If you haven’t noticed yet, things have changed in both the recycled parts industry and the collision repair industry. If you’ve been paying close attention, you know that the collision repair industry has radically changed in just the past five years. The new focus on cycle time, lean manufacturing methods, and standard operating procedures has vastly increased the efficiency of many shops. If you intend to maximize the number of parts you are selling, you need to cater to the needs of the collision shops in your market with equal efficiency.
It would also be wise to focus on the large multiple shop organizations (MSOs) and the shops that have direct repair agreements with the insurance companies. These shops, commonly referred to as Class A shops, will typically be highly professional, well-organized shops that produce a large volume of work in an efficient, streamlined manner. The challenge for recyclers who wish to do business with these shops will be matching their degree of professionalism and providing top quality services in an extremely efficient manner. This may not be for everybody. There are many recyclers who may just be content to operate the same way they have for decades, and that’s their personal business decision, but they will miss an opportunity to greatly improve their sales.
Some yards simply may not have the infrastructure or personnel to provide these extraordinary services or be suited to provide them fast enough. Unfortunately, because recyclers trade inventory with each other, when a part is sourced from a yard that isn’t able to accommodate the needs of a Class A shop, it can make every yard involved in the transaction look incompetent.
Know this, whether the insurance companies actually admit it or not, they frequently have some control over which vendors are used. This comes down to survival of the fittest. If a yard can’t provide quality parts quickly and manage returns and repair credits responsibly, the insurance companies will weed them out of their preferred vendor list. Many insurance companies are becoming increasingly aware that the lowest price isn’t always the driving factor when sourcing parts. They have come to realize that part quality, speed of delivery, and order accuracy are as important as price when cycle time and customer satisfaction are influencing insurance policy retention. If a recycler wants to satisfy this type of customer, they need to think like a collision repair shop.
Trained for Efficiency
A motivating factor in the improved efficiency of the collision shops is increased training. I-CAR (the Inter-Industry Conference on Auto Collision Repair) is the recognized training organization of the collision repair industry whose vision is that “every person in the collision industry, present and future, has the necessary knowledge and skills relevant to their position to perform a complete and safe repair.” They have recently launched two training classes that are intended to improve the performance of the shops through systemic organization and uniform processes.
The “Overview of Cycle Time Improvements for the Collision repair Process” (CYC01) class emphasizes the importance of detailed standard operating procedures and demonstrates the benefits of the lean manufacturing processes similar to those used by Toyota to manufacture cars and trucks. The other class is “Recycled Parts for Collision Repair” (RCY01) that was designed to close the communication gap between the recyclers and the shops. This class focuses on communication strategies (understanding your customer) and provides the collision industry with an inside look at how a best-in-class recycler operates. This class is being presented at shops and recycling yards nationwide. I’ve had the opportunity to present this class at several yards and offered a condensed version of the class at the 2010 ARA Convention in Austin, Texas. As a result of this training and an increasingly enlightened collision repair industry, the shops have a better understanding of the recycling industry, resulting in higher expectations for their own operations as well as the operations for their business partners, which include the recyclers.
Insurance Quotas a Plus ... and a Negative
Recyclers must understand that collision shops are now under intense scrutiny by the insurance companies who track the key performance indicators that compare a shop’s performance to others in the industry. The term “key performance indicators” (KPI) refers to items such as average estimate cost (severity), cycle time or key-to-key (when the customer’s keys are collected until they are handed back), and alternative parts usage (APU). In order for a shop to remain in good standing with the insurance company and consequently remain on their direct repair program, the shop’s KPI must meet or exceed industry norms.
The APU indicator is a benefit for the recycler because the shops are strongly encouraged to use a certain percentage of recycled parts to satisfy their insurance partner. A good shop manager can tell you, off the top of his head, what his APU percentage was for the previous month or even year-to-date (13.3% recycled parts use is the current national average). if they neglect these performance measurements, they may be dropped from the direct repair program at renewal time, which could mean empty stalls and idle technicians in their shop. This creates a polarizing dynamic. The recyclers may benefit from the insurance companies requirement that the shop must use recycled parts, but simultaneously, the shops feel like they are being forced to use alternative parts where they may have preferred (or profited from) the use of OEM parts. This could make your customer unhappy before he even orders the parts from you, which will make it critically important for the recycler to provide high-quality parts free of burdensome drama. If they are coerced into using recycled parts and the process goes smoothly, all is forgiven. But, if the transaction turns into a nightmare because of poor-quality parts or slow service, things can get ugly fast. It’s very important to remember that your customer might be calling you for parts because they have to, not because they want to, and a wise recycler will be sensitive to this. In other words, put yourself in your customers’ place.
