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Manzana-Class_6_-_Capacity_IV_and_CEM

Manzana-Class_6_-_Capacity_IV_and_CEM

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BUAD 467/667 Service Management Spring 2008

Professor Patrick T. Harker Class 6a Capacity Design IV
Copyright P.T. Harker 2008 Page 1

Outline for the Class
Claims Processing in Insurance Manzana Insurance

Copyright P.T. Harker 2008

Page 2

1

Claims Processing in Insurance
what are the goals of the claims processing operations? Who’s the customer? models -- intuition is often wrong! (commercial claims take 60 days less) when to throw it at the sharks -- a quantitative approach

Copyright P.T. Harker 2008

Page 3

Manzana Insurance
What’s the problem? Where’s the bottleneck? What is your assessment of the rules used to assign priorities at Fruitvale? How to improve performance without “reengineering” What are your recommendations for managerial action? In particular, how should Manzana respond to Golden Gate’s new policy of one-day service?
Copyright P.T. Harker 2008 Page 4

2

78 17.17 12.27 23.Profit by Product Line RUN Clerk Underwrite Rater Policy Profit $14.57 -490. Harker 2008 Page 5 Requests Underwriting Team 1 Agents 85% lost RAPs 15% RUNs Distribution Clerks (4) Underwriting Team 2 Raters (8) RUNs RERUNs RAINs Underwriting Team 3 Policy Writers (5) Copyright P.94 25.88 Copyright P.06 12.05 -302.08 161.16 -524.62 25.51 24.25 170.16 -3288.13 25.06 $9. Harker 2008 Page 6 3 .67 RAP $12.T.83 13.T.64 RERUN $5.11 817.27 2.17 17.24 21.64 RAP/new RAIN $86.83 10.

Harker 2008 Page 7 BASE CASE UW team 1 •m=1 • a = 30.00 • cp = 0.00 • cp = 0.2 min • ca = 1.6 min • ca = 1.0 min • p = 29.2 min • ca = 1.80 UW team 3 •m=1 • a = 40.T.3 min • p = 29.6 min • p = 29.6 min • p = 42.Utilization Profiles for Manzana 100 90 80 70 60 50 40 30 20 10 0 Distribution % Utilization RUNS RAPS RAINS RERUNS TOTAL UW 2 Rating Copyright P.86 Copyright P.00 • cp = 0.00 • cp = 0. Harker 2008 Page 8 4 .6 min • p = 70.T.1 min • ca = 1.86 UW team 2 •m=1 • a = 35.7 min • ca = 1.2 min • ca = 1.00 • cp = 0.56 Raters •m=8 • a = 11.00 • cp = 0.21 PW’s •m=5 • a = 11.86 DC’s •m=4 • a = 11.6 min • p = 35.

21 PW’s •m=5 • a = 11. Harker 2008 Page 9 RUNs + RAPs UW team 1 •m=1 • a = 62.00 • cp = 0.6 min • p = 42.6 min • p = 35.POOL UNDERWRITERS DC’s •m=4 • a = 11.T.00 • cp = 0.6 min • ca = 1.5 min • ca = 1.68 Copyright P.0 min • p = 39.7 min • p = 54.2 min • ca = 1.1 min • ca = 1.80 Copyright P.00 • cp = 0.00 • cp = 1.00 • cp = 0.86 Raters •m=8 • a = 11.00 • cp = 0.6 min • p = 29.7 min • ca = 1.4 min • p = 39.68 UW team 2 •m=1 • a = 72.9 min • ca = 1.69 5 .24 PW’s •m=5 • a = 23.00 • cp = 0.5 min • ca = 1.6 min • ca = 1.5 min • ca = 1. Harker 2008 Page 10 DC’s •m=4 • a = 23.8 min • ca = 1.00 • cp = 0.T.00 • cp = 0.7 min • p = 18.6 min • p = 39.56 3 UW teams •m=3 • a = 11.51 Raters •m=8 • a = 23.6 min • p = 70.68 UW team 3 •m=1 • a = 81.00 • cp = 0.7 min • p = 67.

