Parts procurement is next bastion of change

There are a number of factors outside of the repair shop's control that compound these problems: insurance company requirements, incorrect database information, less-than-accurate part descriptions from vendors, and an overall lack of automation all add up to an error-prone, inefficient process.

"One shop owner told me that on a typical repair he's making 10 phone calls for one estimate," says Curt Nading, director of sales and insurance services at LKQ Corporation. "It's crazy what they have to go through."

Parts procurement is increasingly important, not just for customer service, but for meeting key performance indicators (KPIs) that are often part of insurance company direct repair programs. "If you don't hit those major KPIs, the insurance company moves you down a tier, or puts you on probation," says Pete Latuff, owner of Latuff Brothers Auto Body, a $3.8 million-a-year business in St. Paul, Minn.

The art of the tear-down

"Pre-ordering parts based on a preliminary estimate is a waste of time," says Mike Quinn, owner of 911 Collision Centers, which operates seven locations in Arizona and Nevada. "That's why it's important to do a tear-down."

Tearing down a car before writing an estimate isn't always an option, but every shop owner who follows this process says it's the only way to write a thorough estimate and generate a complete parts list.

"Ordering parts based on the preliminary estimate causes delays," said Dan Esperson, senior collision program manager at ALLDATA.

"When the first estimate is written, I don't even want to order the parts until I get a tear-down," says Gene Hamilton, owner of Sports & Imports Collision in Atlanta, and a member of the CIC parts committee.

At Autobody Hawaii in Kailua-Kona, owner March Taylor begins with what he terms the disassembly for repair (DFR) process at his 40,000-sq.-ft. shop. DFR requires the technicians to disassemble the vehicle, check the wheel alignment and account for all damaged components.

Each morning, the estimators, parts managers and paint shop manager meet and determine what vehicles can have an estimate completed that day. Each part is identified and photographed.

"That has reduced returns and our parts people have grown to appreciate it," Taylor says.

Generating a correct parts list from the beginning can eliminate or reduce delays and returns, and improve cycle times. "We try to keep OEM returns under 2 percent," Latuff says. "That's part of the responsibility of the shop to get the right information, the right trim codes and options. We're a partner to the dealer, and the dealer is only going to be as good as the information going in."

Even shops that follow this model can't implement it with all jobs, though, because many insurance companies require parts orders from a preliminary estimate. "We operate half under this throughput model and half under the old model," says Quinn. "It's frustrating, but we have no choice right now."

Insurers are aware that preliminary estimates are usually wrong, but often insist on using them so that work can begin on the car as soon as possible — even if it means deals down the road.

Quinn, a member of the CIC Business Management Committee, hopes to get what is known as the Complete Repair Plan (CRP) process recognized as an industry best practice. In the meantime, Quinn said shops should try to implement a tear-down-and-planning process in as many jobs as possible.

Vendor selection

Choosing reliable vendors is another area where shops can improve their procurement operations, provided they can effectively communicate with suppliers during the initial order process and when problems arise.

With so many vendors involved, it's important for shops to know who they are dealing with. When selecting preferred vendors, repairers should look at more than just their discount programs. Find out how much inventory they carry, whether they offer overnight shipping, and what their return policy is. Define your expectations for them, and ask them to do the same.

On the OEM side, determine their technological capabilities as well. In some cases, shops can access online inventory information, or send orders via e-mail or through a parts ordering system.

"You have to find a dealer that's interested in large volume, wholesale accounts, and has a large stock of collision inventory," Latuff says. "Usually, if you find that vendor, they have VIN decodes and are very good at getting the right parts and filling the order."

Just because you have a relationship with a vendor doesn't mean you should just fax an order to them and forget about it until the parts show up, though. "I don't like the concept of just awarding the order because we faxed it to a vendor," says Quinn. "We have a preferred vendor list. If they don't have all of the parts we need, I let them know I'm calling another dealership across town to see if they have it in stock. I may engage two Chevy dealers on one parts order."

You should also investigate how parts are handled and delivered. Shops should have a dedicated parts person on staff to manage the process, and parts should be delivered and received in an area that does not affect production workflow.

Keystone is experimenting with off-hours delivery in certain regions to help keep parts receiving from interfering with production. With some larger customers, Keystone delivers parts to a secure locker or storage shed after hours. "Delivering parts in the middle of the day is hugely inefficient," says Northup. "By delivering products to a secure place during off hours, you don't have to pull manpower to check the order."

Because OEM suppliers typically have access to better part numbers and VINs, shops generally have a positive experience with them once they've found a supplier they're comfortable with. In a 2006 survey about sources of crash parts, the CIC Parts Committee found that OEM part sources generally outperformed aftermarket and recycled parts suppliers, with aftermarket and recycled suppliers scoring particularly low in terms of quality and damage.

"As you go down the line, there's a larger possibility that you can end up with the wrong parts," Latuff says, adding that returns on aftermarket and remanufactured parts at his shop can range from 5 percent to 30 percent.

