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SPECIAL REPORT: Evaluating PartsTrader

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State Farm’s parts procurement program through PartsTrader has been the industry’s hottest topic since the initiative launched in April 2012. 

The program has been a lightning rod for criticism, outrage and fierce debate, dominating discussions at the Collision Industry Conference (CIC) and association meetings nationwide. It has led to the formation of at least four new auto body associations and garnered international attention.

State Farm has said the program creates improved parts availability, quality, order accuracy, competitive pricing and process efficiency. The company says repair delays caused by parts ordering issues generate millions of dollars in rental vehicle expenses daily across the industry, and high parts costs are reducing the number of repairable vehicles for shops. PartsTrader is meant to curb both problems.

But many in the industry see it differently. PartsTrader has been hit with overwhelming resistance from repairers and associations that argue it cuts into profits, slows operations, creates additional work and extends cycle time. That’s all in addition to fears that the program could spread to other insurance carriers and cause shops to relinquish control over yet another aspect of their business.

Collision repairers have been hungry for information on PartsTrader’s impact and what to expect if the program enters their market. But State Farm has not release_notesd any quantitative data illustrating how the program is working and little has been said by repairers actually using it. So FenderBender sat down with four repair professionals using the program in four separate test markets to dig into the operational and financial impacts they’re experiencing. Note: the opinions of the individuals interviewed are their own and are not representative of the views of FenderBender.

FB: What impact has PartsTrader had on your shop from an administrative perspective?

McDaniel: Administratively, the program was very difficult at first. There were several technical problems, such as firewall and program glitches. It also required the rekeying of estimate information several times for every job. We had to manually transfer information back and forth between PartsTrader and the estimating system, which was time consuming for 20-part jobs.

Those issues definitely created administrative delays, but have since been resolved. New features have been added to the PartsTrader application that have eliminated some redundant steps. For example, there’s a tool that automatically exports all information from PartsTrader into the estimate. The upgrades have made the program pretty easy to use overall.

The biggest impact PartsTrader has had in the front office is productivity improvement. Without the program, we spend time actively communicating with vendors to source parts. With PartsTrader, we’re able to enter information into the system and walk away. We capitalize on the quoting period to accomplish other things—write another estimate, follow-up with a customer or check on repair statuses. That’s time that otherwise would be spent making phone calls and sending emails.

Hunsaker: With PartsTrader came a load of additional administrative steps and tasks in the parts ordering process. There has been a significant cost associated with managing the program.

With the volume of State Farm work we do, it requires a “half person” all day to oversee the process. But I can’t hire people in “halves.” So I had to hire another full-time office employee—an additional administrative cost of $50,000. That’s money that otherwise would have been profit. Because of that, I have to do $500,000 worth of State Farm work annually just to pay for that extra person. That equates to spending about three months working on State Farm jobs just to pay for the person who had to be hired because of the program.

Huffstutler: Our office staff likes using PartsTrader because it has streamlined administrative responsibilities. Without PartsTrader, our office staff is constantly on the phone hunting for parts, making orders and tracking delivery schedules. PartsTrader has eliminated that manual labor, and we don’t have to hunt for parts anymore; dealers do that on our behalf. We’re also able to electronically track orders and deliveries through automatic email updates, which we weren’t able to do before. We have not had to add any manpower in the office to manage the program.

Morris: PartsTrader has reduced administrative tasks associated with sourcing parts. With typical insurance companies, we have three separate parts searches for every job—aftermarket, reconditioned and OEM. That requires phone calls, emails or faxes to suppliers of each part type. Then we have to wait for responses and assess pricing. With PartsTrader, we’re able to search all three of those part types simultaneously. It’s one blast and you’re done. We now have less and easier work to do with parts searches for State Farm jobs compared to other insurance carriers.

I like the concept of being able to search for everything at one time. We’ve had positive feedback from our managers; many of them like it and want to use it for other things. One of them has called me several times and said he wants to use it forever.

FB: What impact has PartsTrader had on your shop’s efficiency?

McDaniel: The program has slightly improved our efficiency. Without PartsTrader, we spend roughly 45 minutes communicating with suppliers and sourcing parts for every job. With PartsTrader, we have all the parts information we need within 30 minutes. We’re sourcing parts about 15 minutes faster with State Farm jobs compared to other work in the shop.

Hunsaker: It’s very difficult to quantify exactly, but it’s definitely been reduced. It does not speed anything up or make anything move more quickly. My staff is spending more time sourcing and receiving parts than they were before.

With other jobs, we send parts orders to vendors electronically the first time. It’s not a submission for prices; it’s an actual order. The vendor calls within an hour to set up a delivery time. That’s all that the process requires. It’s very efficient.

The introduction of PartsTrader has disrupted our standard operating procedures that we have refined over the years. As a result, it has slowed our production down. Jumping through all the hoops that PartsTrader requires are additional steps in the ordering process that we didn’t have to do before.

Huffstutler: PartsTrader has made our shop more efficient for two reasons. First, it’s eliminated multiple steps out of our typical parts procurement process. Typically, we have to contact several parts suppliers for order inquiries, which requires several phone calls and emails. We often sit on hold for up to 15 minutes. Sourcing parts can take up to an hour for large jobs.

With PartsTrader, we can handle the entire ordering process from the computer. We can request and order parts within 30 minutes, cutting the investment of time in half.

Second, we’re getting more accurate parts orders. The system scrubs the vehicle VIN to ensure we’re asking for the accurate part the first time. We don’t have to make phone calls to verify parts with the supplier.
We’re saving up to 30 minutes on each parts order through PartsTrader, totaling about three hours of time savings daily. I handle all of our shop’s State Farm jobs, and I’m on the phone half the amount of time compared to the other front office staff.