T.71 35.9 min • ca = 1.79 9.68 Raters •m=8 • a = 23.7 min • p = 67.84 31.20 6. ALL 0.69 0.T.79 0.60 18.3 percent of mix relative probability RUN 13% 0.51 39.70 8.50 75.13 std dev ALL 23.74 11.5 71.54 28.81 18.68 67. RUN/RAP RUN/RAP RUN/RAP 54.12 14.19 DC UW RA PW averages std deviations RUN/RAP RAIN/RE RUN/RAP RAIN/RE 54.POOL UNDERWRITERS FOR RUNs + RAPs DC’s •m=4 • a = 23.03 39.29 UW 19.79 9.80 15.5 13.v.57 16.0 64.00 50.27 RAP 36% 0.46 0.49 26.70 65.7 min • p = 39.91 27.9 32.51 3 UW teams •m=3 • a = 23.69 Copyright P.46 percent of mix relative probability RU/RAP 49% 0.6 10.44 0.81 0.49 19.16 PW 50.20 11.60 9.24 PW’s •m=5 • a = 23.79 1.39 18.00 22.79 31.7 min • p = 18.74 27.44 11.74 9.v.0 38.24 18.80 Copyright P. Harker 2008 Page 11 DC UW RA PW averages RUN 68.69 67.v.56 0.90 9.21 0.8 min • ca = 1.69 DC UW RA PW averages RAIN RERUN 43.00 • cp = 0.7 std deviations RUN RAP 30.79 9.57 73.0 24.96 RA 73.73 DC UW RA PW average std dev c.74 16.69 0.0 RAP 50.49 RAI/RE 51% 0.51 DC UW RA PW average ALL 42.70 19.79 25.7 24.00 • cp = 1.18 0. RAIN/RE RAIN/RE RAIN/RE DC 30.69 18.7 min • p = 54.91 30.6 75.03 0.58 29.86 0.50 percent of mix relative probability RAIN RERUN 9% 42% 0.5 43.5 20.10 std deviations RAIN RERUN 9.24 70.00 • cp = 0.00 • cp = 0.5 min • ca = 1.82 average std dev c.50 28.39 26. Harker 2008 Page 12 6 .50 54.21 c.84 50.6 min • ca = 1.

6=1.T.T.9512 Wq = 1 _____ ∗ (0.36 cvλ = 1 cvμ = 0.408) = 0.1} (0.41) (1..Queuing Approximation.3136 ρ = 5.ρ) Copyright P.00 cvμ2 = 0.2=5.95){sqrt[2(4+1)] . Harker 2008 Page 14 7 .145 hours = 128..408 λ = 60/11.56 cvλ2 = 1.1} ___________________ ∗ _____________ cvμ2 + cvλ2 2 (mμ) (1.0.9512) = 2.68 minutes 2 Copyright P. μ = 1/service time cvμ = cvp ρ = λ/ (mμ) λ = 1/interarrival time cvλ = cva Wq = 1 _____ ∗ ρ{sqrt[2(m+1)] .36/ (4*1. Harker 2008 Page 13 Example of approximation μ = 60/42.56)2 + 12 ___________________ ∗ _____________ (4*1.

9 50.12E+01 8.408 1 0.9 PW 5 22.56 0.7 35.000000 infinity infinity infinity 1.20E+00 4.2 70.050755 0.2 29.79 0.00 1.17E+00 2.24 1.4 LEADTIME CALCULATIONS (hours) ALL only Runs Area products and RAPs 1 11.00 1.5 ONLY RUNS and RAPS (minutes) Queue m a DC 4 22.2 284.0 0.51 0.0 0.000000 1.00 1.68 0.5 67.5 ca 1.239014 0.86 u 0.86 0.828002 0.75 0.1 3.480769 0. Harker 2008 Page 15 Inputs: lambda mu Ca^2 Cb^2 5.7 0.2 78.075059 0.2 31.9 0.87 Wq 126.68 u 0.0 0.8 11. of variation of arrivals Cb^2 = squared coeff.4 75.2 47.6 4.0 8.20E+01 9.50 0.355 1.806795 0.2 p 42.5 8.340683 15.63 0.1 4.61 0.3 32.37 0.ALL PRODUCTS (minutes) Queue m DC 4 UW1 1 UW2 1 UW3 1 RA 8 PW 5 pooled UW's 3 a 11.68 0.803267 Outputs: s Nq Ns Wq Ws P(delay) Utilization 0 infinity infinity infinity 1.6 29.80E+00 7.5 39.16 0.3 Lq 0.60 0.9 2 10.0 10. of variation of service times Nq = average length of the queue Ns = average number in the system Wq = average wait in the queue Ws = average wait in the system P(0) = probability of zero customers in the system P(delay) = probability that an arriving customer has to wait lambda/mu 3.9 2.9 38.8 39.7 3 6.2 11.4 4.92 0.21 0.68 0.00 1.3 Copyright P.00 1.86 0.80 0.2 3.7 0.00 1.633878 Intermediate Calculations: (l/u)^s/s! sum (l/u)^s/s! 1.187400 0.58 Wq 7.T.66E+01 4.000000 3 infinity 4 11.760982 0.893154 0.00 1.9 UW1 1 63.1 29.00E+00 3.3 388.117775 2.0 0.6 Lq 11.760653 6 0.5 1.3 0.000000 1 infinity 2 infinity infinity infinity infinity 1.08E+01 Copyright P.99E+01 6.9 39.94 0.2 ca 1.000000 1.00 1.2 29.6 18.2 11.9 p 54.00 cp 0.86 0.003528 4.5 39.00 1.00 1.80E+00 4.69 0.271792 4.95 0. Harker 2008 Page 16 8 .950817 5 1.897627 0.4 pooled 6.3136 Definitions of terms: lambda = arrival rate mu = service rate s = number of servers Ca^2 = squared coeff.000000 1.3 0.T.72E+00 2.143950 2.9 pooled UW's 3 22.00 1.00E+00 1.00 1.00 cp 0.23E+00 1.62 0.8 3.6 UW2 1 65.63E+00 3.1 RA 8 22.2 31.3 12.0 UW3 1 79.

