Session

7
Manzana Insurance
Fall 2019 Module 1 
Krannert School of Management

Professor Pengyi SHI
Outline
• Recap on waiting time calculation 

• Manzana Case discussion

MGMT660 Introduction to Operations

Management
• Review materials and examples
Recap: Key Metrics

Inventory in the Inventory

system I=Iq+ Ip in service Ip

MGMT660
Introduction to Operations Management
Inflow Inventory waiting Outflow
Iq

Entry to Begin
Departure
system Service

Waiting Time Tq Service Time p 3

Flow Time T=Tq+p
General (Approximate) Formula for Tq
Capacity effect

Variability effect
CV  CV
2(m1)1 2 2

MGMT660
Introduction to Operations Management
p u
Tq    a p

m (1 u) 2

Utilization effect

4
Recap: Call Center Staffing
• Average time between calls: 11.39 seconds/call; (a)
• Average time to service a call: 90 seconds/call; (p)
• CVa = 1, CVp = 1.33
Calls per hour: 

MGMT660
Introduction to Operations Management
3600/11.39 = 316 calls 
Capacity of 1 operator: 
3600/90 = 40 calls per hour

• Question: At least how many operators do we need to achieve a 
stable queue?
ROUNDUP(316/40) = 8

5
How many operators to hire?
• For given target on waiting time
• e.g. Tq < 10 seconds
• How many operators do you need then?

MGMT660
Introduction to Operations Management
Number of
Utilization p/(a*m) Tq (in second)
Operators
8 0.988 1221.23
9 0.878 72.43
10 0.790 24.98

11 0.718 11.11

12 0.658 5.50

13 0.608 2.89

14 0.564 1.58
6
Cost analysis
• Flow rate = arrival rate = 316 calls per hour
• Labor cost: $10/hr, Cost of a line: $.05 per minute when a call is 
waiting or in service

MGMT660
Introduction to Operations Management
• Assume we hire 8 operators  Tq = 1221.23 second
• What is direct labor cost per call?

$10*8 / 316 = $0.2531 per call

• What are the line charges per call?

$0.05* (1221.23+90)/60= $1.09
7
How many operators to hire?
• Cost approach
• Labor cost: $10/hr, Cost of a line: $.05 per minute

Line

MGMT660
Introduction to Operations Management
# of Labor cost Total Cost
Utilization charges
operators per call Per call
Per call
8 0.988 0.2531 1.0927 1.3458
9 0.878 0.2848 0.1354 0.4201
10 0.790 0.3164 0.0958 0.4122

11 0.718 0.3480 0.0843 0.4323

12 0.658 0.3797 0.0796 0.4593

13 0.608 0.4113 0.0774 0.4887

14 0.564 0.4429 0.0763 0.5193

8
Outline
• Recap on waiting time calculation 

• Manzana Case discussion

MGMT660 Introduction to Operations

Management
• Review materials and examples
Problem
• What are the performance problems of the Fruitvale Branch?

MGMT660
Introduction to Operations Management
Problem
• What are the performance problems of the Fruitvale Branch?
‐ Liability policies are increasingly unprofitable
‐ Prioritization system is not right

MGMT660
Introduction to Operations Management
‐ Long TAT: increase from 3 days to 6 in ’91
‐ Cannot match up with competition
‐ Late and Lost Renewals: late renewals increased from 20% to 
45 %, lost renewals increased from 33% to 47%
‐ Golden gate 15% loss rate
‐ Incentives are not aligned
 Manzana: Process Flow
Underwriters
Distribution
Clerks (4) 3 Teams

14.6

MGMT660
Introduction to Operations Management
39 26.3
13.2

11.2
39

Policy
Writers
Raters (8)
(5)
Manzana: Capacity Analysis
• Underwritten Teams
UnderTeam 1 UnderTeam 2 UnderTeam 3

p 28.4 28.4 28.4

MGMT660 Introduction to Operations

Management
Resource
92.14% 83.31% 70.68%
Utilization
Tq 332.9 min 141.8 min 68.46 min
Assume CV=1 = 5.55 hr = 2.36 hr = 1.14 hr

• Waiting time linearly increases in utilization?
Waiting time v.s. utilization in
single‐server queue
• The average waiting time grows exponentially fast when 
utilization gets closer to 100%

MGMT660 Introduction to Operations

Management
Manzana: Discussion
Questions
• Based on the utilization profile, which is the problem area?
‐ Underwriting
‐ Team 1 also had the highest renewal loss rate in 1991, 403 of 636 
renewals lost

MGMT660
Introduction to Operations Management
• How can you improve the process?
• Pool the 3 underwriting teams, form a common queue
• Utilization = 82.04%
• Tq = 36.7 min after pooling

• Change the prioritization system
• Adjust incentives
Balanced Workload
• Two underwriting teams

Team 1, 
12 req/day
15 req/day 

MGMT660
Introduction to Operations Management
Team 2, 
12 req/day
15 req/day

• What is the average wait time?

• Team 1 or Team 2: 
• Utilization u = 0.8                    
• p=1/15 day/req = 30 min/req
• Tq = 0.26 day or 120 min
Pooled System
• After pooling

Team 1, 
30 min/req

MGMT660
Introduction to Operations Management
24 req/day
Team 2, 
30 min/req
• Process Utilization = 0.8 (unchanged)

• Wait time:

30
54.27 min
Compare systems
System Team 1 Team 2 System
Balanced 120 min 120 min 120 min
(avg)
Pooled 54.27 min

MGMT660
Introduction to Operations Management
 Why?
 In a non-pooled system, line stoppers (“elephant
jobs”) can block the server and increase the wait
time for all customers behind the line stopper
 In a pooled system, line stopper will block only one
server and the customers behind the line stopper
can still be serviced by m-1 servers.
 MGMT660
Introduction to Operations Management
Manzana: Lessons learned
• The sources and impact of variability in a service sector setting
• The benefits of pooling resources
• The importance of response times (lead‐times) in a 

MGMT660
Introduction to Operations Management
competitive environment
• Managing operations can determine market competitiveness