REPAIRERS NEED A BETTER SUPPLY CHAIN!

In 2008, I attended an automotive recycler conference in the USA. Up on stage giving the keynote were two insurance representatives from State Farm and All State. Their message was simple;

“As insurers, we would love to use more of your parts, they are genuine, they are more cost effective and can be used to have the vehicle returned to our policyholder in its pre-accident condition.” There are several reasons why this is not as simple as it may seem on the surface.

In my last article I focused on some of the things insurers can do to incentivise the use of alternative parts by offering a better margin to repairers to use these parts. This will go a long way for sure as I outlined, but this is only the starting point.

Too often I attend conferences and I am told that repairers just don’t want to use alternative parts, that it is all the fault of insurers and that repairers are just too fussy. Honestly, this is just not good enough!

For this installment, I focus on the automotive recycling industry. Let me be clear, I grew up in the automotive recycling industry and spent 25 years in business with my brothers and sister who still run a successful auto recycling business in Melbourne. So, let me explain where things are going wrong, and have been for a long time.

THE PROBLEM

I was visiting a recycler last week, a large supplier, dealing with late model vehicles and selling a lot of parts to the collision repair industry. From some distance, I saw a bonnet that was being prepared to be shipped to a collision repairer. Its condition was terrible – filler in multiple areas, paint blistering on one spot, shrink marks on the underside and even some crows feet starting to come through.

I asked, “what are you doing with that bonnet”, hoping to be told that it was being thrown out. “That’s part of an order that we are shipping to a collision repairer with a heap of other parts” was the response.

I couldn’t resist. “Do you realise that this part has been poorly repaired before and will be unusable” as I proceeded to explain all the faults? Again, the response was less than acceptable, “well, what do they want, it’s second hand. We don’t sell new parts, they need to expect it will not be perfect.”

Now don’t get me wrong, there are some great suppliers out there that would never supply such a part and I am a strong advocate of quality recycled parts. What the industry MUST come to grips with though is that it is very difficult for repairers and insurers to know who the best of the best is. It’s that bad apple syndrome – one bad apple in the basket makes all the others bad, slowly but surely.

The auto recycling industry has a huge opportunity for growth. Usage levels in Australia of recycled parts to collision repairers are lower than most other countries. Most insurers will tell you that usage is hovering around 6% of the total parts dollars spent on parts. In the USA usage hovers closer to 12%, although we are seeing signs of usage waning there as well, as the certified aftermarket part is taking significant market share.

In real terms auto recyclers make up a fraction of the repair and the only way is up, but it will require commitment, change, training and investment. Failure to do so will lead to further decline as the likes of the certified aftermarket and OE parallel parts grow their share of the total available market.

THE QUESTION

I have the pleasure of working with automotive recyclers, large and small, all over the world. Great people, great facilities, people that love the industry and passionate about finding a way to grow it. As a result, I receive calls and emails from New Zealand, the UK, the USA weekly from people that serve on industry association boards looking for a solution, for a way to make it better and win confidence of insurers, repairers and even regulators.

“How can we, as an industry, change the perception of auto recyclers? How can we get repairers to trust that we will send them high quality parts? How can we win the trust of insurers to promote the use of recycled parts?”

THE ANSWER

As an industry, as an industry body, it is very difficult. Sure, associations like the Auto Recyclers Association (ARA), the Auto Parts Recyclers Association of Australia (APRAA), JARA in Japan and so many others that do a great job on behalf of all the industry, need to be out there working to promote the industry to regulators, insurers and all customers. They should be promoting programs that help recyclers lift the standards and they do a lot of hard work, often unrecognized.

Ultimately though it comes down to each individual yard. Each must commit to training their people and working with the repairers to better understand what quality and service they expect. Hold an event at your

yard and have some local repairers attend your yard and rather than trying to sell to them, listen and learn.  Grab 20 parts out off the shelf and ask them what they’re looking for and have them explain what they see in each part – why its good and why its not so good. This is informal and relaxed, and it allows your to interact with your customers and learn from them. You will be surprised at the relationship you will build.

When was the last time an auto recycler did this for their customers? Not to tell them how good they are, but to learn what they can do better for them?

Now what about accreditation programs? Associations try their best to build programs to promote their members, which is great, and they generally do a sound job. But again, we miss the point. A self-accreditation/certification program is NOT the answer. There is no independence and nor do associations have the relevant credentials to run such programs, ultimately they are not accreditation bodies. Meeting some basic standards and paying a fee on an annual basis simply does not cut it.

At the ARA conference in Dallas last November, I presented on the benefits of independent certification. I do work with NSF here in Australia and we have 7 yards across Australia and New Zealand that are being certified and have more applications flowing through (in fact another 4 were received just this week). These yards have made a commitment to quality, process, safety, environmental

excellence, customer service, parts grading, employee training and good corporate governance. They have been through a vigorous audit, dealt with or currently dealing with corrective actions and invested in getting it right. They have also committed to an annual independent audit by NSF, an internationally recognised certification organization. Some of these include;

To clarify, this is not a plug for NSF, it is though a plug for an accreditation program that is independently audited and recognised globally. A program that insurers can, at arms-length, say they are comfortable in using because they know that the businesses that are certified to those standards are able to consistently meet the requirements of their repairer networks. A program that is subject to independent audits every year to ensure compliance. A program that is administered by an accredited certification body itself.

Now, as much as the industry associations can help build such programs and set them up with the independent certification bodies, it is up to each individual yard do it, to execute. This is where leadership comes into play.

I take my hat off to the leaders that have invested in the NSF program in Australia and Zealand invested in their future, to differentiate themselves. Call it taking a ‘leap of faith’ or ‘jumping in the deep end’, they have decided to invest in their businesses and take them to the next level. No association can take this step for any business, its up to you as an individual business to ‘do’. In the words of the late John Kennedy, Hawthorn Football Club Premiership Coach and legend of the game, “don’t just think. Do!”

If we are going to be really honest with ourselves, there is a lot of room for improvement in the auto recycling industry. Look internally for the reasons why more harvested parts are not used in collision repairs. Think about what you can do today in your business to make things different. Don’t send that damaged bonnet out hoping that the repairer will use it, tell them it’s not good enough and find another one quickly to supply your customer. Give them the confidence to buy your parts and want to use them. Each of you are in control of this and next time someone complains about why repairers don’t buy more recycled parts, maybe remind them about what they can do to help make it better.

There are some great facilities out there that simply go unrecognized. They have worked hard at it, invested heavily and will change the way their auto recycling business is viewed.

It is not always about doing it 100% better, think about incremental improvements in all areas of the business. Doing one thing 100% better can be daunting and just not achievable but doing 100 things 1% better could change the game. Don’t delay, commit to quality, commit to quality service, commit to training your people so they understand what the customer expectations are and invest in being independently certified. I guarantee that if you do this, you will sell more parts – period.

As always, I look forward to your comments and contact - I would be interested in your thoughts and ideas. Don't forget also to share it with your friends and associates and like me on Facebook/Linkedin.

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