00 + Page 18 0.6 0. 5 2. 5 1.7 0.1 0 Copyright P.T.Te rritory 1 0 0 0 0 R UN R AP RAIN 1 RERUN RUN RAP RAIN 1 RER UN RUN RAP RAIN 1 RER UN Lateness 0 Date 0 0 0 0 Average D elay Time Underw riter-T1 Calculated TA T 0. 25 2.8 0. 75 2. 00 RUN RAP RAIN 1 RERUN 0. 000 0 Dropped RAP Copyright P. 75 1. 00 Te rritory 2 0. Harker 2008 3 3. 5 1 2 9 . 25 1.5 0.3 0.4 0. 25 0. Harker 2008 Page 17 Throughout Time Histograms for Straight FIFO/ no RUNS pooling Straight FIFO/pooling Low RERUN priority/pooling 0. 00 0.T. 00 0. 0 0 Finish RUN RAP RA 1 IN RE RUN RUN RAP RAIN 1 R ERUN RUN RAP RAIN 1 RERUN RUN RAP RAIN 1 R ERUN RUN RAP RAIN 1 RERUN RUN RAP RAIN 1 R ERUN R UN RAIN 1 RE RUN RUN RAIN 1 RERUN 0 0 0 Distribution Clerks Underwriter-T2 Raters Writers Territory 3 RU N RAP RAIN 1 RERUN RUN RAP RAIN 1 RUN RAP RAIN R ERUN Y RAP accepted? Warm Up Period RER UN N Underwriter-T3 0. 75 0.2 0.

5 2.5 0. 25 1.T.1 0 Copyright P.6 0. Harker 2008 3 3. 25 0.9 0. 25 0.5 0. 75 1.T.3 0. 5 1 2 10 .3 0.4 0. 5 1 2 Copyright P. 5 1.7 0.4 0.2 0. 00 + Page 19 0.6 0. 75 2. 75 2. 25 1. 75 0. 25 1.Throughout Time Histograms for Straight FIFO/ no RAPS pooling Straight FIFO/pooling Low RERUN priority/pooling 0. 25 Throughout Time Histograms for Straight FIFO/ no RAINS pooling Straight FIFO/pooling Low RERUN priority/pooling 0. 00 + Page 20 0.2 0.1 0 2.8 0. 75 0.7 0. 5 1. 5 2. Harker 2008 3 3. 75 2.

25 Queuing & Simulation Comparison leadtime (no team) leadtime (team) Simulated 7. Harker 2008 2.50 hours 5. 75 1. 75 2.3 0. 5 2.4 0.05 hours Queueing 8. Harker 2008 3 3.T. 5 1 2 11 . 00 + Page 21 Page 22 0.1 0 Copyright P.00 hours queuing approximations are conservative!!! Copyright P.Throughout Time Histograms for Straight FIFO/ no RERUNS pooling Straight FIFO/pooling Low RERUN priority/pooling 0.66 hours 4. 5 1. 25 0.6 0. 25 1.5 0.2 0. 75 0.T.

