Abstract
Claims operations are fast growing into a moment-of-truth customer experience. Statistics indicate that claims operations have transformed into the single largest business cost for claims processors besides being one of the most visible customer experiences. As a result, it has become increasingly necessary for the firms in the industry to explore ways to improve the customer claims experience through a new level of sustained operational effectiveness and efficiency and customer satisfaction. In this paper, we shall explore ways that Sedgwick CMS, the leading Third-Party Administration Company in the United States, can realize increased efficiency and effectiveness in its operations. This investigation shows that Sedgwick CMS would attain efficiency and effectiveness in its operations through proper integration of eight key business concepts (Strategy, Enterprise resource planning, Lean Six sigma, Outsourcing and Offshoring, Lean management, Supply chain management, Process design and planning, and Innovation).
Integrative Learning Project in Operations Management
Organizational Setting
Sedgwick Claims Management Services, Inc. (Sedgwick CMS) is a top North American provider of innovative claims administration together with productivity management solutions. The company first came into operation more than three decades ago with the aim of providing top-quality claims administration services for the increasing on-the-move companies in the United States.
Mission Statement
The company’s mission is “To be the premier provider of customized claims and productivity management solutions through
• Customer-focused programs
• Efficient, quality-driven process design
• Stakeholder return on investment
• Support and empowerment of our colleagues to do the right thing at the right time
Vision Statement
Sedgwick CMS Vision Statement: “To become the world leader in delivering trusted innovative claims and productivity management solutions.”
Core Values
The core values of Sedgwick CMS are delivering excellence; operating openly and with integrity; embracing change; growing as individuals; and operating as one company, one team.
In line with the strong mission and vision statements and its core values, Sedgwick CMS designs and implements customized programs using proven best practices that satisfy the needs of the client. Sedgwick CMS seeks to meet the expectations of its stakeholders and diversify its services along with refining its approach to offer unequalled claims management services to employers across different industries. Indeed this company is not only a provider of custom-built but also a provider of value-added and cost-effective claims management services.
Services and Products – Sedgwick CMS and its affiliates specialize in claims administration and other related cost management services in comprehensive claim programs: workers’ compensation; general liability, automobile and professional liability coverage; short- and long-term disability, Integrated Disability Management (IDM), FMLA claims, total absence management programs, warranty/credit card claims services, healthcare professional liability, captive programs, and risk retention groups. In addition, our company provides a host of value-added services to our customers such as managed care services, an internal call center, litigation management, risk management, a Special Investigative Unit (SIU), and business intelligence.
External and Internal Customers – The company’s clientele base is comprised of industries such as administration and processing, insurance agencies and brokerages, health care, financial services, utilities, manufacturing, education, and retail.
At the moment, Sedgwick CMS serves its customers through viaOne – a suite of web-based tools that offer personalized online access to claims information, user-managed data management and reporting capabilities, program management, managed care, risk consulting and medical management among other related services.
My role/contribution to Mission Statement – My consultancy role at Sedgwick CMS is to devise strategies to improve its efficiency and effectiveness in the competitive claims administration industry. I endeavor to work with my client in providing efficient and cost-effective settlement administration solutions that will guarantee stakeholder return on investment. I will help Sedgwick CMS adopt a competitive strategy. In addition, I am dedicated to engage my colleagues in an extensive training program so that they are ultimately best placed to meet the expectations of clients.
The Eight Key Concepts
In discussing the organizational setting of Sedgwick CMS, we shall integrate eight key concepts in operations management. These are: Strategy, Process design and planning, Lean Six sigma, Enterprise resource planning, Supply chain management, Innovation, Lean management, and Outsourcing and Offshoring.
Strategy – In the effort to maintain its stature as a market leader, Sedgwick CMS needs to adopt a strategy that will position it as a highly-held and well-known service provider for self-insured clients, maintaining an unmatched track record, and a massive loyal client base. In addition to excellent service, Sedgwick CMS will strive to run business that is built on trust and excellence. Therefore, the new strategy will be characterized by mutual understanding, attention to detail, collaboration, and focus on attaining meaningful and valuable outcomes for our stakeholders and the company itself.
