June 10, 2011 Comments Off on Is the GC’s Goose Cooked?
Do you remember the story about the gifted goose – the one that delivered a daily golden egg? More to the point, do you recall the crux of the story? Greed leads to short-sighted behaviour whereby the future is forfeited for immediate gain. Let’s see how we can weave GCs into this cautionary tale.
Let’s start with CATs. You have heard the openly-stated fact that GCs can knock a few dollars off a regular claim (if asked) since they mop up more than water every time a CAT comes around.
After grinning and bearing this for years, insurers decided it may be a good idea to look into those CAT costs. Surprise! Square foot costs, fixed costs, stringent limits on how long equipment could be stored deployed at a job site, and a lot of nose thumbing at IICRC S500 followed rapidly. All of a sudden, CATs aren’t quite as lucrative.
Next up is sub trades and associated overhead uplifts. A lot of crumbs were swept under rugs before flooring programs showed up. Once again, insurers got curious about costs, looked a bit more closely and nearly passed out. Personal experience: Some contractors (NOT you, intrepid reader, not you) were found to be tacking on an additional ‘fee’ (anything up to $1,500) to every flooring claim in addition to the ‘customary’ 10&10. All of a sudden, direct invoicing from flooring vendors became the norm.
Roofing is the latest object under the microscope. It’s just a matter of time before this segment, too, goes the way of the 10-day-dehum. However, for now, some lucky contractors still get to slap the ‘customary’ 10&10 on the roofer’s total invoice in return for some supervisory input.
Now this isn’t small stuff. Flooring and roofing account for possibly one-third of the overall dollar value of property claims across the country. The loss of the ‘customary’ 10&10 related to this from the GC’s bottom line will be felt. Furthermore, it will never come back. That’s because no matter how bad the service provided by the flooring and roofing trades is and no matter how much adjusters complain about having to manage additional parties, the money saved will be a tangible benefit and that trumps complaints any time.
Another factor that cannot be ignored is the fact that many of the vendors in these trades can provide service at a lower direct price than that contained in the estimating programs mandated by insurers. Not always and not for every job but it does happen pretty often. Food for thought.
And that’s just the beginning. Demolition, environmental, and other highly specialised sub trades will all get their turn under the spotlight.
Every GC will disagree with some part of this article. And every GC knows that there’s enough truth and fact here for insurers to really get their teeth into – possibly for all the wrong reasons. And every GC (NOT you, heroic reader, not you) knows that your compromised margins, your faultless service, and your patience with adjusters means nothing because you didn’t engage insurers productively when you had the chance.
Would you like some gravy with that goose?
May 30, 2011 Comments Off on Are Vendor Programs Dying?
Restoration contractor vendor programs have been around for years. They started out as informal relationship management processes and evolved into insurers’ weapon of choice in the fight against rising costs and falling service standards. However, we now seem to be in a period of reflection as insurers make up their minds about these programs. It has become apparent that professionally run vendor programs are difficult to sustain. That’s because they need constant attention – which means they compete with other programs for limited resources. Another issue is the difficulty in measuring the benefits these programs are supposed to deliver – an extremely complex undertaking that has surprised every insurer.
Make no mistake: these programs are a definite improvement over the freewheeling relationship-based systems they replaced. However, although they always start with best intentions, they sometimes deteriorate into a miscellany of muddled initiatives. Goalposts move with bewildering frequency; frustration and disappointment pile up in a familiar pattern. Contractors moan, “Here we go again!”, adjusters throw up their hands and grumble about confusing instructions, and the ‘head office’ boffins declare everyone else is stupid or corrupt or both. Why does this happen again and again? There are four principal reasons:
The single biggest cause of failure in vendor programs is ineffective communication. It’s the first thing to break down and the last thing that’s properly planned. Vendor programs are created with meticulous attention paid to the exact wording of RFP’s, the precise meaning of contractual terms, the accurate definition of key performance indicators, and the strict definition of service standards. Yet when it comes to informing, training, and notifying key stakeholders, everyone assumes telepathy will kick in and complete understanding will spontaneously occur. Effective communication is difficult stuff. To work it right, one has to put themselves in the place of the other party and this doesn’t happen when neither party understands the other in the first place.
