Buy-sell deals may change in distributor-contractor chain

By Thomas Mahoney

WASHINGTON, DC — In tomorrow’s world of vendor-managed inventory (VMI), manufacturers will look into the shelves of their distributor customers and replenish parts and pieces.

In this upside-down world, manufacturers will even issue purchase orders in the name of their customers. This new buy-sell dynamic is in place between Johnson Controls and its key distributors around the country.

Now, this revolutionary process may migrate to the end of that supply chain, where the wholesaler manages the inventory of its contractor customers. In concrete terms, this process would automatically replenish the stocks that go into service trucks, thus telescoping the time needed for service techs to get the jobsite.

Cost savings result from this streamlined buying arrangement, since it dramatically reduces the time needed at the counter — always a time-consuming trap for service techs.

As explained by Larry Rector of Climatic Controls Co., Milwaukee, WI, his VMI relationship with Johnson Controls has been refined, but only after several years of trial-and-error and only after a considerable outlay of money to harness his computers to this new system.

Time-consuming

The preparation gives the vendor a sales history for each model number, along with a portrait of each month’s sales. This is time-consuming in the extreme, said Rector, who cautioned his listeners that they will inevitably underestimate the output needed.

The advantage to the buyer is that it provides more precise inventory control and aids in the efficiency of purchasing. Wholesalers’ management of inventory must balance purchases (and sales) of thousands of items, and keeping tabs on their product turns.

Manufacturers embrace VMI because it refines their production schedules and avoids the necessity of year-end or seasonal discounts.

It is part of a cost-saving program that is vital to the survival of distributors, Rector told his colleagues at the annual meeting of the Northamerican Heating, Refrigerating and Air- conditioning Wholesalers (NHRAW) Association.

“I can’t emphasize enough how important it is for distributors to tap into the advantages of E-commerce,” he said.

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Stronger bonds

As a buyer, he said he is comfortable with the inventory management process that pulls the vendor into a much closer relationship.

In turn, as a seller of controls, he plans to enter a sort of a VMI relationship with contractors in the Milwaukee region. His first prospect is a large contractor whose 27 service trucks need daily replenishment. Computer ordering from the truck will short-circuit this process.

It is logical to assume that a stronger bond would exist between the contractor and the wholesaler.

Rector’s Web site, titled “E Source” at www.climate control.com, promises his customers 24-hr, seven-day personalized Internet access to pricing, ordering, and account information.

Customers can use a “point and click” process, with direct links to inventory and pricing. Other services include turnkey solutions, technical assistance, requests for literature, and cross-references for hard-to-find products.

The six-branch wholesaler has half a dozen engineers on staff to assist in specifications development, component selection, programming and simulation.