Make it Fast, or Else
Cycle time is a term that until recently, no one ever heard about or paid any attention to. This is another key performance indicator the insurance companies and collision shops watch intensely. Within some of the multi-location shop organizations there is fierce competition between its managers as to whose shop has the best cycle time. More importantly, the insurance companies know that this is one of the most important factors for customer satisfaction and in turn, policy renewal. They know that if a repair takes longer than two weeks to complete, the actuarial numbers show that the odds for retaining that customer in the future decrease.
In the past, shops thought about receiving recycled parts in terms of days, now they think in terms of hours. Insurance companies now track the hours it takes to begin the repairs, how quickly the estimate is uploaded, how many hours per day are actually spent working on that vehicle, and how many hours it takes for the shop to send in a supplement to the estimate for additional parts or labor. A recycler can fall out of favor quickly by delaying a repair because of poor or incorrect parts or delayed deliveries.
The insurance companies use this information to place these shops into a tier, which will determine the volume of work they receive. This magnifies the importance of retaining skilled and thorough sales people and maintaining organized, efficient procedures during your inventory, dismantling, and delivery stages. This may also create the need for services that were never needed in the past, such as offering the shops the ability to track deliveries online. This is not your father’s salvage yard!
Stay in the Game
Efforts to satisfy our target customer should begin in the inventory department with meticulous inspection processes and accurate damage descriptions. It may be wise to hire inventory specialists who have past collision shop experience or at least send them out to an actual shop to talk with the estimators and technicians to learn first-hand what their expectations are.
The I-CAR RCY01 class instructs the shops how to decipher the damage codes and how those codes can be used to make an informed decision when sourcing parts through an online search engine. Shops that are under unyielding time constraints must know the true condition of the parts they order, and you can expect the attentive shops to know if they are being misled with inaccurate damage descriptions. If they are told upfront that the part needs some work, they can plan ahead and structure the repair plan accordingly. But, if they are surprised with a damaged part, it can make you the villain and everything that goes wrong with that repair from that point forward, may be blamed on you.
As we all know, you can send out 100 perfect parts in a row but you are only as good as your last delivery. The increased pressure on the shops to perform at a high level also makes a detail-conscious, quality control department both a necessity and an opportunity to go above and beyond for your customer. A properly trained quality control inspector should not only send out cleaned parts, he must also prevent parts that can cause returns or complaints from ever going onto a delivery truck.
The I-CAR recycled parts class explains to the shops that recyclers must be inspecting parts to determine if they are an aftermarket part, whether it has been repainted, or if it has more than very minor corrosion. Most Class A shops will never accept delivery of parts in this condition, so it’s a waste of everybody’s time if you send them out. Again, this emphasizes the need to communicate with your customers and know exactly what their expectations are. It may be necessary for the quality control inspector to review the returned parts slips periodically to identify any patterns for returned parts from your larger customers.
You may notice, for example, that a customer returns all parts with more than 2 units of damage or any parts that have been repainted. This information can be used to create a customer profile that will keep you from sending out parts that are certain to come right back, eliminating the wasted expense and avoiding the irritated customer.
To fully appreciate the environment in which the collision shops operate, you need to know that their insurance partners are relentlessly expecting them to improve their efficiency even as they are required to take on more responsibilities of the repair process. In many cases the direct repair shops are required to perform a complete tear-down and write one estimate to eliminate the possibility of finding additional parts or labor throughout the remaining repair. They may even be penalized or demoted a tier level for supplementing an estimate beyond the original. They are required to rapidly complete the estimates, source the parts from multiple vendors, send documentation to the insurance companies, and periodically communicate with the customer. The increasingly complicated construction of the vehicles also has them spending valuable time scrambling to find the correct repair procedures from the car makers. Many man hours are now spent on this critical task, which was unheard of in the recent past. Depending on the insurance company, shops may also be responsible for evaluating and processing vehicles determined to be a total loss, which consumes valuable man hours.
The better you understand your customer the easier it will be to please them and sell more parts. You will be well served to be sensitive to the time constraints of the estimators and parts managers and do everything possible to make their jobs easier or at the very least, not more difficult. Shops, like any other business, are operating as lean as they can, which inevitably causes them to follow the path of least resistance. Use your knowledge of how the shops think or get out there and open a line of communication with them and pave a smooth path of least resistance that leads them to your business.
Shawn Collins is currently a Collision Industry Specialist for AAA Auto Salvage in Rosemount, Minnesota. He worked 26 years as an ASE Master and I-CAR Platinum Collision Technician. He has been an I-CAR instructor for 17 years, is qualified to instruct more than 40 programs, and received the I-CAR instructor of the year award in 2009. He has been an I-CAR pilot class instructor and a consultant for new class development. He has been a consultant/coach for VeriFacts Automotive Inc. for 4 years. He has served on advisory committees for AASP/MN and local Technical Colleges, is a consultant and spokesperson for ALLDATA Collision, and is a frequent speaker at industry events.