Close on the heels of poor communication as a cause of failure is inadequate training and development. Professionally run vendor programs are still new to insurers and contractors. It isn’t enough to pour everything into two documents – the ubiquitous ‘Contractors’ Manual’ and ‘Adjusters’ Manual’ – email these out to the appropriate parties and expect common sense and harmony to prevail ever after. In all fairness, most insurers will get their training departments to participate in some internal training but this is always done as a one-off project and once the training sessions are done, they are never repeated. People forget stuff, new employees join the team, and practices change but the training department never returns and the vendor program starts to corrode. Blame it on tight budgets and scarce resource mixed with short-term thinking. It’s like applying a single coat of cheap paint on a wall and expecting it to last forever. It just doesn’t sense.
Next up on the list is data management. The industry is awash in oceans of data. Sadly, most of the data intended for property vendor programs are not very good. There are a couple for reasons for this:
First, most insurers have legacy data systems that provide useful high-level financial information – traditionally the closest insurers ever got to managing knowledge. This worked well in the past. However, effective vendor programs demand detail. They need transactional data broken down to the individual vendor level and they need a robust service-measurement process. Insurers have realised this and moves are underway to implement better systems but these take time to deploy and embed.
Secondly, there just has not been enough attention paid to inputting worthwhile information in the (mostly) very good estimating programs used by the industry. These programs run alongside existing legacy systems but do not interact with them in any way so there are absolutely no data validation opportunities between the two. It is virtually impossible to take a batch of information from one system and match it to a similar batch of information from the other. So, almost inexplicably, insurers have poured millions of dollars into license and user fees in return for head-scratching information. There’s every reason to believe that no insurer has ever made a sound decision as a result of analysing data from a commercially available estimating program. The industry is several years away from really understanding data and that’s assuming contractors and adjusters immediately start collaborating on the proper use of these expensive software programs.
Now for a somewhat arcane cause of failure: Most insurers run their vendor programs under a different management line from their operations department. In other words, the people who manage the RFPs and select vendors and populate scorecards and discuss improvements with contractors are in a different department from the adjusters and supervisors and claims managers who approve estimates and issue indemnity payments and settle vendor invoices. So what? Well, this is a huge issue. Here’s why:
(a) Split Control: The vendor department has to prove that all the clever stuff they do with selecting the best vendors, creating price lists, and scoring vendor performance actually creates a few ongoing benefits such as lower claims averages and improved customer satisfaction indexes. The trouble with this is that actually doing the things to achieve these benefits sits squarely in the hands of adjusters – and they don’t report to the Vendor Department. They report to the Operations Department. Competing priorities kick in. The result is that all the metrics the vendor department comes up with rarely hit their mark because adjusters are too busy scrambling with file workloads, irritable claimants and lippy contractors. The vendor department wants everyone to focus on vendors. The operations department wants to streamline operations and extract more files from fewer adjusters. The last thing they want is more directives, more forms, more work. Somewhere in the turmoil the vendor department’s stuff gets shoved into the bottom of the pile and the program starts to slide sideways.
(b) Competing Budgets: As anyone with corporate experience will tell you, departmental survival depends on budget allocation. The claims department gets a chunk of change and has to allocate funds to each department within it (operations, finance, training, vendor management, auditing, auto, accident benefits, property, and several other subsets exist within the overall claims umbrella). Matters usually work out reasonably well but funds slow down in lean times. That’s when blending departments starts to make sense. Since vendor departments are usually the last to be created, they’re often the first to be trimmed or even disbanded.
(c) Old Hands vs. New Cowboys (or Cowgirls): It’s guaranteed that every contractor has heard a complaint or a snide remark or a derogatory comment from an old-school adjuster about the new ‘desk-jockey’ vendor-fella. Things like how the new rules make no sense, how the new hire doesn’t know a soffit from a Smurf, how life has been irreparably damaged. This is undoubtedly one of the most unprofessional things an experienced adjuster can do – but it happens.
