BodyShop Business Interviews Former State Farm Employee on Parts Procurement Initiative - BodyShop Business

BodyShop Business Interviews Former State Farm Employee on Parts Procurement Initiative

Former estimating team manager believes State Farm stumbled in the way it introduced the parts program, but also believes the program will ultimately prove to be a good thing.

BodyShop Business thought it would be interesting to get the perspective of a former State Farm employee on the PartsTrader controversy. His name is Bill Sefcek, and he’s a former estimating team manager whose responsibilities also included the Select Service program. Sefcek has more than 40 years of experience in both the insurance and collision repair industries. He is now the owner of Stan Mitchell Enterprises, a collision repair consulting firm based in Columbus, Ohio.

BSB: What was your reaction when you first heard about State Farm’s parts bidding initiative?

Sefcek: First, remember that State Farm tried this a few years back. They did it a little differently, but they realized what they had gotten into and then re-evaluated how they were going to attack it. I believe that’s when they got involved in studying the New Zealand project, which was similar yet different. So I believe they’ve been wanting to do something with the inefficiencies that surround parts for years.

I feel State Farm did this because the No. 1 reason for a car being delayed is parts. You received the wrong one, forgot to order one, received a damaged one, whatever. Remember, the whole emphasis of this is State Farm delivering a promise to the customer. They’re going to try to do whatever they can to make the process more efficient. And I believe they try to do that through the Select Service agreement. State Farm got into this because they’ve seen a tremendous inefficiency in parts procurement, from the estimate writing to the ordering to the compilation of parts by the vendor.

BSB: And that inefficiency costs them a lot of money, so this was about cost savings too, correct?

Sefcek: Absolutely. All that costs them money. So State Farm looks at PartsTrader and says, ‘Hey, is there something we can do about this? Because the industry isn’t doing anything about it.’ In the years that passed after State Farm first attempted this, the industry did nothing proactively. The industry could have said, ‘We’re allowing the vendors of these parts to control our day.’ Let’s face it, the vendors being able to supply complete orders is a real issue, but they didn’t come up with anything. None of the associations came up with anything, and nobody got behind State Farm and said, ‘State Farm brought this up, they’re looking at it, maybe we should look at it and bring something forward.’ I believe there was an opportunity to do that. So it didn’t surprise me when State Farm came back with it.

BSB: But you think they made a major mistake in the way they re-introduced parts procurement to the industry, correct?

Sefcek: Yes, I believe they had a lack of control with the media and were too aggressive, too assertive and too high and mighty when they could have appealed to the masses. They wanted to engage all the stakeholders but failed to do that. I know the people at State Farm are better at that than what they presented. They needed to get some stakeholder information prior to the big announcement, and I believe the damage control from not doing that hasn’t been what I would have expected from State Farm.

BSB: One thing repairers are frustrated with is that neither State Farm or PartsTrader has been able to clearly state to them what benefit they will get out of the new parts program.

Sefcek: Repairers need to understand the reason this came out: the No. 1 reason for past repair delays has been parts procurement at some level. So the thought was, can we make it better with technology? When you’re spending billions of dollars reimbursing people for parts purchases, I believe it’s okay to ask that question. And you have to understand the insurance business. How many commercials do you see on TV for insurance? The competition at that level is extreme. If a body shop had to compete on those levels, don’t you think they would look everywhere they spent money to see if they could become more efficient?

BSB: You’re saying the new program is for efficiency, but repairers are saying they would have to spend $50,000 on a new person to manage the program all day. And they’re also saying, ‘You’re telling me that waiting around for parts bids is more efficient than calling my parts supplier I’ve had a relationship with for 30 years who can get me the part right away?’

Sefcek: Ultimately, though, when you take the whole thing into consideration and follow those parts and the ordering and delivery of them in a quality manner, body shops’ current method isn’t necessarily faster. It’s like writing a good estimate. If you invest the time up front to write a good estimate, it’s far superior when you look at the whole picture.

