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Letter to the Editor

The End of the Supplement?

Backers of a new work flow plan say it could reduce costs for shops, insurers, and vendors by as much as $700 per claim.

There is a little something happening at most shops right now that some call the “circle of insanity.”

We have all heard the definition of insanity: doing the same thing over and over again yet expecting different results.

Yet see if this sounds familiar: A customer walks into the shop, and asks for an estimate. Your estimator, who chances are, at least initially views that customer as an “interruption,” steps up to help, despite being busy putting out fires associated with the files he is already working on.

Not wanting to take too much time away from those other files, he checks out the car and somewhat hastily prepares an estimate for the customer. In response to the customer’s question, he looks at the number of hours on the job and says it will probably take three or four days to complete.

The next day, the customer calls to schedule the job, an appointment time that is based on that estimate and repair time expectations that have been set.

The car comes in, variables are discovered making the target delivery date unattainable, and the customer has to be notified. Insurers and vendors, too, often need to be contacted for approvals or additional parts orders.

And while the estimator is busy putting out all those fires…in walks another interruption (a.k.a., potential customer) asking for an estimate, and the cycle begins anew.

How does the industry break that cycle? The key, many believe, is shifting to what some are calling a “complete repair plan” or a process that reduces or eliminates the supplement.

“The supplement has become the scourge of our industry,” Hawaii shop owner March Taylor said. “It drags the whole process down.”

Causes and costs of supplements

Though hardly alone in suggesting changes that could reduce the need for supplements, the Collision Industry Conference (CIC) Business Management Committee has set its sights on creating “best practices” for the “complete repair plan.”

The committee “sees the need to reduce supplements and their costs” within the industry, according to Mike Quinn, whose 911 Collision Centers is opening its seventh location in Arizona.

“Our goal is to document those costs and to create an industry-accepted best practice to reduce supplements,” Quinn said.

Quinn’s committee first looked at the primary causes of supplements, a list that will contain few surprises for anyone with much experience in the industry:

• Vehicle design and complexity play a role as the speed of change in technology increases.
• Both insurers and repairers face a shortage of qualified staff.
• Mistrust between insurers, repairers and consumers have led to systems and practices that nearly necessitate supplements.
• The estimating databases frequently have outdated parts prices or incorrect parts numbers.
• Insurers ask shops to write visible damage only.
• Processes are not standardized from shop to shop or insurer to insurer.

But perhaps the biggest and most avoidable cause of supplements, Quinn said, is that initial or preliminary estimates – whether written by shop or insurer – are not a complete repair plan.

“I think ‘preliminary estimates’ should be struck from our industry some day,” Quinn said.

The CIC committee, which includes representatives of shops, insurers, and vendors, is unlikely to find anyone in the industry who would disagree with the causes of supplements. But just what does producing and processing that supplement cost? That is probably harder to pin down, but the committee’s best estimate: $737.50.

“We’re not proposing that every supplement costs $737.50,” Quinn was careful to point out as he shared a detailed break-down of those costs. “But we did a lot of research. A lot of insurers gave us input; repairers and vendors gave us input. What I am proposing is that there is a lot of waste.”

The $737 estimated price tag includes about $239 in hard costs for the shop: time for the estimator to review the vehicle at the technician’s stall, prepare the supplement and contact the insurer; time to make a subsequent parts order and reconcile the second invoice; time for additional communication with the customer; and lost production time for the technician.

The insurer takes an even bigger hit, according to the committee’s estimate: $400 in added costs for adjuster labor, costs associated with issuing supplemental payment, and added rental vehicle costs.

And that supplement may even cost the vendors involved about $100, because of additional delivery or parts return costs.

And all that, Quinn points out, presumes there is only one supplement on the job, nor does it include any costs incurred by the customer, nor the possible loss of that consumer (by the shop or insurer) because of dissatisfaction with the process.

The new system

But whether the actual costs of supplements is higher or lower, few would argue there are not significant costs involved. As it looks to develop “best practices” to avoid the need for supplements, the CIC committee built a flow chart showing the traditional way work is processed in the industry.

The steps are well-known: preliminary estimate, pre-order of parts, customer scheduled, parts received and tagged, vehicle dropped off, parts checked and re-ordered as necessary, discovery of additional damage halts repairs, supplements prepared for approval, additional parts ordered, customer contacted, additional necessary parts often discovered during reassembly prompting another supplement and parts order delay, the vehicle is eventually delivered, possibly later than promised.

Under a draft of the “complete repair plan” system the committee is creating, the same sorts of tasks are completed, but more of it is done upfront.

The shop, for example, confirms insurance coverage for the damage, secures repair authorization, and explains the process to the customer (sets their expectations).

The vehicle is dropped off, with the customer receiving a target delivery date within 24 hours.

Initial photos and preliminary damage appraisal are completed, but within hours, the vehicle is thoroughly torn-down (some use the term, “methodically disassembled”), including detrimming of blend panels, in order to create a complete parts list and repair plan.

The parts order is “scrubbed” using the VIN by the parts supplier, and availability and pricing are confirmed. Quinn suggests that shops may actually pit multiple parts suppliers against each other on each job, with the understanding that the vendor that offers the fastest, most complete fill time for the order will be selected for that job.

At that point, the appraisal can be locked, the customer can be provided an accurate delivery date, and repairs can proceed with none of the delays caused by the supplement approval process and multiple parts orders.

Early results

Though the committee’s “best practices” for this process are still a work-in-progress, the “complete repair plan” is not just theoretical for shop owners Taylor and Quinn. Quinn said it’s a process being used for about half of the business at his shops, and Taylor has been trying it for about six months.

Taylor said he was not surprised that the process has greatly reduced the percentage of jobs requiring supplements and improved his shop’s cycle time. But he said he was surprised to find that it also has reduced severity. His theory as to why has to do with the inaccuracy of many initial estimates – whether prepared at the shop or by the insurer – under the traditional system.

“How often are those parts (on those estimates) accurate 100 percent of the time? How often are there parts on those estimates that are not needed?” Taylor asks rhetorically. Under the traditional system, he said, some of those parts are probably being put on the vehicle even if they aren’t needed, when under the complete repair plan system those parts would never be ordered and purchased.

But such savings aside, much of the benefit of the plan, Taylor and Quinn said, is the faster turn-around time, fewer missed target delivery dates, less time spent moving cars around in the shop (and indeed, fewer cars in the shop at any one time because work on vehicles is not being halted mid-way through).

There are challenges to shifting to this type of system, they admitted. Some state laws require customers be provided with a preliminary estimate. And it requires convincing insurers to try something that for now is still out of the ordinary.

But Taylor and Quinn suggest working with first just one insurer, explaining how the process will reduce supplements, improve cycle time, and in some situations may even reduce severity. Make sure, they said, you make the process as transparent to the insurer as you can, making it clear they can come in any time and see what you are doing. Once you have one insurer on board and work out the system within your shop, Quinn and Taylor said, you can show other insurers how it is working.

Taylor and Quinn and others on the CIC committee said they truly believe the industry will gradually shift to this sort of complete repair plan system.

“Once we follow it, we can all save money, reduce stress, and improve customer satisfaction and retention,” Quinn said.   o

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