So, is the demise of the vendor program imminent? Absolutely not. Even though most vendor programs have failed to live up to their lofty objectives, they have still produced results far superior to anything in the past. They have also attracted a new breed of professionals to insurance companies and these people continue to influence and lead change. Similarly, many forward-thinking restoration contractors have hired from the insurance industry and they will benefit from the new perspective and insider knowledge that these people bring. These changes will start to make an impact in the near future and vendor programs will develop into their next phase where realistic and sustainable benefits are achieved under the leadership of knowledgeable people.
Management structures will change, data acquisition will improve, dependency on off-the-shelf software will reduce, and training and development will advance. Vendor programs have been around for years and they’re finally about to develop. Are you?
January 10, 2011 Comments Off on Another Year
We’re a couple of weeks into the new year and it’s now safe to move from cheer and goodwill back to reality. So, how was 2010?
Well, by most accounts it was sort of OK for most in the insurance restoration industry. Business volumes didn’t follow the usual pattern so it was uncomfortable for part of the year waiting for claims to get back to normal frequency. Claims happened in the end but not entirely in the right places at the right time. The good news was that the economy righted itself in comparison to the US.
However, an absence of setbacks doesn’t mean there was progress.
Questions that come to mind are: Was there any noticeable improvement in 2010 in the restoration industry’s business processes, management systems, commercial relationships, long-term plans, customer service, or competitive strategies? A few organisations have had some success but, overall, the industry hasn’t matured much at all. In fact, there are arguments that support the premise that the industry’s standards are moving backwards in relation to the available opportunities. Let me explain that.
Issue: Global warming has created a new industry fad. There’s a veritable tsunami of water-mitigating, contents-drying, IICRC-certified, ASD-trained, water-expert wannabes ready to leap into action at the mere hint of a dripping tap. For good reason: Water damage losses bring in the bacon. They’re relatively quick to turn around and insurers have little idea what they’re paying for. Most contractors don’t want to repair structures any longer but just to dry them. In return, insurers focus on reducing prices by moving from unit prices to square foot prices (and back again) but often fail to actually reduce overall costs. In the end, it’s the same old price thimblerig and industry standards haven’t budged at all.
Opinion: The few contractors who put their resources into full service instead of relying on increasingly unpredictable weather patterns will continue to prosper; the H2O contingent risks being hung out to dry.
Issue: Every contractor is an estimating software expert. Estimating programs serve two purposes: (a) to allow a consistent approach to estimating a loss, (b) to accumulate data to with a view to identifying opportunities to improve service or costs. It’s been about 10 years since the industry started using these programs. Yes, the industry has achieved some consistency in creating and presenting estimates. No, these programs offer absolutely no useable data. Zilch. Not a shred of information has ever been extracted from a commercially available estimating program that has led to any improvement in service or cost. It’s not that the programs are flawed. It’s because filling in all the fields and forms just takes too much time. It’s odd that despite paying license and user fees for these estimating programs, neither insurers nor contractors actually make an effort to derive benefits from them.
Opinion: Estimating software programs offer a huge opportunity. Unfortunately, this is completely ignored. Unless someone figures out a way to obtain value from estimating programs, insurers will drop them as part of future cost-cutting initiatives.
Issue: Every contractor has ‘proven’ service standards. This holds true particularly for the major contractors who track all sorts of arcane data that only they understand. Yes, it’s great to know how well your business is doing but don’t expect your customers to see the value of what benefits you! Customer-centric businesses collect data that their customers need. They do this because they’re confident they offer real value. Then they regularly share that data with their customers and work out ways to make the relationship better.
Opinion: Until contractors make the effort to agree with their customers what needs to be tracked and then do this diligently, the industry will continue to slide backwards on the trust scale. The hesitation to do this is inexplicable and indefensible. One cannot expect a successful partnership where there’s no evidence of value.
And that’s the way I see it: The greatest opportunities lie in providing complete services, using estimating programs intelligently, and tracking and managing worthwhile data. All of these are readily achievable and yet all are largely ignored.
February 3, 2010 Comments Off on Why Vendor Programs?
I was recently asked one of those fundamental questions which initially lead you to doubt the sanity of the asker and then, upon reflection, make you think hard. Here it is (with profanity edited out): “Why are insurers interested in vendor programs?”
