Marshall Insurance Company

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The case studies are designed to provide the opportunity for you to interpret situations involving supply chain logistics, distribution, and warehousing, and apply the material you have read and discussed. In a Word document, answer the following questions.

Questions:
• As Kara Murphy, how would you respond to the proposal from David Callum? Are you prepared to provide him the information he needs?
• What criteria would you use to evaluate the proposal?
• Where do you see opportunities to outsource, insource, or subcontract? Is this the right move for Marshall?
• What conditions would you place on Gilmore if you were to pursue this relationship?
Case 5–2 Marshall Insurance Company
Kara Murphy, purchasing manager with Marshall Insurance Company (Marshall), in Spokane, Washington, was evaluating a proposal submitted from David Callum, from Gilmore Printing (Gilmore). David was proposing that Gilmore take responsibility for managing all forms and printed materials inventory for the Marshall Automobile Club. Kara could see the advantages of outsourcing management of printed materials, but she remained concerned that this arrangement would not provide the service that clients and employees had come to expect. It was Thursday, June 12, and David was expecting a response from Kara on Tuesday, June 17, during a meeting scheduled for that afternoon.

MARSHALL INSURANCE COMPANY
The Marshall Insurance Company was a large, publicly held, personal lines property and casualty insurer. Founded in 1948, it had $73.5 billion in total assets. The Marshall Automobile Club (MAC) was a division of Marshall that provided roadside assistance services to its clients 24 hours a day, 365 days a year. Its more than 750,000 clients included both individuals and corporations.
MAC provided services to two customer groups; corporate clients, such as original equipment automotive manufacturers (OEMs) who provide free roadside assistance plans with new vehicle purchases; and individuals (or retail clients). Individual members could choose from a variety of plans for families that provided coverage for cars, trucks, motorcycles, and recreational vehicles. In addition to traditional roadside services, MAC offered features such as a trip planning, a travel reservation service, and trip interruption insurance.
Individual clients would join MAC through an online registration tool or by completing a form at a local Marshall office. Payment was typically made using a credit card. OEM clients sent their membership information to MAC daily in encrypted data files. Both individual and corporate client membership information was processed at the Spokane office, where membership cards were prepared and sent out along with an information kit that included a welcome letter, handbook, various promotional materials, and a keychain. Kits were customized for each client, in some cases using OEM letterhead if the member was joining as part of a new vehicle purchase plan. Anywhere from 2,000 to 3,000 kits were assembled each week, which took the time of two full-time staff. It was common to have more staff work on kit assembly in periods of strong demand. Storeroom staff were paid $900 per week plus benefits.

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Kara’s responsibilities included managing the 3,000-square-foot storeroom, where printed materials were stored and kits were assembled. In addition to materials for distribution to new clients, other printed materials included MAC marketing brochures and promotional materials. In total, more than 250 different printed products were held in inventory. In order to take advantage of discounts from printing suppliers, MAC had four to six months of inventory for many products.
THE GILMORE PROPOSAL
During a meeting the previous week, David Callum proposed to Kara that his company take responsibility for managing forms and printed materials for MAC. The proposal indicated that Gilmore would manage relationships with printing suppliers, including inventory management, kit fulfillment, and distribution to clients. David described how they were providing this service to other large corporate clients, in a range of industries, that were interested in eliminating manual back-office operations. He indicated that the typical fee was approximately $3.00 per kit, including mailing costs. The purpose of the meeting on Tuesday was to see if there was interest from Kara in pursuing the proposal; at that time, Kara would need to provide David with details regarding annual volumes and materials involved.
Kara could see the advantages of outsourcing management of the storeroom operations and kit assembly. Office space was at a premium at Marshall, and the storeroom could easily be converted to other uses. The headaches associated with ordering materials and maintaining inventory records could be eliminated.
However, Kara did have concerns. First, she was suspicious that Gilmore was looking to take over all the printing business for MAC. Although an important supplier, Gilmore was currently responsible for approximately 30 percent of the printing purchases for MAC. Under the outsourcing arrangement proposed by David, Gilmore would take over existing contracts with Marshall suppliers, but as these contracts expired, it would be up to Gilmore to decide who would do the printing.
Secondly, timely processing of client membership cards and kits was critical. The expectation was that these materials would be processed within 24 hours. Kara was worried about maintaining service levels under an outsourcing arrangement with Gilmore. Furthermore, client information was confidential, and Kara had concerns about security and ensuring that Gilmore did not use the MAC client database for other purposes, such as advertising and promoting products and services for other customers.
PREPARING FOR THE MEETING
Kara felt that the proposal from David had merit and she wanted to give it careful consideration. As she examined the information he had left with her, Kara wondered how to proceed. Were the risks worth the potential problems? What questions should she ask at the meeting on Tuesday? And were there any conditions she should place on the arrangement with Gilmore if they were to proceed?