The company needs to bring on board more experienced and diligent claims administrators so as to realize a guarantee of daily smooth running of claims and risk environment. Thus, it should work towards having seasoned professional claims adjustors with solid comprehension of conducting investigations, drawing meaningful conclusions, examining risk transfer options, applying necessary loss, reserving practices, negotiating proper settlements, participating in litigation management, and communicating with the right personnel. The change of strategy would therefore enable Sedgwick CMS to give unmatched high quality claims administration services to its clients at relatively affordable rates.
In addition, it would do Sedgwick CMS much good if it committed its resources to providing the finest state-of-the-art risk management tool for Third Party General Liability Claims Administration (TPA).
Process Planning and Design – Process planning and design in claims administration deal with elements of services to offer together with design of the desired transformation process aimed to deliver such factors as low cost, improved quality, speed and enhanced functionality among others, in an efficient and effective way.
In order to achieve efficiency and effectiveness, Sedgwick CMS would need to adopt a simplified claims department organizational structure such as the one represented below.
Figure 2. Claims department organizational structure
The design of the process for claims processing at Sedgwick CMS can be significantly improved through a simple yet effective and efficient method. Generally, the claims adjustor would receive claims forms handed in by clients and then log the receipt of that particular form into each particular client’s existing record within that specific settlement’s database. Such a dataset record would often stem from either the initial mailing data or from self-identifiers who contact the firm through phone call, in person or through other correspondence (Heldman & Mangano, 2011). The connection of the form to the database record would be carried out through the use of identifiers which can readily be scanned upon receipt of the form and linked to an identified number associated with the particular claimant’s database information. This would serve as proof that the client’s claim has been received by Sedgwick CMS.
More often than not, documentation relating to receipt of a claim form is the only processing demanded at this initial stage. This is especially the case with settlements that have relatively small benefit amounts or those that lack variation of benefit amounts between claimants. However, in most cases at least some degree of data capture and analysis is needed as a part of the claims processing.
With the growth of Information Communication Technology (ICT) and Information Technology, online claims submission along with validation is increasingly becoming a popular and effective way of processing claims. This is an area that Sedgwick can explore more and more. However, challenges of using this platform come in the form of some claim processes that demand certain types of documentation and thus do not easily lend themselves to the new online processes.
Six Sigma for Process and Quality Improvement – Owing to the increasingly competitive environment in the claims administration industry, it is suicidal to have loopholes for any sort of error considering that clients are expecting quick and efficient access to services, products, and information (Tarantino & Cernauskas, 2009). In this respect, it has become very critical to effect some key changes in the ways by which Sedgwick CMS conducts its various business activities. The concept of Six Sigma plays a vital role to this effect because of its greater focus on “quality becoming a part of the organizational culture”.
Principles of Six Sigma.
i) Engaging proactive thinking in attaining perfection.
ii) Excellent service to customer is always top priority – focus is towards understanding the needs and expectations of customers and striving to fulfill them.
iii) Boundaryless collaboration that is reinforced by date and fact driven management.
iv) Failure is permitted but only through risk management techniques.
Objectives of Six Sigma.
i) To provide good performance and reliability
ii) To offer value to the end customer
iii) Minimize or reduce defects in any type of process
iv) To do away with wasteful practices
v) Offer after sales service quality
vi) Step up the quality of product/service
vii) Satisfy external and internal customers
Benefits Using Six Sigma.
i) Free from defect products/services
ii) Reduced production, inspection and warranty costs, and tension free working conditions
iii) Greater customer satisfaction – leading to better positioning and better reputation
iv) Achieving of excellence in the processes (Tarantino & Cernauskas, 2009).
By adopting principles of a new six sigma to all aspects of its entire claims process, Sedgwick CMS would be able to improve its claims performances and realize significant changes of great benefit to the company and its customers.
A sub-methodology of six sigma that would suit Sedgwick CMS, which is seeking to attain more efficiency and effectiveness, is the DMADV (define, measure, analyze, design, verify. This is because DMADV is best placed to measure results in such instances where dramatic improvement or new processes in the existing processes are desired. Implementing six sigma will therefore allow claim administrators at Sedgwick CMS to recognize a vast variety of factors that influence total loss costs. In addition, they will be able to design meaningful and effective measures such as cost of risk, outcome-focused claims practices, loss mitigation, operational effectiveness, and capital management.