Given the RFP/RFI tsunamis of the past two years, it takes an effort to recall the days of the one-page application form obtained from an adjuster, completed in ink, and mailed back to what had to be a paper shredder – never to be seen or discussed again.
Remember when “contracts” were one-page letters (actually typed on a letterhead and signed by one person who you knew on a first-name basis) and not the multi-signature-bearing shock-and-awe screeds of today that, if ever invoked, would drive you out of business as surely as a claimant will negotiate their deductible with you.
Those were times of trust and much mutual back scratching. The GC repaired what needed to be repaired, the adjuster adjusted things, and both took care of the policyholder. Somewhere along the way a cost was agreed – sometimes tweaked slightly to take into account a favour on a difficult claim in the past and everyone got a good night’s sleep.
But that was then. Before estimating software supposedly made pricing easier to track. Before the building boom, oil sands and the Winter Olympics made some skilled trades tougher to find, hire and retain than getting an IA to process your payment within 6 months. Before the dreaded PSPs.
Preferred Supplier Programs are here to stay. Blame the erosion of insurers’ investment income (and the subsequent need to trim costs of all sorts). Blame the IT firms that saw the opportunity to create estimating software that spew voluminous reports (that keep people employed to produce and analyse these). Blame the consumer for complaining about shoddy service and outrageous charges and skyrocketing premiums. Blame every level of government for ignoring the state of ancient sewer systems that now drown basements in unspeakable fluids as regularly as Big Ben chimes the hour. Blame past generations of consumers whose ozone-depleting lifestyle demands have triggered weather patterns that defy prediction. Blame the big consulting firms that recognised the massive flushing away of funds that used to pass for claims cost management (and went and published all sorts of reports on the erosion of shareholder value and similar ilk).
That’s why insurers are interested in vendor programs.
They’re also interested in these programs because they help create standards so that all policyholders can expect a reasonable level of service. Because it has become impossible not to notice that all the old mutual back scratching led to costs escalating far faster than can be logically explained. Because so many contractors don’t estimate a loss as much as they evaluate what they can charge. Because bigger insurers can hire more experienced people who know how supply chains in other industries operate. Because insurers wonder why they live off razor-thin margins but their supply chain grows as plump and complacent as a brood hen. Because no one has ever met a poor restoration contractor.
Insurers don’t really care about the contractors’ experience of worry, stress, late night calls, working weekends, 18-hour work days, difficult claimants, horse-trading on every job, and free extras offered up on every claim because they go through roughly the same wringer. And they do this for roughly 50% of the income per person.
And, when done right, there really are benefits and win: wins in these programs. Measurable service standards, known processes, agreed pricing protocols, negotiated profit margins driven by sustained business referrals, reliable payment schedules, shared problems, and the opportunity to improve continuously. And, of course, the one spin-off that makes it all worthwhile: a satisfied customer.
That’s why insurers are interested in vendor programs … and why so many contractors are, too.
December 31, 2009 Comments Off on New Trends
It’s that time of the year again: the twilight days between one year and the next; the easy commute to work while others are on holiday; the perfunctory shuffle of papers from desktop to filing cabinet or dustbin in preparation for a new year; the anticipation of a job bonus (likely spent in advance), and a sense of new things to come in the near future.
It is also a time to reflect on what was or could have been. It’s been an odd year in some ways. We have watched and listened to news about the financial state of our southern neighbour and waited for the inevitable to happen here. One hundred plus bank failures, plummeting house values, soaring unemployment, and a decimated auto industry in the US had to translate into something bad for Canadians. It didn’t for the most part. But it made us nervous and being on edge for the better part of a year is uncomfortable.
So, did you chew your nails and fret in 2009 or did you leverage the benefits of being in a well-regulated economy? Chances are you had a reasonably good year but did you do anything new or did you play safe? Here’s a roundup of some of the best developments of the year:
Many contractors continue with old school marketing as a way to secure new business or hold on to existing clients. In some circles there’s still nothing wrong in showing up at a customer’s workplace with nothing but a hail-fellow-well-met attitude for a cursory look at a few service issues. So, if you’re in this camp, you have lots of company and there are still many people who will welcome you into their offices to while away an hour or two. Some of them are happy to continue the conversation through a round of golf, as well. Just keep an eye on the future. These people will eventually be replaced by very different professionals who value their time and who want specifics. You will very quickly find you’re seen as a nuisance.