Morris: We did a time study with PartsTrader. We put timers on the desk, and compared the time spent sourcing parts with and without the application. We found that it took more time to call all of the various parts suppliers with traditional methods compared to submitting bids through PartsTrader. The quoting period also allows the office staff to do other things rather than constant labor sitting on the phone.

FB: What impact has PartsTrader had on your parts profitability?

McDaniel: There has not been any impact on our parts bottom line. State Farm cannot see our MSRPs, costs or margins, which makes me feel more comfortable with using PartsTrader. Our profitability has been the same before and after implementation.

Hunsaker: To date, there has not been any impact to our bottom line on parts. Profitability has not been affected because we are not getting any price quotes under the MSRP.

Huffstutler: I get a 25 percent discount on parts, regardless of whether the dealer chooses to reduce the MSRP. If the MSRP on a $100 part is dropped to $95, I get 25 percent off the lower price. That’s not going to change; there has not been an instance when a dealer dropped their MSRP but kept my cost the same. It doesn’t cost me any money if a dealer reduces the MSRP. Our parts profitability has not been affected.

Morris: We haven’t seen any changes. Dealers have not changed our discounts. In some cases our parts profit margins have actually improved. We always search for competitive prices, and assess whether our dealers are competitive with wholesale pricing. There have been situations when we’ve put bids on PartsTrader and identified suppliers with better discounts.

FB: Has PartsTrader caused cycle time delays?

McDaniel: The quoting period did cause us to occasionally miss part delivery cut-off times in the beginning. Deliveries weren’t made until the following day if quote submissions weren’t made long in advance. That was more of a problem with the two-hour period that was initially required. It’s much less of a problem with a 30-minute period. There’s typically plenty of time for the quoting process.

Those situations do still occur, though. We started using the direct order feature, which allows us to order parts directly from a specific supplier to avoid the quoting process. State Farm is fine with that. We still have to balance cycle time with price, so there is no problem with making a direct order if cycle time is at risk.

Hunsaker: Although State Farm has reduced the quoting period to 30 minutes, suppliers don’t always get back with quotes in that amount of time. I have great vendors, too. They just don’t have time to submit all the quotes. That causes longer waiting periods or follow-up, and parts have regularly been delayed.

Huffstutler: PartsTrader has not slowed us down at all. I actually consider the quoting period as an opportunity for productive time. We use that time to get vehicles fully torn down and ready for repair, and record all necessary photos and documentation. Those pre-repair tasks take the same amount of time as the quoting period. Our cycle time has improved from an average of 4.2 days to 3.7 days after implementing PartsTrader.

Morris: We experienced cycle time delays at first due to the quoting period. That hasn’t been much of a problem recently.

FB: What impact has PartsTrader had on your existing supplier relationships?

McDaniel: The program has not impacted our business relationships at all. I don’t have to ever source parts outside of our existing network as long as they have the parts available.
Nobody has ever tried to underbid my preferred OEM dealers, although that wouldn’t matter because I only use my preferred dealers anyway. I don’t send parts submissions to everybody. I use my preferred people and have had no problems with that.

Hunsaker: This hasn’t affected business with our existing vendors. A majority of our vendors, which we have used for decades, have opted not to participate with PartsTrader. State Farm does allow us to continue working with those suppliers using a fax process.

Huffstutler: We are not required to work with any particular dealer. We can work with anyone, and we still mostly buy from the same suppliers.
I also see competition among suppliers in the market as a good thing. Loyalty to existing business relationships can only go so far, and cycle time always has to be considered. Existing relationships might not always be the fastest resources.

PartsTrader provides opportunities to hear from other vendors who might be able to fulfill our needs more quickly. This adds a healthy level of competition, and causes suppliers to compete through improved service.

Morris: We’re not going to change vendors or do anything crazy like that. We’re mostly working with the same people and don’t intend to change that. The only times we have switched vendors was by choice when a better discount was identified.

FB: How do you feel about this increased level of insurer involvement during the repair process?

McDaniel: It’s natural to be suspicious when insurers implement new programs that impact business operations. Nobody wants insurers to start controlling profits. That certainly shouldn’t be allowed to happen.
I don’t feel like that’s the case in this situation. I’ve never felt this was an underhanded effort on behalf of State Farm. In fact, I wish other insurers would implement the program. At our shop, it has sped things up and led to productivity gains. The program still isn’t perfect, but it’s been gaining my confidence lately. I do see some positive things coming out of this.

Hunsaker: I’m extremely skeptical. I don’t care how they package it; it’s not good, and it’s going to eat us alive. After 10 months of use, I have not experienced one possible benefit of using this program.

Huffstutler: I think it would be a good thing if all insurers used this program. Repair costs are increasing greatly due to high parts prices. There’s no reason that panels for high-end cars should cost thousands of dollars. Somebody with real horsepower, like State Farm, has to stop that. If not, estimates will continue to escalate way out of whack. This is the wave of the future, and only the beginning of electronic parts procurement in the U.S.

Morris: I didn’t know what to think about it at first. You always wonder what’s going on when insurers implement a new process. Going into this, State Farm told us they just wanted more competitive estimates. To date, it’s performed exactly as they said.

I’ve had to weigh whether using PartsTrader is something to be concerned about. Is the implementation of a parts search tool my biggest worry, or do I have bigger fish to fry in my operation? It’s out of my control. It’s something that I have to learn to deal with. We’ve tried to figure out how we can use PartsTrader to improve. I’m not afraid of it knowing what I know now.

There hasn’t been much downside for us. I don’t see it as a bad thing if a system like PartsTrader became the industry standard, as long as all insurers used a uniform platform. I could see where this would be good if all insurance companies used one standard.

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