Sample Solution

Response to David Callum’s Proposal

Dear David,

Thank you for submitting your proposal for Gilmore Printing to manage Marshall Automobile Club’s (MAC) forms, printed materials inventory, and kit assembly. I appreciate you taking the time to explain your services and the potential benefits for MAC.

Information Gathering

I am interested in learning more about your proposal before making a decision. To provide you with a comprehensive response by Tuesday’s meeting, I would need some additional information:

  • Breakdown of Costs: Could you provide a detailed breakdown of the $3.00 per kit fee, including the specific services covered (inventory management, kit fulfillment, distribution, etc.) and any additional costs we might incur?
  • Service Level Agreements (SLAs): Can you outline the proposed service level agreements (SLAs) for turnaround time on kit assembly and distribution? This is crucial to ensuring we meet our client expectations of 24-hour processing.
  • Security Measures: How would Gilmore ensure the security and confidentiality of our client data? Are you willing to sign a non-disclosure agreement (NDA) to guarantee this information is not used for marketing or other purposes unrelated to MAC services?

Evaluation Criteria

While outsourcing offers potential benefits, we will evaluate your proposal based on several key criteria:

  • Cost Savings: Does the outsourcing arrangement offer significant cost savings compared to our current in-house operations?
  • Service Levels: Can Gilmore maintain our current high standards for timely processing of client materials?
  • Security and Confidentiality: Are there adequate safeguards to protect sensitive client data?
  • Experience: Does Gilmore have experience managing similar operations for other companies in our industry?
  • Control: To what extent would we retain control over the printing process and selection of suppliers?

Outsourcing vs. Insourcing

While outsourcing some aspects can be beneficial, completely outsourcing printing may not be the best solution. Here’s a breakdown of potential options:

  • Outsource Kit Assembly: Outsourcing just the kit assembly could free up valuable space and employee time, focusing in-house resources on core competencies like client service.
  • Maintain Printing Control: We can maintain control over printing vendors while outsourcing inventory management and kit assembly. This allows for competitive bids and ensures quality control.

Conditions for Collaboration

If we decide to proceed with Gilmore, the following conditions would be essential:

  • Transparent Pricing: A clear breakdown of all costs associated with the service.
  • Performance Guarantees: SLAs guaranteeing timely order fulfillment and kit delivery.
  • Confidentiality Agreements: NDAs protecting our client information and data security.
  • Regular Performance Reviews: Regular meetings to assess performance and ensure adherence to agreed-upon standards.

Meeting on Tuesday

I look forward to discussing these details further during our meeting on Tuesday, June 17th. With the information you provide and a clear understanding of our requirements, we can determine if this partnership would be mutually beneficial.

Sincerely,

Kara Murphy

Conclusion

By carefully evaluating the proposal, requesting additional information, and outlining clear expectations, Kara can make an informed decision about outsourcing. The response demonstrates a willingness to consider the offer while prioritizing service levels, cost savings, and data security.

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