Then there are the contractors who have realised that showing up with a smile and a box of donuts doesn’t translate into a secure customer base. They have taken steps to develop their value proposition from a customer’s perspective and have learned to focus on results, not actions. They’re ready for the small but growing number of insurers who take an active and intelligent interest in their supply chains.
Training is always a hot topic. Most contractors have trained and certified their teams to a creditable extent and it’s paying off in better work standards. A certified technician also attracts a higher price-point on estimating software so the investment pays for itself.
A few contractors have taken a step further and turned their attention to helping their customers – the insurers – develop their adjusting standards. Although there’s still a high dependence on half-day lunch-and-learn type training, there are a few contractors who have geared up for something better and more valuable to insurers. There are some exceptionally innovative training programs out there that provide in-depth learning and true understanding of the scoping and estimating process. Their owners are a credit to the industry. Nothing breeds sustainable customer loyalty better than meaningful collaboration.
A small number of contractors, mostly the larger networks, have reached into the insurance industry and hired ex-insurance professionals to manage key relationships. This approach has worked the other way, too, as insurers have started to hire ex-contractors to help with job cost transparency. It’s early stages yet but this is definitely one of the best developments in the industry in years. The benefits of this strategy will start to be felt very soon.
Supply Chain Management
A truly forward-thinking move made by a major contractor is to review their upstream and downstream suppliers (all the recruiters, building materials suppliers, equipment vendors, and sub-trades that the firm relies on) and to start applying rigorous supply chain principles to them. This will make a huge difference to their final costs and overall service standards. This is not about getting a good deal or best prices – many contractors have done that. It’s about identifying and developing an end-to-end value chain that achieves lowest total costs and highest customer service.
A positive development in the insurance industry is the ever-widening professionalism being brought to bear on vendor programs. The task is often difficult because it always involves introducing change and overcoming resistance. However, identifying quality, insisting on measurable service standards, and containing costs will eventually bring value to the ultimate recipient of the combined services of insurers and contractors – the policyholder. That’s long overdue.
Yes, all the positive things mentioned above have been done before but never on the scale now occurring. We will report further on this as we make our way through 2010. Credit is due to the market leaders for taking bold steps in tough times. They have earned their success and all of us will benefit from their actions.
June 22, 2009 Comments Off on When Business Partners ask for a Handout
What do you do when your major business partner asks you to reduce your profits because they’re not doing too well?
At first, you may find it difficult to believe them, especially if they’re about 100 times your size. However, if they’re showing signs of financial trauma – typically, this includes jettisoning employees in droves and showing up in merger & acquisition rumours – you have to accept their word that things aren’t going too well.
The next thought that may occur to you is why someone else’s poor management should have to cost you, especially if you’re intelligent enough to do well in a depressed market. After all, being a perceptive business owner shouldn’t carry a penalty.
Thoughts may then turn to bleaker outcomes such as what happens if the business partner ends up failing or decides to turn permanently to cheaper partners.
Ultimately, it’s your decision to assist or walk away. No points for guessing what 99.9% of business owners do. It’s better to have 95% of what you had than zero. In addition, if you don’t have shareholders to answer to, it’s an easy decision.
There’s nothing wrong in asking for help during tough times, especially when there’s a long-standing and mutually beneficial partnership involved. In fact, the partnership is likely to come out of the hard times stronger than before. The trouble is not in the act of asking but in the manner of asking. In fact, ‘asking’ for help doesn’t really come into play in most cases that are currently under discussion. Most contractors are summoned to a meeting, are given a set of demands, and sent off with a flea in their ear wondering what hit them. They go back to their office and grab their vendor contracts and realise there’s nothing there to protect them. They start talking to others in the same predicament and the resentment grows. Not because they have to give up 5% or 10% of earnings in the short-term but because they had been lulled into thinking that all major decisions would be discussed and agreed before being implemented. Surprise! Who thought the restoration industry would fall victim to a variant of the Bush Doctrine? Yet here we are, pre-empted, battered, and confused.
