Friday, 30 November 2007 17:00

SF Parts Procurement Program

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Prior to State Farm launching a test of an electronic parts procurement program with its Select Service shops in San Diego, an insurer spokesman said the company is considering what role it can play in streamlining other aspects of collision repair claims.

“I don’t think this is it. This is not the end,” George Avery, a claims consultant with State Farm, told those attending the Collision Industry Conference (CIC) in Las Vegas in late October.


“We’re looking at rental. We’re looking at towing. We’re looking at ways to make you efficient because… of the customer that we share. I want to make it a positive experience. That positive experience, we believe, can be achieved, by getting into what is really making it inefficient.”


Improving such inefficiencies in the parts procurement process is the reason the insurer has launched its latest test program, Avery said, emphasizing that it is a test only. Select Service shops in the two markets are required to order parts using two electronic systems – because not all auto manufacturers are using the same system – from dealers that also using the systems.


State Farm has negotiated various discounts of about 3 percent off parts list prices from at least six of the largest auto manufacturers. Avery reiterated that the program has been designed to not cut into a shop’s parts profit. He asked shop owners at CIC to visualize the dollar amount of profit they currently make on a particular hood.


“When the discount that we have negotiated with the OEs results in a lower price for that hood, the amount that’s your profit dollars will remain the same,” Avery said.


 He later emphasized again that it’s not that a shop will receive the same percentage but of a lower retail price, but instead will still receive the same actual profit dollars as before the discount program.


“The electronic ordering platforms that we’re working with are going to manage that,” he said.

 

Select Service shops are free to buy from dealers not using the electronic parts ordering systems, Avery said, but under the Select Service agreement, such shops would be required to give State Farm the parts discount.


The test is designed, Avery said, to see if the electronic parts ordering and pricing systems work, if dealers are willing to participate, and if it helps shops operate more efficiently by, among other things, reducing parts errors and returns. He said he could not offer a timeline for how long the test would run nor when national roll-out of the program might begin.


He also said the program had no connection to whether the insurer decides to again call for use of non-OEM parts, something it halted several years ago following a lawsuit.


Avery said he could not speak for the automakers but believes they agreed to the discounts because “State Farm brought some value to them in several different ways relative to fewer total losses, fewer parts returns” and more data.


He said the program has been in development for about two years, including discussions with State Farm’s “advisory council,” which includes shop representatives and which has acknowledged inefficiencies related to parts as well as concerns about maintaining shops’ parts profit.


Avery said the company has cut the number of shops participating in Select Service to about 11,200 nationally, down from about 20,000 that participated in the Service First program. That number will continue to change based on the insurer’s capacity needs in each market, he said.


He said the percentage of State Farm claims being processed through those fewer shops has “dipped slightly” from its national average of 64 percent under Service First. But Avery said that percentage varies from a low of 17 percent in some markets to a high of more than 80 percent in others.

 

In terms of State Farm’s additional involvement in other aspects of the collision repair business, Avery used an analogy of the threshold of the front door of his home; he said he interacts with some people who never cross that threshold, others who are invited in to the entry-way, and others invited in even farther, but that no one but family goes upstairs.


“That’s none of your business up there,” Avery said. “And I see it that way for the repair industry. That’s what we need to work through with the advisory council, drawing that line on what State Farm’s goal is on that threshold and what that business relationship is that you allow. I don’t want to go upstairs. I’m not interested in being in the house all the time, but if there are some advantages that we both see to be more efficient, I’d be glad to talk about that.”


Auto recyclers grading parts

Also speaking at CIC in Las Vegas was Jim Watson, an Illinois auto recycler and past president of the Automotive Recyclers Association (ARA), who explained the recently-developed parts identification and grading system now being used by many suppliers of used parts.


A three-digit code, for example, can describe the type, degree and location of damage on any of 25 commonly-used body parts.

 

The amount of damage is described in terms of “units of damage,” Watson said, with one unit defined as “damage not exceeding the surface area of a standard-sized credit card.”

 

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