Repairers need to give this thing some time to play out. Is everyone on point? No, that’s why it’s a pilot. I believe the vendors are going to have just as hard of a time getting their heads around this as the shops, but once they understand it and what it can do for them, I believe it can be a positive addition to the collision repair process. If repairers are asking if it will cut into their profit, I don’t know how much it’s going to do that. I don’t believe anyone can really predict that, but you’ve got so many people selling parts, profits are eventually going to go down anyway. Natural competition is going to take care of that. Once the profit goes down and vendors start competing to sell parts, it’s going to cut into their discount, too, so I believe there’s a natural process to this that State Farm is getting a little bit ahead of.

BSB: State Farm has said this program is a win for everyone – themselves, the shops, the vendors and the policyholders. Do you believe that?

Sefcek: Ultimately, this program will be a win for everyone. Shops thinking that this will only benefit State Farm is the kind of backwards thinking this industry has had for years. Repairers need to get away from it and try to see what’s in it for them. There’s nothing wrong with asking, ‘What benefit will I gain by going along with this?’ They need to see that they have an opportunity to contribute to this and mold it a little bit because it’s not set in stone yet. If they work along with it, they might find that this thing could work. They might understand it’s not going to hurt them, that they don’t have to buy parts from the vendors they think State Farm is going to put in place. I believe repairers’ vendors will be the first vendors. If the first vendors don’t come up with anything, then it will roll over to other vendors.

BSB: Are Select Service shops justified in believing their scorecards will take a hit if they continue ordering parts like they have in the past?

Sefcek: Many Select Service shops are concerned that their scorecards will take a hit if they’re spending more on parts than they should, but that’s not the only indicator on the scorecard. Most people who have dealt with scorecards for a period of time understand that it’s not any one number, it’s cost to value: What value am I getting for this cost? If I’m paying a little more for parts because you chose not to buy them from the vendors I presented to you, but yet you provide me more efficiency, better cycle time and higher quality, it’s a trade-off. So State Farm is saying, ‘I have this program that can help you if you’re not efficient in ordering parts (which is the case with the majority of facilities), but if you still buy from your vendors and maybe pay a little more for parts but I get better cycle time, that’s what it’s all about.’ For State Farm, it’s about delivering the promise to the customer. They promise to the customer that the shops on their program are going to deliver ‘X’ level of quality, customer satisfaction and turnaround. And if there’s anything State Farm can do to help that (because the industry’s not done so well on its own), that’s what they’re going to do.

Eventually, from the data collected from this program, State Farm is going to be able to determine the vendors that deliver full, complete, quality parts on time every time and be able to inform Select Service shops who they can buy from. So there’s going to be a grading of that, too, but shouldn’t the parts industry have some type of order to it?

BSB: U.S. repairers have looked at what happened in New Zealand, where shops were reduced to accepting a 10 percent parts handling fee, and have assumed the same thing could happen here. Even if their margins don’t go down, 20 percent on a $100 part versus a $125 part is still less.

Sefcek: That argument has been there forever: If you spend less, you’re going to make less. It’s all relative, and it’s real. I believe the efficiencies gained are going to offset the costs repairers feel are affected. Just like State Farm is constantly searching for ways to be more efficient and spend their money more wisely, repairers should be doing the same things because the competition is so prevalent. You can’t keep doing business the way you’ve always done it. There has to be an adjustment made.

You’re seeing more and more shops being bought out every day. And you see a lot of shops out there that are just waiting for someone to come out and buy them. Rather than understand today’s competitive environment, they would rather hang on to the ‘old.’ With all due respect, shops need to get off that old thinking because it’s small compared to the vision of what the future can bring. I believe they have an opportunity to do this. The can is open. If State Farm doesn’t do it, some other insurer will.

BSB: When State Farm was asked if they were going to push forward with the program even if shops did not want it, they said yes. I think many repairers viewed this as a slap in the face. How do you view it?
    