However, this is a pragmatic industry. So, the spirit of collaboration defers to expediency and one party ‘saves’ a few million dollars at the expense of their supply chain. Soon, however, there’s another surprise! The supply chain sees no decline in profits during the period of belt-tightening. How can this be? Well, it’s a pragmatic industry. Don’t expect people to give up bonuses too readily, especially in times when personal fortunes have shrivelled. Those line items in estimates have started to bloat in all sorts of funny ways.
Anyone will tell you that it’s utter folly to show up for a gunfight armed with a knife (unless you’re Britt of The Magnificent Seven). Yet that’s exactly what insurers choose to do when it comes to keeping estimates lean and clean. Face it, 95% of adjusters can’t stand up to a determined restoration contractor. Part of it is because of an imbalance in experience and knowledge and part of it is due to numbers. The contractor is motivated to make every dollar stick because their earnings are directly related to the overall job cost. The adjuster is motivated to keep their file-load under control – too many pending claims draw unwelcome attention – and gets not a dollar in bonus no matter what the outcome.
Now layer a coat of superciliousness on this situation, step back, and see what happens. Insurers will do themselves grievous injury slapping their backs in self-congratulatory pride over extracting a few dollars from a recalcitrant supply chain; contractors will hang their heads in apparent defeat and hand over their lunch money and not a cent will come off those estimates.
One painful lurch forward, engage reverse and hit the zoom pedal: Vendor relations as done by insurance companies. No wonder everyone wants to be a restoration contractor but no one wants to deal with insurers.
June 4, 2009 Comments Off on Preferred Supplier Programs
Everybody wants to pay less for goods and services but nobody wants a corresponding reduction in value. Imagine what would happen if negotiating a series of price reductions on a vehicle with a car dealer meant progressively losing the wheels, windshield, fenders, seats, heating system, and so on. Few buyers would negotiate because they would immediately see an erosion of tangible value.
It’s different with services. The value embedded in services is often less visible, less dissectible and, therefore, more eagerly negotiated. Some services deliver a physical product. Restoration work is an example. Contractors offer a service but provide a tangible product.
The old approach
Restoration contractors have always relied on enthusiastic marketing to connect with their chosen customers. However, the efficacy of their marketing strategies is questionable considering the peculiar position contractors have placed themselves in – insurers constantly negotiate the price of the service but never the value of the product. Thus, the contractor’s labour rates, job cycle times, profit, and overhead are all open to parley. On the other hand, value content such as delivering high customer satisfaction, exceeding agreed service standards, and providing free risk improvement advice are part of the standard service offer. Whittling costs is now standard operating procedure but withholding corresponding value is unthinkable. The profound folly of this arrangement is rarely questioned and then only in muttered asides. The ubiquitous “doughnut=job” equation (a crude sales technique at best, an acute contempt for insurers’ integrity at worst) has backfired. Contractors have themselves to blame. You just cannot profit from a relationship that relies on mutual back scratching because this is a very limited tactical approach. Eventually it will fail to satisfy one of the participants.
It takes robust strategies to modify the status quo when you have allowed crass commercialism instead of collaborative partnering to steer a relationship for a long time. Most contractors don’t have the time, resources, or appetite to take corrective action. Insurers, of course, won’t solve the problem unless they see some benefit for themselves. Or will they? It depends on the category of insurance company you’re dealing with. More on this later.
Historically, insurance companies’ core competencies didn’t include managing a contractor network. Contractors saw the policyholder as their customer and were left by insurers to handle these in their own way. Local relationships thrived. Everything operated at the tactical level with a heavy measure of differentiation in the delivery of service.
Time for a change
Over time, however, this practice began to be abused. The construction boom of the last decade resulted in new, unskilled, opportunistic entrants to the restoration market. Weather conditions produced new records in claims frequency every few years. Job quality started to become secondary to speed of work. Insurers started to notice a lack of a commitment to service. Rising claims costs added to their concerns. Insurers started to look around for solutions. The auto repair industry offered a convenient guide. There, centralised buying power drove the relationship and repair shops had started to view insurance companies as their customers. Two major components of the relationship were a continuous stream of work to the body shops and regular payment on time, every time.
