Regier Insurance Company Case

Angela Reid, purchasing manager with Regier Insurance Company, in London Ontario was evaluating a proposal submitted from Owen Sitter, from Stephen Printing. Owen was proposing that Stephen Printing take responsibility for managing all forms and printed materials inventory for the Regier Automobile Club. Angela 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 2, and Owen was expecting a response from Angela on Tuesday, June 17, during a meeting scheduled for that afternoon.

REGIER INSURANCE COMPANY

The Regier 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 Regier Automobile Club (RAC) was a division of Regier Insurance Company. 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.

RAC 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, RAC offered features such as trip planning, a travel reservation service, and trip interruption insurance.

Individual clients would join RAC through an online registration tool or by completing a form at a local Regier Insurance office.Payment was typically made using a credit card. OEM clients sent their membership information to RAC daily in encrypted data files. Both individual and corporate client membership information was processed at the London 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 assemble in periods of strong demand.Storeroom staff were paid $900 per week plus 15% in benefits. The material costs of the printed material was estimated at $1 per kit. It costs $0.91 to mail each kit.

Angela's responsibilities included managing the 3,000-square foot storeroom. This storeroom was where the printed materials were stored and kits were assembled. In addition to materials for distribution to new clients, other printed materials included RAC marketing brochures and promotional materials. In total, more than 250 different printed products were held in inventory. In order to take advantage of discounts form printing suppliers, RAC had four to six months of inventory for many products. Inventory holding costs were estimated to be 20% per year of the cost of the material.

THE STEPHAN PRINTING PROPOSAL

During a meeting the previous week, Owen Sitter proposed to Angela that his company take reasonability for managing forms and printed materials for RAC. The proposal indicated that Stephan Printing would manage relationships with printing suppliers, including inventory management, kit fulfillment and distribution to clients. Owen described how they were providing this service to other large corporate clients, in a range of industries, which 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 Angela in pursuing the proposal at that time, Angela would need to provide Owen with details regarding annual volumes and materials involved.

Angela could see the advantages of outsourcing management of the storeroom operations and kit assembly. Office space was at a premium at Regier Insurance, and the storeroom could easily be converted to other uses. The headaches associated with ordering materials and maintaining inventory records could be eliminated.

However, Angela did have concerns. First, she was suspicious that Stephan Printing was looking to take over all the printing business for RAC. Although an important supplier, Stephan Printing was currently responsible for approximately 30 percent of the printing purchases for RAC.Under the outsourcing arrangement proposed by Owen, Stephan Printing would take over existing contracts with Regier Insurance suppliers, but as these contracts expired, it would be up to Stephan Printing 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.Angela was worried about maintaining service levels under an outsourcing arrangement with Stephan printing. Furthermore, client information was confidential, and Angela had concerns about security and ensuring that Stephan Printing did not use the RAC client database for other purposes, such as advertising and promoting products and services for other customers.

Thirdly, Angela had concerns over who Stephan Printing employed to assemble kits. She had heard that Stephan Printing hired children, international post-secondary students and new immigrants to assemble the kits on a piece-work rate often resulting in less than minimum wage hourly rates. These workers were usually from the Toronto area. This concerned her that employees were not being compensated fairly and that quality may be a concern.

PREPARING FOR THE MEETING

Angela felt that the proposal from Owen had merit and she wanted to give it careful consideration. As she examined the information he had left with her, Angela 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 Stephan Printing if they were to proceed?