Lately I have been hearing some unique ways of describing what my marketplace area is from a few DRP insurers while discussing searches and ordering, especially regarding salvage parts. Here are a few examples:
1. The marketplace is anywhere we can order a part.
2. If it can be shipped to your shop’s door, that is the market area.
3. It is like Amazon — you can order anything from anywhere.
4. If you fixed the car in your (home) garage, you would order the part that is cheapest from "XYZ" state.
Most repairers who have DRPs have complained about this in recent years. Thanks to a number of automated search tools, it is relatively easy to shop all over our great country. What is not easy to do is deal with quality issues, returns, refunds, job delays and all the accompanying administrative work and expense. Far too often parts purchased from vendors afar require special payment (as we typically don’t have accounts with them), have quality issues, have clean-up time issues (they are less motivated since we don’t have relationships including frequent purchases), have return issues (for the same reasons) and have refund issues.
Some insurers will only pay the least expensive price found as long as the part located sounds like it may be acceptable. According to the Automotive Recyclers Association (ARA) website, there are about 9,000 auto salvage business locations in our country employing about 140,000 people and generating $32 billion in sales. Of course in such a scenario the key question is whether or not a located part is truly acceptable as described from the various vendors, most of which we have little or no experience with. When expressing our concerns to these insurers the following are some of their responses:
1. Your local vendors should/can price match the part.
2. Your shop does not need an account, they will take a credit card.
3. If you have a problem, let us know and we will take them off our list.
4. If you fixed the car in your garage you would order the part that is cheapest from "XYZ" state. (Which is a silly argument of little relevance. This is of little comparison with a professional collision repair from a legitimate business.)
As most repairers will tell you, when we order some of these parts from unknown sources from out of state, sometimes we have a good experience. Most will also tell you that often we don’t and it is a terrible experience for us as repairers and thus for our customers.
In the past, I was part of a lean exercise where we identified all the steps to return a part. We came up with more than 60, including all the steps the estimator, technician, parts person and accounting office go through including keeping track of the return part, return slips, communications, supplements and accounting office work relevant to keeping track of the purchase costs and refunds within internal accounting and additional work handling and auditing vendor invoices, return slips and monthly statements. I think it is safe to say the total labor required is roughly 1-2 hours of work. You can image what that equates to in terms of labor expense. In other words, returning a part is a bigger issue than many people assume.
Of course, the most demanding insurers who push this on us appear to be focused simply on cost savings with very little consideration for administrative costs for shops, nor for potentially all of the negative issues resulting from job delays, including customer CSI, rental expense and shop production inefficiency. Often it is not considered that when a repairer has to stop body repair while waiting for a part — as the tech can’t work on that vehicle — we want them working on another. So we give them another job, which means we must maintain a larger work in process (WIP) and won’t necessarily return to the job waiting for the part until the tech is finished with the second job. Cycle time and inefficiency increase and the issues snowball into bigger problems.
The irony of this is that many of us have a number of good salvage part companies in our area who are better prepared than we as repairers to shop the outside market and to know who out there is a better or worse performer. Local trusted vendors are also far more inclined to go the extra distance for a good collision business customer in terms of searches and investigating part quality, providing clean-up time, handling returns and more.
Another irony is how some of these insurers define our "area" or "marketplace" when it comes to ordering parts. When I ask them if we can use the same definition of my area or marketplace to establish labor rates, they don’t find my logic amusing.
Yet one more irony is that my state’s insurance regulations state, “No adjuster..., employee, or other representative of an insurer shall in collision cases: ….6) specify the use of a particular vendor for the procurement of parts or other materials necessary for the satisfactory repair of the vehicle. This clause does not require the insurer to pay more than a reasonable market price for parts of like kind and quality in adjusting a claim.” Shouldn’t this matter? The cheapest price from a yard hundreds, or even thousands, of miles away should not necessarily constitute the "reasonable market price."
As reported in CCC’S 2018 Crash Course, average cycle time has been trending longer in recent years. One wonders if this issue is a contributor.
I know to some extent I am venting. However, as an industry we should be much better than this. While the automated parts searches are great for finding parts and no doubt help keep costs down, they are woefully inadequate when it comes to offering accurate descriptions and grading of parts quality, monitoring delivery time, measuring return rates, receptiveness to clean up costs and other salvage parts vendor performance indicators. While containing insurer cost is good, there should be more effort to do the same for repairers. And, most importantly, we should be more focused on the consumer. Too often they take a back seat to the convenience and cost containment of some insurers.