Enterprise Resource Planning – An enterprise resource planning system (ERP) provides for better management of a company’s resources. Excellent management of resources is paramount for all companies in all industries, the claims administration industry being no exception (O’Leary, 2000). There are essential features to a comprehensive ERP, which serves to integrate the company’s functions and operations such as the internal and external management information, embracing accounting/finance, manufacturing, customer relationship management, sales and service, etc. In general, therefore, ERP serves to facilitate efficient and effective flow of information among all business functionalities both inside the organizations and management of connections to the external stakeholders of an organization.
A typical ERP system carries the following characteristics:
– A well-integrated system with the ability to operate next to real time (if not in real time), without necessarily depending on periodic updates.
– A common database which supports all the entire applications of an organization.
– A uniform look and feel across each module.
– Installation of the system itself without requiring elaborate data/application integration by the organization’s Information Technology (IT) department (O’Leary, 2000).
A high valued company like Sedgwick CMS can utilize the benefits of ERP to streamline its work flow, provide enhanced support to its customers, and provide real time data relating to sales, reduce a significant amount of paperwork, increase availability of raw materials and inventory, and assist the company in its global operations (Madu & Kuei, 2005). Sedgwick CMS can improve its efficiency and effectiveness through proper utilization of features of enterprise resource planning. These are
1. Financial management – Corporate financial administration is a crucial task to Sedgwick CMS in its day-to-day operations. Being a claims administration company, it is open to scrutiny from its stakeholders and relevant monetary bodies that regulate the financial flow process. As such, the company would be able to customize the ERP to store much information relating to its general ledger, invoices, receipts, budgeting, and consolidation. This will go a long way in stabilizing the financial situation of Sedgwick CMS. This is because the ERP system would help the claims administration company in real time tracking of its cash flow along with efficient creation of timely financial reports.
2. Human resource management – Generally, the ERP system comes in handy in matters relating to employee administration, tracking of personal information of employees, payroll, benefits, training, recruiting, 401K, and diversity management. In addition, Sedgwick will be able to customize the tools that collect and maintain information. Adopting newer ERP system would enable Sedgwick CMS to achieve customization in the sense personal client information collected would be maintained and managed individually as opposed to group management.
3. Supply chain management – One of the key tasks in the claims administration business is constant assessment of demand and matching the needs of clients, especially due to the increasing competition in the industry. Failure to collect and predict such information would have adverse negative effects to a leading company such as Sedgwick CMS and make its productivity to take a beating besides tainting its status in the economy. This is where the ERP system comes in handy to the company. Adopting effective ERP software would enable Sedgwick CMS to address a host of issues relating to the supply chain management. For example order to cash, order entry, inventory, claim processing, and commissions.
4. Customer relationship management – CRM is at the core of a business because customers are the most valuable and operations are towards satisfying the needs of the customers. There is acceptable CRM and a reliable and correct communication to the customer-related information to the company’s marketing team and sales team. Appropriate integration of the ERP system would greatly help Sedgwick CMS to align its customer contact, call center support, marketing, and general services. In addition, ERP system offers the “self-service” interfaces for employees and customers alike.
In order to implement an efficient and effective ERP system, Sedgwick CMS would have to undertake considerable changes to its staff work process and practices. For instance, the firm will have to do away with much manual operations by its force as it integrates the electronic systems of doing business. These changes will be attained after extensive consultations, customization, and soliciting for support from the affected personnel. There is need to thoroughly analyze the company’s business processes before undertaking implementation. The analysis would be towards identifying opportunities for the process modernization. Similarly, it would allow for assessment of the alignment of current Sedgwick’s processes that would be availed by the ERP system.
Another possible advantage that the ERP system will give Sedgwick CMS is the provision for extension with other third-party software. Because of that, the company stands to benefit from additional capabilities offered by extensions such as archiving, republishing, reporting, capturing transactional data, accessing specialized data, advanced planning and scheduling (APS), managing resources, facilities and transmission in real-time.
However, it is worth noting that ERP implementation for Sedgwick CMS, a decentralized organization, may prove rather challenging. This is because the company runs varied processes, operates on strict business rules, and has different data semantics, decision centers, and authorization hierarchies (Harwood, 2003). As a result of this, the company may be forced to migrate some of the business units before others, customizing the system to meet particular needs, or delay implementation process so as to work through certain changes for individual units. There is always the danger of compromising the competitive advantage when adopting the “standard” processes. Given that Sedgwick CMS is a large organization, it can be estimated that the implementation period would take one and a half years.