It seemed an easy template to apply to restoration contractors. So far, however, it has been an arduous undertaking. Most insurers just haven’t invested enough in transforming their operating models or in acquiring professional resources to create and manage sustainable preferred supplier programs. The two major requirements of professionally run supplier programs – maintaining consistent streams of work and paying on time have proved to be notably difficult to implement effectively. Equally, most contractors have elected to bury their head in the sand and refuse to accept the inevitable: the glory days are over. The result so far is sporadically effective supplier programs across the country and many frustrated contractors hankering for the good old days.
Two types of insurance companies
There are two varieties of insurance companies when it comes to effective partnerships with suppliers. First, there are the traditional insurers who still pursue reduced prices as the best way to control costs. They have extensive regional vendor lists and their adjusters have close relationships with contractors. They operate on a ‘win:lose’ basis when it comes to job costing. Then there are the progressive insurers who choose the far more effective way of simply reducing the supply base in return for collaborative efficiencies that produce real financial (and intangible) benefits for all. Unfortunately, contractors don’t really understand the value-based needs of the latter and continue to operate as if price is all that matters, i.e., playing the win:lose game. They’re missing an opportunity to drive change.
The basic ingredients to create partnerships
As stated above, many insurers haven’t yet acquired strong supplier management skills. However, just a few basic ingredients make a good preferred supplier program
1. An open relationship with the supplier
2. Good communication, especially on job progress
3. Comprehensive baseline metrics
4. Collaborative measures to achieve and measure these metrics
5. Active management of these metrics and related service level agreements
6. A strong understanding of the restoration business’ drivers
Any supplier able to offer the above immediately distinguishes themselves as professional partners. The knowledgeable contractor knows this and cultivates their relationships with insurance companies along these lines. The goals are always
1. to make it easy for the insurer’s employees to work with pre-qualified suppliers
2. to make it possible for the supplier to reduce costs and improve service at the same time.
You can start building effective relationships by thinking about the steps below (the first three are vital):
- The most important step that few really think about: Cover the high-level stuff (the strategy) thoroughly. The details (the tactics) will fall into place later
- Be selective in defining strategy, not exhaustive. It’s better to collaborate on a few outstanding objectives than on a mass of mediocre things. The prime reason why partnerships fail is because the core strategies are overwhelmed by a morass of undeveloped intentions
- Focus on results, not actions. For example, don’t attempt to agree on a step-by-step service procedure; instead, agree that service will meet an agreed standard. Many partnerships stumble because they rely only on achieving tasks, not results
- Spell out your own purpose in forming a partnership. Say what you’re trying to achieve up front. It’s too late later and, in any case, this is a good way to ensure you think through everything at the outset
- Pinpoint the stakeholders who can help or hinder the relationship and deal with them first
- Encourage ideas from all stakeholders. Participation leads to commitment
- Consult within your own organisation before approaching or agreeing to work with potential partners. You may be the boss but you will learn something new if you do this. If you’re not numero uno, this advice may save your job!
- Make initial informal contact with possible partners to find out what drives them, their attitudes, and what their major interests are
- Expect the partnership to develop over time before you can formalise it. This can take a long time but shouldn’t if you work diligently at it
- Be candid and honest.
All this is easy enough to say but difficult to implement. Anyone who has created a successful supplier: buyer partnership will tell you that it requires some resolute evaluation and comprehensive planning. The biggest barrier usually is admitting that something needs fixing. That’s because dysfunctional relationships don’t require a lot of maintenance once they’re allowed to go out of whack. Just the occasional whining keeps them going indefinitely. An effective relationship, on the other hand, takes a real effort to establish and maintain. Liken it to a treadmill: It goes round forever, it can exhaust you if you try to sprint all the time, you’ll fall off if you lose your concentration or falter, you can injure yourself if you overdo it, and it’s a wasted expense if you don’t apply it. Your best results are achieved by working with a trainer and working to a plan.