49 0.89% 30.0416 0.22% 17. With Priority Dedicated UT.43% 0.64% 14.375 0. downsides of pooling? Loss of “local” knowledge.81 4.45 2.00% 0.63 0.49213 0.5 0. Late RAP Per.09% 0.26 1.T.01% 12.00% 0.63 1. The USAA story. Average Turaround Time RUN RAP RAIN RERUN Average Calculated TAT SD 0.00% 0.Simulation Results Given Data Simulation Output Dedicated UT. Copyright P.38 0. Without Priority Total # Processed (1990) Basecase-new np-new gt-new gtnp-new RUN 1122 1113 1143 1156 1165 RAP 3079 3047 3123 3016 3062 RAIN 895 927 911 892 899 RERUN 4978 5039 4987 4926 4962 Original RUN* 678 698 674 710 701 Late RUN 0 0 16 0 4 Late RAP 0 0 35 0 0 Late RAIN 2 100 17 7 0 Late RERUN 1170 1544 644 58 0 1day guaranteed Tunaround Time Late RUN 1 160 0 5 Late RAP 1 413 0 0 Late RAIN 342 155 7 0 Late RERUN 1544 644 58 0 * Because the Calculated TAT is almost always 1.78% 1. simulation is necessary to “sell” the results.58 0.91% 0. Late RERUN Per. Harker 2008 Page 24 12 .0 1 day guaranteed Turnaround Time Late Run Per. With Priority General UT.67713 0.19183 0.27666 Copyright P.03% 36. Harker 2008 Page 23 Lessons from Manzana don’t believe “standard times”.45 0.00% 0.85 0.18% 0.00% 13.89 2.49 0. know where they come from pooling can be a “quick fix” for reengineering a service delivery system queuing approximations are a good “first cut” analysis! However. With Priority Dedicated UT.T.00% 0. Without Priority General UT.72 0.1041 0. Late RAIN Per.55 1.96 0.6666 0.

BUAD 467/667 Service Management Spring 2008 Professor Patrick T.T. Harker 2008 Page 26 13 . Harker Class 6b Customer Efficiency Management Copyright P.T. Harker 2008 Page 25 Outline for the Class Customer Efficiency Management (CEM) eBay: the customer Marketplace Lessons from eBay for all Service Organizations Copyright P.

Harker 2008 Page 28 14 . Harker 2008 Page 27 Realistic Profit Cycle: Main Focus is on Process Firm puts systems in place so that employees can consistently deliver good service Well-equipped employees deliver consistently good service Firm Employee Customer Satisfied customers enhance their relationship with the firm Firms should provide the ability to deliver consistent service (in addition to having good morale) Copyright P.Simplistic Profit Cycle: Main Focus is on Morale of Employees Firm makes employees happy Firm Employee Happy employees make customers happy Customer Happy customers express their joy by increasing a firm’s profits Warning: This can lead to inconsistent customer experiences Copyright P.T.T.

T. Harker 2008 Page 29 CRM to the Rescue Customer Relationship Management (IBM): “a business strategy designed to optimize revenue and profits by increasing customer satisfaction.T. and understanding customers better” Copyright P. attracting new customers. retaining existing customers.” Copyright P.The Rise of Profit Segmentation: Business Week (2000): “… the result is more efficiencies for companies --and more frustration for their less valuable customers. Harker 2008 Page 30 15 .

CRM is Big Business CRM spending will reach $76.T. customers can be managed with tools from HR as well as from Marketing. Copyright P.3% CAGR growth in the overall applications market (IDC 2001) Copyright P. Harker 2008 Page 32 16 . not just recipients of a service That is.T. Harker 2008 Page 31 Beyond CRM … Customers are true co-producers. up from $23 billion in 2000 (Gartner Group 2001) CRM application will increase at a 44% CAGR compared to 15.5 billion in 2005.

T.Co-Production Physical or virtual presence and labor Facilitating the information flow through interactions with the firm and other customers Making indispensable intellectual efforts such as choice evaluation and decision-making Copyright P. Harker 2008 Page 34 17 . Harker 2008 Page 33 Examples of Co-Production Haircutting Healthcare Legal/financial consulting Education E-shopping E-financial service Copyright P.T.

T.T. Harker 2008 Page 36 18 . Harker 2008 Page 35 The Impact of Peers Peer Group Effect High Low Low High Customer Involvement Copyright P.The Impact of Peers Peer Group Effect High Low Low High Customer Involvement Copyright P.

Harker 2008 Page 37 The Impact of Peers Peer Group Effect High Low Low High Customer Involvement Copyright P.T. Harker 2008 Page 38 19 .The Impact of Peers Peer Group Effect High Low Low High Customer Involvement Copyright P.T.

Harker 2008 Page 40 20 . Copyright P.The Impact of Peers Peer Group Effect High Low Low High Customer Involvement Copyright P.T.T. Harker 2008 Page 39 Customer Efficiency: Concept An efficient customer is a customer who uses less of their resources (time.) while accomplishing more for themselves. etc.

Harker 2008 Page 42 21 .Today’s Profit Cycle: Main Focus is on Customer Efficiency Firm puts systems in place so that employees and customers can consistently deliver good service Employee Well-equipped employees deliver consistently good service Firm Customer Efficient customers deliver consistently good service using the firm’s infrastructure Satisfied customers enhance their relationship with the firm and with other customers Copyright P.T. Harker 2008 Page 41 Copyright P.T.

T.Next Class: Midterm! Homework #2 due Copyright P. Harker 2008 Page 43 22 .

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