Tuesday, 01 May 2012 21:02

SCRS Weighs In on State Farm Parts Ordering Program

In early 2012, State Farm began testing PartsTrader, an online parts-ordering/bidding software program developed by a New Zealand firm. Tests began in select shops in Tucson, AZ and Birmingham, AL. SCRS Executive Director, Aaron Schulenburg, spoke about State Farm’s parts bidding program at the CCRE Legal Seminar in Philadelphia, PA, on Friday, March 30. He urged shop owners to “explore how such programs will impact their business and to be vocal about their concerns. Our industry is not obligated to say ‘yes’ to every program put in front of us, especially if there are ramifications that have the potential to affect your businesses profitability and productivity.”

State Farm first began testing a parts-ordering program with DRP shops in California and Indiana in 2007–2009. Auto manufacturers granted State Farm a parts discount through the electronic parts-ordering program. In April 2011, the insurance company released an online video discussing future parts-ordering initiative. As parts sales represent 33% of the collision industry, or around $10 billion annually, it is no surprise that insurance carriers seek control over the parts procurement process. An article in “Insurance and Technology” in April 2011 references a report by Stephen Applebaum and the Aite group which states “State Farm is leading the way to greater control of the auto repair procurement process with its announcement of a new electronic parts-ordering initiative.” The question shop owners should ask is: do you want the insurance company to have greater control over parts procurement?

When State Farm began testing in Arizona and Alabama early this year, they sent a letter to their parts suppliers stating that all repairers in the Select Service program have agreed to use their automated replacement parts system and will be required to use PartsTrader. Their letter also claims that “suppliers registered with PartsTrader will have the ability to provide competitive pricing on the entire parts order through the quoting process which may provide opportunities to increase sales volumes.” Repair facilities received communications regarding the electronic parts ordering and workflow process which begins with writing an estimate and uploading it to PartsTrader which will pull the parts list before shops forward the quote request to the part suppliers in the program. Once the quotes are received, sometime later, shops can review the quotes, order the selected parts and update the estimate accordingly.

In April 2011, State Farm Auto Claims Consultant George Avery claimed the program will benefit the repairer, the supplier, the customer and the insurance company. Though State Farm will obviously save money through the program, the benefit to shops, suppliers and customers is a bit more elusive. In exploring this concept of the benefits for shops, SCRS gathered information pertaining to a sample scenario in parts quotes were requested to repair front-end damage on a job requiring four parts: three bumper components and a lamp. For this example, quotes result in a loss of $95.88 to the repair facility and savings of $239.85 for the insurance company if the cheapest parts are selected, compared to if all parts were ordered using traditional OEM MSRP.

In addition to decreased profit regarding parts, this program also incurs additional expenses in time as the repair facility must wait to receive quotes on parts and then manually re-enter the estimate before it can be committed. SCRS’s press release points out “this particular example only has 4 parts; how much administrative cost is associated with that task if there are 40 parts? What is the cost of potentially dealing with multiple suppliers to maintain the most ‘competitive price’?”

So, how does this parts bidding program benefit you, the shop owner? Do your research, and be vocal if you find this will negatively affect your business. It is your industry, and you are the only ones who can defend it. More information about SCRS’s sample above, including a breakdown of the losses incurred for each part, can be found at their website, www.scrs.com.

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