Sefcek: I’ve talked to some people and said, ‘Why don’t you guys do something with this? Why don’t you come up with an alternative to this? You know you’re at the mercy of your parts vendors. There are only a handful of shops out there that truly have an allegiance with parts vendors that can actually deliver in a consistent and reliable manner. Why are you at the mercy of the parts vendors for the sake of being able to slam an insurance company?’

One of the alternatives is writing a good estimate, and people have been trying to do that for a long time. The blueprint process has come a long way, but it’s not quite there yet. There’s still the mindset among repairers that they don’t care if the estimate is complete up front because the repair process will fill it in. So there are still people every day who can’t complete a repair because they’re waiting for a part, and that’s why I believe there is some merit to where State Farm is going with this.

BSB: It seems there are other things shops are at the mercy of today, too – certain businesses they sub work out to, for instance. For the sake of cycle time, more shops are saying, ‘Hey, we need to start doing some of these jobs ourselves.’

Sefcek: Yes, there’s actual profit and efficiency in it. If you can survive as an independent facility and truly make money, then you should stay independent. But it seems the future for shops is having some type of relationship with insurance companies. That’s just a fact of life. Find a way to make it happen, but don’t hurt yourself. There are ways you can make it happen and make money. Don’t fight the things that are law. Find out what the rules are, work within them, challenge them, stretch them out a little bit and make them work for you. It’s time for that to become more prevalent than arguing points every day.

You’ve got the paint material issues that are coming up, but now you’re seeing a lot of invoicing and documentation going on. That’s the way you should attack these issues: supply full documentation. I believe that parts procurement does the same thing. It allows you to be accurate and complete up front so that when you create that kit to start the repair, the vehicle stays in motion. State Farm is spending money every day on efficiency, so they want to do something to make the industry more efficient. The parts industry has kind of run rampant. I can get parts from the supplier down the street today, but if I ordered from somewhere else, it might take me a week. But since I have a social relationship with the guy who takes a week, I put up with it.

BSB: Do you think a lot of this goes back to repairers not trusting insurance companies? State Farm has reminded repairers that they rank them the best to work with every year, so they should trust them. Should repairers trust State Farm?

Sefcek: State Farm can say that about their past, but I believe they stumbled on the way they introduced the program, so saying they’re the best insurer to work with is not a good argument today. They really have to get on top of the damage control and come out with a statement on the benefits this program will create. I believe they have enough information to do that.

BSB: Do you think State Farm thought that maybe it was best to throw this program out there quickly and see what happens versus debating and fine-tuning it for years?

Sefcek: I believe there’s something to tossing it out there to see what happens versus trying to refine it to its extreme degree. But it takes more contribution from the collision repair industry. It’s almost an opportunity for State Farm to say, ‘Well, it’s not perfect, but let’s get it out there and we’ll see what happens.’

If you think about a lot of the technology that has come our way, it’s never totally proven when it’s introduced – it’s proven through the introduction process and the pilot process. I believe State Farm needs to do a better job of engaging the stakeholders, whether they’re Select Service shops or non-Select Service shops. They need to start attracting and engaging those people and helping them develop this into something that works.

BSB: Some shops have spoken out against the program that haven’t tried it yet, and other shops have tried it and said it didn’t work for them. Are these shops being premature about their judgments and/or just not giving it enough time?
    
Sefcek: I believe they’re being a little premature. I haven’t talked to any of them, but they might already have the attitude of, ‘I’m going to try it but it ain’t gonna work.’ I think the pilot has been going on long enough now where it’s time for State Farm to share some of that evaluation before it gets too far along. I don’t know that it’s a wonderful thing, I don’t know that it’s a terrible thing. But it’s a thing, it’s open, it’s there, and something has to happen.

Electronically ordering parts is the best way to go. In its present form, it may not be how everyone would like to see it, but it’s going to take some time. I believe that the hour or whatever it takes to get the parts bids back can be reduced once the vendors grasp this thing. Once we get over the ‘I hate it’ state, I believe that some of the program’s attributes will start coming out. I believe it’s going to be beneficial for all if people eliminate the ‘I’m losing a little bit here to make up a lot here’ mentality. Eventually I think they’ll see that the efficiency they’re going to gain because of this is going to make up for that – they just need to admit that parts are an issue. There are very few shops out there that truly have control of parts.

