single line,
single server queues)
=> redo calculations for individual territories
Policies/Day/Territory (Ex 7)
Terr 1 Terr 2 Terr 3 Total
1.4 0.8 0.7 2.9
0.9 0.7 0.7 2.3
5.4 3.6 3.7 12.7
1.6 1.0 1.1 3.8
5.3 7.0 5.0 17.3
14.6 13.2 11.2 39.0
Queueing Results, UW
Terr 1 Terr 2 Terr 3
arr/day 14.6 13.2 11.2
util, UW 0.92 0.83 0.71
Wq,UW 28.17 11.99 5.79
Ws, UW 56.57 40.39 34.19
Lq, UW 0.91 0.35 0.14
Ls, UW 1.84 1.18 0.85
Revised Results:
Total Ws, Territory 1: 5.79 hours
Total WIP:
DC: 12
UW: 4 (across all territories)
R: 1
PW: 1
Still less than observed by casewriter
What is going on?
Only RERUNs are late
Time given to process: 1 day
Put to back of queue: given a 6 hour
processing time for average policies amazing
that any RERUNs are on time!
Note that Exhibit 3 from Monday morning:
weekend arrivals?
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Take-aways
Competitive role of lead time reduction
Mental models
Role of invisible work
Dedication of teams => excessive utilization for
1 team => higher losses
Priority rules, cost of expediting (lot sizing) -
who makes the decision?
Next step:
Construction of an MPX model of Manzanas
operations to provide a higher level of decision
support.