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Letter to the Editor

Beyond the Hype

How the Internet and e-business will impact the Collision Repair Industry...

With almost daily announcements on personnel additions, multi-million dollar venture funding deals, and pronouncements regarding the market potential of the collision repair industry, hopeful providers of e-commerce services connecting collision repairers with suppliers and customers are riding a wave of hype. Much as the consumer Internet world has captured the imagination of investors and customers over the last three years, the business-to-business (B2B) e-commerce market is now the focus of the Internet community seeking to redefine how people conduct business.

Collision repair facilities are concerned. How will e-commerce affect the collision repair industry and its existing customer and supplier relationships?

To date, most collision repairers’ exposure to and use of the Internet have been limited to marketing, through shop web pages and listings, and to some extent information gathering and communications via email. While useful, the impact of this usage has been minimal to improving the vast majority of shops’ profit performance.

The Internet and e-commerce have the potential to redefine all aspects of a collision repair facility’s external relationships, both with suppliers and customers. This article seeks to define the current efforts of B2B service providers, the potential future business models for supplier-shop relationships and also the impact of e-commerce on customer relationships.

Supply chain management

Every day, collision repair facilities engage in a wide variety of B2B commerce. Crash parts orders, on average equaling nearly 50 percent of the average repair facility’s sales, represent the bulk of a shop’s B2B e-commerce. In addition to parts, paint and materials orders, miscellaneous parts, and office supplies make up the remainder of a collision repair facility’s supply chain.

A small portion of this supplier B2B commerce is occurring electronically via private communication networks, but the vast majority still occurs through traditional face-to-face, telephone and fax communications. B2B e-commerce providers seek to change this situation, moving collision repair facilities into the world of e-commerce and internet purchasing.

The questions many repairers and suppliers are now asking themselves include:

• How will B2B e-commerce improve the ordering and fulfillment process?
• How will B2B e-commerce affect existing supplier-shop relationships? And,
• What process improvements and efficiencies does B2B e-commerce offer?

The answers to these questions are varied at this early stage. Hopeful internet B2B e-commerce providers seek to provide efficiency improving e-commerce services that not only automate existing shop parts and materials ordering processes, but also seek to redefine the procurement process.

The traditional parts procurement process in most collision repair facilities starts with the repair estimate. With a prepared estimate, the shop transfers the repair data to their management system and creates a parts order. This parts order is then printed and faxed to the shop’s preferred part supplier for the brand of vehicle to be repaired. Some shops use computer fax software to eliminate the need for an actual paper printout.

Once the parts order is at the dealership, the dealer parts department personnel determine the actual parts necessary, check stock, order necessary parts, bill and finally deliver the parts to the repairer.

While to outsiders this is seemingly a simple process, collision repairers and dealership personnel know the numerous opportunities for the process to break down.

Existing parts databases in collision repair estimating systems do not provide the level of depth in parts necessary in many cases to accurately identify the parts needed. Once the parts order has been received by the dealership, phone calls to the shop are necessary to identify components that cannot be identified through VIN decoding and options included on the estimate.

Additionally, parts availability often requires multiple deliveries to the repair shop that create multiple billing and delivery costs for both parts supplier and shop.

These facts provide an opportunity for B2B e-commerce service providers to increase the efficiency of both dealership and shop personnel.

The paint and materials side of the shop’s supply chain is equally important. Currently, shop paint and materials inventory management is a manual process. On a daily or weekly basis, collision repairers must manually determine the stocking level of their materials, generate an order, then phone or fax that order to their supplier.

The paint and materials supplier then manually enters the order into their computer system, generates a pick list and an invoice, and delivers the order to the facility. The invoice is then manually checked against the materials delivered and manually entered into the shop’s management and accounting system.

Naturally, eliminating the manual processing of the materials order process stands to greatly improve the efficiency of both repairer and jobber.

Improving supply procurement

B2B service providers are focusing on both parts and materials process improvement for the benefit of shops, suppliers and naturally themselves. Companies providing B2B services seek to position themselves between the two parties to the parts and materials transaction. Improving the efficiency of these parties is the goal of their businesses and doing so will hopefully provide them with the opportunity to capture a piece of value for themselves.

Improving the ordering process efficiency, for both parts and materials, is a natural goal of e-commerce implementation. Eliminating paper, fax and telephone-based transactions has the potential to greatly increase the efficiency of the staff on both sides of the equation. Transferring parts and materials orders electronically from the shop management system to dealership and jobber sales and inventory management systems eliminates the need for data-entry on the part of the supplier. It can also take the place of much telephone communication between the repair facility and their supplier and may also reduce errors due to communications mistakes and misunderstandings.