Sedgwick CMS can incorporate best practices to the ERP system it uses to reflect the company’s interpretation of the most effective ways to perform claims administration. These include reduced time-consuming tasks such as documentation, configuration, testing, and training. This is especially the case because procedures can easily be codified with the ERP system and then replicated with confidence across all departments in the company.
Supply Chain Management. A supply chain refers to a system of organizations, technology, people, information, resources, and activities involved in providing a product or service to a consumer. Supply chain management entails the planning and management of all operations involved in the sourcing and procurement, conversion as well as all logistics management activities (Madu & Kuei, 2005). It entails supply, movement of materials, storage, information, equipment, personnel, and finished products with the business and between its environments. Generally, supply chain management aims to integrate the whole process meeting the needs of the customer together with the supply chain.
The supply chain is made of a network of organizations designed to supply inputs to the whole business unit, and the customer network.
Figure 3. Structure of a Supply Chain
At Sedgwick CMS the supply chain strategy needed is one that is customized to satisfy the needs of the clients, which may not necessarily be the lowest cost strategy. The need for a more effective and efficient supply at Sedgwick CMS has grown because of the increasing global competition, outsourcing, e-commerce, and greater supply chain complexity in the claims administration industry.
In order to realize its mission, Sedgwick needs to transform the manner in which it manages the claims of clients. There is greater to design its supply chain in such a manner that it improves performance management and provide improved customer service while reducing the cost of their claims. Of greater importance, the company must address the chief sources of claims leakage through transformation of its supply chain to enhance manual processes and the guesswork currently experienced in handling of claims (Madu & Kuei, 2005). It is demanding of Sedgwick to address the problem of claim handlers lacking end-to-end visibility of the entire claims process, which has rendered them unable to effectively respond to a customer enquiry. If Sedgwick manages to significantly simplify its supply chain process, there would be reduced claims handling costs along with increased customer satisfaction.
A new, better supply chain process can be implemented at Sedgwick CMS in a number of phases. However, the most crucial change ought to focus on implementing the system relating to ‘household claims’ where there is high number of policy holders as well as multiple claims. This new supply chain process would give Sedgwick CMS a real-time end to end visibility of the entire claims process, beginning from the point at which the claims are received to last action and payment of it. Less time will be spent on tracking the status of the claims and collating management information. This improved claim handling controls practiced throughout the whole claim lifecycle would ensure that the company would attain better settlement planning along with negotiations resulting in dramatically reduced claim cycles times.
Innovation – Innovation refers to the creation of better, more effective products, services, processes, technologies, or ideas which are readily available to the market, government, and society at large. This implies that innovation is a key catalyst of growth in any business including the claims administration business. The pressure to control costs whilst providing timely and fair service is continuously increasing in many property and casualty departments, and thus companies that specialize in those areas such as Sedgwick CMS. Use of state-of-the-art technology would enable claims professionals to better access more information, manage larger workloads, follow best practices as well as reach more consistent decisions (Fischer, 2000).
Accordingly, it has become mandatory for Sedgwick to consider more innovative ideas in its day-to-day operations so as to achieve efficiency and effectiveness. Use of a electronic claim folder will enable the firm to better handle all claim-related information besides supporting core claim functions such as first notices of loss, automatic assignment of claims, policy/coverage processing, financial processing, and workload management (Dick, 2007).
Figure 4 shows a high level architecture of the claims processing system that would effectively work for Sedgwick CMS. The call center is the primary area of interaction between the clients and the claims processing system. The other five modules in the center represent the core functional components of the business application, where data in the mainframe is accessed and updated and interfaced with the viaOne system through maps and custom workflow applications. The support modules will define the application parameters, create reports, make date backups, and track system usage, among other administrative functions.
Figure 4. Workflow chart for claims processing
Lean Management – The Lean concept is associated with the Toyota Production System (TPS) and is characterized by minimal use of resources together with elimination of all forms of waste in production or management. The essential ingredients of Lean concept include
– Balancing flow through the process
– Pulling throughput to match customer demand
– Reducing waste and inventory throughout the production process
– Producing increased variety and complexity to that initially possible
In other words, lean concept strives to deliver more value for the company and its stakeholders by increasing its velocity of throughput as well as reducing wasteful practices through balancing process flow.
