Consolidators: Classic Collision Adds Second Location in Las Vegas
A lot of body shops are still ordering parts via the phone or fax, but electronic parts procurement is slowly but surely gaining ground.
I was walking through my garage the other day and stopped dead in my tracks, staring at my spare parts pile for a long time. There it was, my pile of shame in all its glory, sitting in the corner of my otherwise well-kept garage. Neatly stacked in the back is a sweet collection of alternators, starters, a few bumpers, a couple of old headlamps, some old body filler (hard as a rock), a few spare mirrors, floormats, spark plugs and a new distributor cap (or two). I’m not sure if any of this stuff fits my current fleet of vehicles.
A sense of pride washed over me as I was staring at my treasure trove of unrelated parts from vehicles I don’t own anymore. There’s a lot of scraped knuckles in those parts (is that my blood on that headlamp sitting there?) and time under the hood with friends. There’s also a lot of time spent on the phone and traveling to salvage yards, part stores and dealerships.
I started adding up all the money sitting on my garage shelves and thinking about all of the parts conversations I’ve had with shops over the past few years. You know, “Why aren’t you doing a lean process?” “You should be mirror matching your parts…” “That’s a lot of money laying right there…” And my favorite was the time I asked for the owner’s wallet and, after he handed it to me, I threw it at his shop’s extensive parts pile to demonstrate where all of the profit was in his facility. The more I thought about those conversations, the more my sense of pride turned into shame.
Parts management, including electronic parts procurement (EPP), is an area that my clients and I focus on during our discussions. In regards to EPP, I often get asked, “Why do I want to do that?” and “Which company is the best?” Well, let’s take a look at the current marketplace and what’s available.
Looking back, the subject of parts ordering wasn’t in the forefront of our conversations even a few years ago. Sure, shops and insurers have had alternative parts usage discussions for many years. The introduction of the PartsTrader platform in the industry, backed by a State Farm mandate that all Select Service shops use it, accelerated the visibility of ordering parts via electronic processes and software. State Farm and Parts-Trader forever disrupted the way that the collision repair industry conducts business.
One could argue that the “old way” of ordering parts was fine, and that’s the way the collision industry should still be doing business with trusted vendors and business partners. Negotiating discounts, having a single person to call if there was an issue, and the back and forth communication about what the correct part was was a large part of the business relationship value that kept shops using a select set of vendors. These personal business relationships are what have kept many of us from transforming and evolving our parts ordering processes.
When it comes to parts procurement, the collision industry lags behind in EPP ordering. For years, the mechanical folks have been ordering their parts from their local vendors of choice, and their parts show up within a reasonable amount of time. All of the parts information transfers to their shop management system, and the entire process is streamlined for efficiency. The efficiency of the system relies upon the electronic parts catalogs that are available to the mechanical shops. On the other hand, the collision industry is in the infancy stage of EPP adoption.
“Some of the technical challenges are tough,” says Jeff Schroeder, CEO and chief technology officer of Car-Part.com, known in the collision industry as an integrator of real-time parts information between the vehicle recycling industry and the collision repair industry. “The characteristics of the collision repair industry supply chain are very complex. I think we are very early on in the adoption process. There’s a long way to go for adoption.”
Schroeder is not alone in his thinking.
“The processes haven’t evolved enough to get the collision repair shops where they need to be,” says Pete Tagliapetra, Business Development at NuGen IT.
NuGen IT works with a number of business entities within the collision market space providing middleware and end-to-end software solutions for collision industry businesses.
“Parts procurement via e-catalog is high, but the percentage of collision shops that are using an end-to-end solution for parts ordering is very small,” Tagliapetra says. “The electronic parts procurement process just hasn’t evolved enough to get the collision shops where they need to be.”
The big winners in the EPP space are going to be the entities that can deliver an end-to-end solution for all parts categories and vendors. With so many companies jumping into the race to the top of the parts pile, there are a lot of different approaches to tackling the digital divide between the collision shops and their parts suppliers.
One company with an all-inclusive approach to collision repair shops, parts vendors, procurement and distribution is OPSTrax.
According to Nick Bossinakis, CEO of OPS (Overall Parts Solutions), “An average body shop orders from 25 to 30 suppliers on a daily basis.” That’s a lot of vendors to keep track of when you’re managing your shop’s production flow. This incorporates inefficiencies into a time-sensitive component of the collision industry.
“A large percentage of the market is still using phone and fax machines to do their ordering,” says Bossinakis.
The key to EPP adoption is being driven by the ability to order the correct parts, from the preferred vendor, receiving the current discounts, having access to all parts categories, the ease-of-use of the software and if the shop is required to utilize a specific EPP provider to remain in an insurance relationship.
“Business relationships are being handled in multiple ways,” Bossinakis says, which creates inherent difficulties in the parts ordering process.
“Close to 30 percent of the time, there’s a parts-related issue,” says Tagliapetra. The number is staggering when you consider the amount of collision parts being ordered in the U.S. on a daily basis. “The efficiency comes when you can move the parts information from the estimate into the parts search engine.”
Information providers are beginning to play a larger role in the EPP space as well. Each of the three major information providers has a parts solution in place, in various stages of product maturity.