Among the issues surrounding electronic parts ordering capabilities is the depth and breadth of the database in collision repair facility estimating systems. Long an issue for repairers, the number of parts in an estimating system supplier’s database is crucial to an improved e-commerce centered ordering process. Expansion of existing estimating databases to include access to the entire depth of the dealership parts catalog will enable repair facilities to more accurately describe parts based upon individual vehicle options. How so?

Where VIN and option decoding fails to provide enough information to find an accurate part number at the dealership, the parts counter personnel must call the repair facility. Unfortunately, this additional processing takes time and is often overlooked or bypassed by part supplier personnel. Repairers must often rely on individual parts counter personnel that they know provide high levels of service through past experience.

By providing access to the entire parts catalog, repairers may find they can eliminate this reliance on dealership personnel to provide accurate parts by building a portion of this skill set in-house. Also, the simple fact that physical examination of the vehicle is often necessary to determine the correct part makes the shop personnel the perfect people to perform this task. They must inspect the vehicle in any case when confronted with a phone call from the dealership counter person. Understanding what parts need additional description or examination will make repairers’ parts orders and fulfillment more accurate.

Parts and materials supplier performance measurement and monitoring is another important capability promised by e-commerce. The ability to electronically order parts will enable repair facilities to better measure both the fill accuracy and speed of their suppliers.

Incentivized discount structures, where the supplier is penalized through increased discounts, can be developed to improve part suppliers’ performance. Or, fill speed and accuracy can be compared among suppliers more accurately to determine which suppliers provide the best service and warrant an increased portion of the repairer’s business.

With improvements in cycle time necessary to satisfy customer demands, repairers need to pay more attention to the impact of their suppliers on the overall speed of their business.

On the opposite end of the process, electronic bill presentment and payment (EBPP) can eliminate the need for paper invoices, manual entry on the part of the repair facility, and paper payment processing. With parts purchases, this presents a substantial opportunity for efficiency improvement given the amount of time necessary to input individual parts supplier invoices.

While parts and materials purchasing improvements have the potential for increasing efficiencies, repairers must also be concerned about potential business relationship impacts that e-commerce could present. Specifically, many repairers have expressed the concern that electronic parts ordering could be the first step toward an insurance company direct parts purchasing program. These concerns are valid.

In 1993, USAA proposed a direct parts purchasing program where the shop would order parts electronically from a USAA’s preferred parts supplier network. Under the proposed system, USAA would pay the parts supplier directly for the parts with the shop receiving a fee to cover the costs of their ordering and handling process. Repairers naturally expressed a strong negative reaction to USAA’s proposed system due to what is perceived as additional in-roads into their traditional profit centers by insurers.

While electronic parts ordering has the potential to improve shop efficiency and profitability, direct parts purchasing would drastically change the way insurers and repairers go about their business. Chances are good that any direct parts purchasing scheme would not benefit the shop in the long-term.

Beyond potential changes to the structure of shop-insurer relationships, shops must be careful to weigh the cost of any proposed parts and materials e-commerce service with the benefits of increased productivity.

Repair facilities that have viewed the current web-based offering systems see little benefit beyond sourcing hard-to-find or out-of-stock parts. Until the systems are integrated with existing estimating and management systems, their productivity improvement potential will not be realized.

For the parts or materials suppliers the system is much the same. Many current web-based e-commerce systems generate a fax-based order to the actual parts supplier. This type of functionality is literally no improvement over existing methods. Also, potential transaction or percentage based costs must be carefully weighed versus traditional marketing and order filling systems.

Customer Relationship Management

The potential impact of e-commerce on customer relationship management is another area of concern for collision repairers. Most e-commerce in the collision repair industry is currently performed between collision repair facilities and insurance companies.

Internet-based e-commerce offers the potential for a reduced cost structure versus the private value-added networks currently in place to transfer assignments, estimates and supplements. But, improvements in productivity over existing systems will be far harder to achieve when compared to the manual parts and material ordering processes.

Lower cost structures, coupled with broad-band communications, stand to improve the timeliness of communications and potentially the overall value of those communications. Real-time repair updates, integrated with shop management systems, are a possibility using web-based technology.

Beyond shop-insurer communications, shops will also be able to offer these types of updates to vehicle owners around the clock, not just during shop operating hours.

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