BSB: For the sake of clarity, state once again what you believe to be the tangible benefits of this parts program for repairers.

Sefcek: If all you’re looking at is profit on parts because that’s the only place you make money, I guess you could take a hit on that. But, on the other side of that, I believe that’s going to happen anyway as more people enter the parts business. Competition and the marketplace are going to bring that down. That’s just natural and has nothing to do with this program. So with that on the table, I believe the benefit is that it’s going to make repairers better at writing estimates. And the vendors are going to get better because they know they’ll lose shops if they don’t. I believe the relationship between the shops and the vendors, even the current vendors they’re working with now, will get sharper. That’s a good thing.

BSB: Shops are calling this new program ‘intrusive.’ Do you believe State Farm is intruding into their business?

Sefcek: No, it’s saying, ‘Hey, we’ve got this parts procurement program and we want you guys to use it. Like our agreement said, it just can’t cost any money for you to use it. You don’t have to use it, but it’s out here because it will help you be more efficient.’ If that’s the umbrella that it has been presented under and the shop realizes, ‘I don’t have to do it but it could help me, and if I don’t do it, it could hurt me on my scorecard, so I better get more efficient with what I’m doing now so I don’t have to use it,’ what does it change for them? Nothing. So I believe there’s an opportunity for repairers to go either way, but you can’t be scared on one hand and then fight it on the other. I believe that if you become more efficient, you’re the shop that doesn’t need this program. Show me that you’ve got a better way of procuring accurate, quality, complete part orders and I’ll go with it. But if you don’t, try this.

BSB: In your opinion, did section 4F of the Select Service contract (where State Farm requires that shops agree to electronic parts ordering) fairly inform those shops of where State Farm was going with the program?

Sefcek: If that’s all you rely on, it can be misleading, but it doesn’t mean you have to use it. But if you utilize it and find out that these parts cost this much money but they’re not what you want to do because they’re not from your vendor and so you buy them from your vendor and it costs more money, you just deal with the outcome. And the outcome is, I have a higher parts cost. But that’s only a piece of how you’re graded. So if I have a higher parts cost at your store but yet my efficiency is stellar, could it be a wash? If I never challenge you, are you ever going to get any better? State Farm is good at that. I think that’s also State Farm’s track record: I’m going to challenge you guys to be better.

BSB: Down the line, do you feel there is potential for more shops to drop Select Service similar to what happened in Birmingham? Or do you feel that was an isolated incident?  

Sefcek: I believe the 17 shops that went off the program in Birmingham were probably premature. I believe they did that to make a statement, but I blame State Farm for not providing enough information. It’s one thing to disagree on something, but it’s quite another to not even understand it, and I think State Farm had a responsibility to help people understand where they were going and they failed. But I don’t believe you’re going to see more shops back away from it.

BSB: How do you think the PartsTrader controversy will impact the relationships current State Farm employees have with shops, both Select Service and non-Select Service?

Sefcek: I believe it’s going to be as controversial as paint materials. When it comes down to it, it’s about scorecard evaluation and what are they delivering? If they’re delivering efficiency, how can you ignore that? If you’re costing State Farm more money in parts, rental and cycle time, I can point to this new program and, once you get behind it, maybe you see the benefit. Or maybe you back away from it and create something new. Is it going to look like it looks today? Maybe not, but I believe the players are already set, and I think they’re going to make it work. Can it benefit from a stronger collaboration of efforts? I think so. You have to get over the bumps in the road on both sides.

BSB: If you believe that other insurers will copy State Farm on this, how soon will that occur?

Sefcek: I believe there will be more variations that come out as this thing starts to gain some traction. With all the publicity and controversy going on right now, you’re not going to see a lot of people jump on board right away. They’re going to let State Farm take the heat for this for awhile. Logically, I would be watching it and studying it, saying, ‘How can I do this thing better? Because we can benefit from something like this too.’

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