The latest version of CCC Information Services’ offering in the EPP arena is their Parts Shopping feature that works like most online shopping systems. The program is available nationwide for aftermarket and recycled parts with OE parts currently limited to specific market areas in the U.S. The problem with any startup in this area is the question of who joins a parts program first, the customer or the parts supplier.
“The biggest hurdle is getting people to do something a different way than they’re used to doing it,” says David Boden, vice president of Parts Services Group for CCC. “In parts of the country, we do not have coverage yet for OE parts. In 2016, we expect to round out our current supplier mix with deep OE coverage across the country. This is our next step in a very deep supply chain integration.”
CCC owns the majority of computer desktop space in the collision repair shops in its role as the largest information services and SMS provider in the U.S. Desktop ownership is key to integrating completely into a unified user experience for the repair shop. With the user never having to leave the CCC product suite, it provides a way to control the repair process through one software platform.
“If we can get a user to use it for eight orders, then they’re hooked,” Boden says.
Palak Samel, product management manager of Next Generations Estimating and Parts Solutions at Mitchell International, says parts purchases are still relationship-based.
“It’s important that [the shops] don’t lose touch with that relationship,” Samel says. “We are still seeing shops ordering via fax, phone and going outside of the system.”
Mitchell has taken a “come-one, come-all” approach to integrating with EPP service providers into Mitchell’s Repair Center’s Shop Management software (SMS). EPP service providers are able to add their service offerings through the RepairCenter ToolStore. The information is then integrated into Mitchell’s Parts Management module in Repair Center.
“Technology is definitely the biggest hurdle,” says Samel. “To bring the variety of procurement platforms into a single place and make the experience uniform from one to another is the challenge.”
In fact, the challenge becomes significant when one considers the different data types, structures and information sets available through all EPP service providers in each of the parts categories.
APU Solutions, a Solera Company, is a product offering that’s fully integrated with Audatex using the BMS standard, Mitchell through their ToolStore product app and CCC using EMS extracts.
The exchange of information from the EPP services, information providers and insurers is key to moving EPP forward in the collision industry. The Collision Industry Electronic Commerce Association (CIECA) is an industry association that has brought the EMS and BMS data standards to the collision market.
The most widely used standard is the EMS standard. However, it’s limited in the data that’s transferred between electronic systems. The newest standard is the BMS standard, but it is not as widely used in most of the collision industry. In order for EPP to flourish in the future, all of the players in the collision industry need to adopt the latest BMS standard.
“To achieve true eCommerce, you have to build the technical bridges between each shop and their preferred parts suppliers,” says Scott Westbrook, vice president of sales for APU Solutions.
APU is focused on live data integrations for shops and insurers to communicate electronically with their parts supplier network. Live data is a critical element to ensuring that the part is in stock and available when the shop is looking to make a parts purchase.
“We integrate with any system in collaboration with our clients in order to streamline the parts sourcing and procurement process,” Westbrook says. “Any area within a workflow where a human is rekeying data from one system to another is wrong. We intently focus on accuracy and expect to see the removal of more humans from the process as the industry continues to evolve.”
The removal of human interruptions from the parts purchasing process will help streamline the process and lead to greater efficiencies and profitability.
“OEMs are going to need to be more competitive,” says Bill Lopez, vice president, Collision Business Development and OEM Programs for OEConnection. “Everybody assumes that OEM is more expensive than aftermarket. That’s old school thinking.” OEConnection products focus on the usage of OEM parts during the repair process. Being able to deliver competitive parts pricing to those shops that are searching for aftermarket parts is going to be key for the OEMs to increase their market share in the collision industry.
“CollisionLink lets the body shop know that there is a competitive price out there,” Lopez says.
According to Brad Desaulniers, author, public speaker and president of PartsCheck Systems LTD, “I see a reversal of the trends for alternative parts. Ultimately, the parts business is going consolidate back to the OEMs.”
Desaulniers says there are significant influences that will drive parts business back to the OEMs.
“The single largest driver of parts procurement in the next five years is going to be the OEM strategy of patenting parts in concert with the advanced electronics making their way into more and more components, making it virtually impossible to safely repair a vehicle without OEM parts and OEM certification,” he says. “The electronics that they’re putting into these cars is going to be an insurmountable hurdle for alternative parts suppliers in this market.”
No matter how you look at it and who you talk to, it’s clear that the collision industry is in the early stages of an EPP disruption. What is not known is which company or companies are going to have that “secret sauce” that’s going to launch them into the preferred option for collision shops.
Players currently in this marketplace have a strategy that drives their data bridge-building missions. Building data bridges between the insurers, parts suppliers, information service providers and the SMS providers is the name of this game.
Those companies that can provide the shops the most accurate, timely and complete data and elegantly integrate the information into the estimating systems are the ones to watch.
“There’s no question, there’s room to grow,” says Schroeder. “There are a lot of features and enhancements that need to be made.”
A solid way to drive profitability is to improve your employees’ efficiency. Of course, to leverage this efficiency fully, you need to make sure to build your parts processes around detailed standard operating procedures (SOPs) and enforce those SOPs within your organization. With the technology out there now, shops should be looking at ways to remove as many phone calls and faxes as they can from the parts purchasing process.
“Moving forward, you cannot exist in this marketplace if you don’t embrace technology, period,” says Desaulniers.