Parts Trading or Horse Trading?
My annual visit to NACE is always an interesting affair. I meet old friends and, of course, new ones too. Historically, we have built relationships, found new niche markets and have been able to develop software that has generated an income of millions of dollars—just from an idea planted at NACE.
This year was quite extraordinary too—among the many booths, the jostling and the negotiating I couldn’t help but see how many businesses have sprung up around parts procurement. In many cases, those around green parts (stuff that has been scavenged from damaged vehicles by vehicle recyclers). It seems everyone is on the bandwagon.
It’s quite interesting to compare my home market with the U.S. Green parts are hardly used here for many reasons, although there is a will from insurers to try to promote their use because they think it saves money. (Don’t confuse the rhetoric of recycling—good for the environment—with saving money). The problem of course is it inevitably adds to cycle time.
I guess the question we should be asking ourselves is that, as part of a supply chain to major insurance carriers, how much influence should they have on our business? On the one hand, you could argue that they shouldn’t interfere at all, and just select the best collision shops for the job. On the other hand, if you put the insurer’s hat on, you want your supply chain to be at the top of its game, so surely you should interfere, audit, demand and shout the ‘best practice’ mantra, right?
This argument is steeped in emotion, and there is no real answer. Being brutal, most shops don’t actually know what ‘good’ looks like, so it’s very difficult for them to ‘up’ their game. On the other hand, insurers on the whole have absolutely no idea how a shop should run, and so their ‘tinkering’ with the edges just causes aggravation and adds cost.
One such scheme is the State Farm program through PartsTrader. It’s worth understanding that in the U.K., we have seen all of this stuff before. We have seen (and suffer from) insurers mandating just about everything—glass removal, wheel refurbishment, paint systems, parts acquisition (green and non-OE), free recovery, free courtesy cars, updating websites, and estimating systems. Even fixed-price repairs and total loss settlements. This haemorrhages shops because it has no benefit to cost savings or reducing cycle times. It is a ‘silo based’ cost-centred decision where the people involved have little, or no idea of the effect of what they are doing. It is so destructive because people who work in ‘cost centers’ design it. Be very aware of any company that has a ‘cost center’.
For one insurer I know over here, the cost of keeping the claim open is about $60 each day. So every day that the car is being repaired adds additional cost to the insurer though administration, the possibility of reduced CSI and the possibility of increased personal injury claims. Someone in a ‘cost center’ decided that they would outsource windshield glass removal and replacement to a national company because they can save $30 per screen. All sounds good, until you see what actually happens in practice.
It takes a full day for the glass guys to come out and remove the screen. It then takes another full day for them to refit it. That’s two days lost (or added to cycle time).
I think in summary, seeing what State Farm is trying to do is logical, but unfortunately, it won’t save overall claim costs. All it will do is add complexity (cost) and time (money) and drive repairers and their supply chain out of business. Remember, we are all only as good as our supply chain, therefore if we force them to add cost to the process, it will end up biting the customer. As an analogy, you can only squeeze a balloon so far before it either expands into another area, or pops.
If only insurers would engage in a proper conversation about how their supply chain can work in the most effective way, then the U.S. might have a chance of not making the mistakes that we made in the UK.
Jon Parker is managing director of the Byteback Group, a U.K.-based information technology and services company aimed at advancing the collision repair industry.