Lean is both a business improvement tool and a philosophy that requires implementation from the top management down so as to generate needed levels of understanding and belief (Martin, 2006). It is my obligation as a consultant to ensure that Sedgwick CMS adopts a lean program that is not a just another quick fix initiative. A significant amount of time will have to be dedicated to attaining widespread commitment to address the fundamental business performance issues currently faced by Sedgwick CMS such as The lean program to be adopted is one that is in line with Sedgwick’s organizational structure, management performance reporting systems and culture so as to realize desirable long term results. The process will need to be systematic, where the starting point will be with the overall strategy and apply it in the appropriate order.
Wasteful practices often happen in many functionally driven environments because of legacy habits which have become nature or culture of the company which are rather problematic for the workforce to see through, to an alternative new perspective. There are a number of waste types that Sedgwick CMS needs to take note of and adjust accordingly. They include waiting time, delays, and transportation. To correct this, the management would need to adopt lean management practices such as process mapping, value stream mapping, pareto analysis, 5S (workplace organization), fishbone analysis, and poke yoke (error proofing). For example, standard process mapping or value stream mapping would enable the flowcharts of Sedgwick CMS to be visibly connected to clear client customer value measures. This visibility would help the company to gain more understanding of the state of a number of internal customer-supplier relationships within the firm.
There is also greater need to integrate the lean improvement initiative and Six Sigma program (commonly referred to as “Lean Sigma”) in Sedgwick CMS. This is because the two approaches can be employed to achieve a number of complementary objectives for claims administration (Martin, 2006).
Outsourcing and Offshoring – Third Party Administration companies are increasingly facing a confluence of challenges ranging from tight economic conditions, rising business costs, and increased competition. It is highly necessary for Sedgwick CMs to embrace increased outsourcing and offshoring as newer innovative methods of gaining competitive advantage in the market for Sedgwick CMS in light of the tightening economic conditions, rising business costs, and increased competition among Third Party Administration companies. Outsourcing or business process outsourcing (BPO) is the process by which a company allots a section of its work to another organization/firm and holds it responsible for most of the applications together with the design of the specific enterprise business process (Davies, 2004).
Offshoring is typically an operational process mainly in manufacturing and supporting processes where a company relocates one or several of its business processes from one given country/company to another.
The claims administration industry is mainly associated with services Offshoring. Sedgwick CMS would need offshoring because of the immediate need to cut costs of operation. Given that the company handles relatively large volumes of claims administration cases, it would be highly cost-effective to outsource this function to other specialized firms in the country or beyond such as India is known for high quality service within remarkably short turnaround times. Some of the insurance claims processing services that Sedgwick can outsource to Indian firms include insurance claim setup, insurance claim eligibility and estimation, claim document imaging, disbursement, full claim adjudication, fast track adjudication, claim support and auditing, account settlement, and legacy applications modernization.
Outsourcing and offshoring would be beneficial to Sedgwick CMS in a number of ways. These processes would save the company the huge operational costs and improve customer service, because of delegation of some of its activities to specialized firms. Similarly, it would result in greater retention and high profit margins, and promote pricing flexibility along with creating new business opportunities because of the further popularization of the company and its services. Of greater importance, though, offshoring and outsourcing will give Sedgwick CMS the opportunity to focus on it’s the rest of its core business activities, realize faster time-to-market on new services and products, and improve its overall competitiveness and performance.
Conclusion
Efficient and effective claim management is significant to achieving customer loyalty, business growth, and improved reputation. Claims management is thus critical to driving performance and results for a third-party service provider. Given that claims have their unique own workflow-driven value chain, players in the industry have a relatively wide range for operational improvements.
The company ought to invest more in technology, especially IT so as to improve the speed, accuracy, and efficiency of its handling of claims. The skilled claims adjusters must be supported by efficient and state-of-the-art claims management technology, strategies, and other progressive business concepts such as lean six sigma and project management. In general, therefore, Sedgwick CMS would only be able to transform its operations and attain effectiveness along with efficiency appropriately if it takes measures to integrate and implement the eight key business concepts discussed above.
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