Many shops are less than enthusiastic about dealing with aftermarket or salvage parts, often because they're dictated by insurance companies and because of quality issues. The aftermarket suppliers and the recycling industry, though, have improved their performance as competition from OE suppliers has increased.

"In many cases, the relationship is seen as adversarial because the insurance company is dictating the parts," says LKQ's Nading. "We want to make the process as convenient as possible for shops. We've added aftermarket lines and reconditioned lines, and we want to make LKQ as much of a one-stop source as possible."

Because the rate of returns is higher for aftermarket and recycled parts, it's even more important for the shop to get an accurate parts list up front, and to establish effective communications with the vendor.

"One of the greatest challenges we face now is the proliferation of information," says Nading. "When it comes to recycled parts, they are treated like commodities, but there are many variables involved. You almost require that human element to describe the part accurately. More and more insurance companies and shops are relying on electronic parts sourcing, but that doesn't always do an adequate job of describing the part."

LKQ assigns sales reps to work with specific shops, to make sure communication is consistent, and so that the company can have a better understanding of each shop's needs.

When dealing with recycled parts, it's just as important to find out where the part is coming from, and how far it's traveling, as it is to get the part number right in the first place.

"It's even more difficult if the parts are not in the area," says Hamilton. "Once you get out of the immediate area, if you're trying to send sheet metal, it isn't going to make it. Seven out of 10 times a hood or a door comes back if you send it too far."

This is also a problem for the recyclers themselves, who often sell parts to each other as often as they do to repairers. LKQ has developed a network of partners and a fleet of its own trucks to help ensure the quality of the parts and minimize the distance the parts have to travel. But Nading admits that when the company has to buy parts out of its own network, "it can really be a challenge."

Insurance companies have also started to designate vendors, in some cases pushing shops to work with unfamiliar suppliers. "The insurance industry tends to find vendors that you don't deal with on a regular basis," Latuff says. "You might wait to get a part, and find out it's garbage anyway."

If a part arrives in less-than-perfect condition, shops can either return it or add more time to the job. At Autobody Hawaii, Taylor has to deal with vendors who, because of his island location, know there is not much he can do with a wrong or damaged part. Because he is in Hawaii, there are more opportunities for damage to occur in-transit, and less competition among the limited number of vendors he has to choose from. "There's only so much credit they can give you, so you make a decision: do you spend two hours repairing the panel, or do you send it back and slow down the job?" he says.

In many cases the shops end up eating the repair time on a damaged panel. According to Nading, LKQ and some other recyclers have begun reimbursing shops for labor on damaged parts, in order to reduce returns and supplements.

Ordering

For most shops, parts orders are still handled by phone or fax, whether they're generated manually or through an estimating system.

The collision industry has yet to embrace electronic commerce for parts procurement on a wide scale, in part because many repairers don't trust the technology. On top of that, the technology most shops do have in place is not always helpful on the parts side of the business. Databases often generate incorrect part numbers, and shop management and estimating systems have limited ordering functionality.

"Estimating systems do not necessarily have strong parts procurement toolsets," says Mark Tomasetti, vice president of emerging products at OE Connection. "Our statistics estimate that about 30 percent or 40 percent of parts that appear on estimates are incorrect. Many times they are the correct OE number, but they don't capture all the correct information."

Things are starting to change, though. "Shops are becoming more trusting of electronic commerce in parts procurement," says Carey. "It's still below 20 percent adoption, but they're beginning to see that if you can transmit a file to a reliable parts provider, they can get those parts for you."

There have been promising developments on the OE side, such as a system like CollisionLink. Developed by OEConnection based in Richfield, Ohio, the system electronically links repair shops with wholesale parts dealers. The system can interface with shop management systems and generate orders direct to the dealers. The joint venture between the Big Three automakers and Snap-on Business Solutions has more than 11,000 dealerships and repair shops participating.

The goal is to replace the traditional model of delivering part information by fax or phone.

Other companies also offer services that can help automate the procurement process. According to Esperson, ALLDATA provides a number of services in its ALLDATA Pro product and CollisionConnect program to link repairers with OE information that can help ensure more accurate parts orders. LKQ has stepped up its electronic ordering functionality, and even started offering parts through an eBay store.

Adoption is still slow, however. At Keystone, Northup says only about 6 percent of shops are using the company's online ordering capabilities. "You don't have everyone embracing the Internet today," he says.

The parts landscape continues to shift. Insurance companies are still trying to find ways to guide the parts buying process, although any direct involvement in procurement has so far been met with stiff resistance from the collision repairers.

At press time, Keystone and LKQ announced a merger that would create a $1.5-billion alternative replacement parts behemoth with more than 260 distribution branches in North America. (For an analysis of the deal, see this month's cover story).

But by taking a holistic approach to tearing down the car and creating an estimate (where possible), implementing the right technology (where appropriate) and working closely with trusted vendors, repairers can remove some of the hassles from the procurement process.

"If you can't get the parts, you can't get the car out to the customer," Quinn says. "This requires a cultural change in the industry. We have to have solid data and part numbers to work with, and we need to challenge the vendors to help us achieve our goals."