Revisiting Market Center Distribution

July 23, 2007
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Back in 2000, the North-American Heating, Refrigeration, and Air-Conditioning Wholesalers Association (NHRAW) adopted a new business concept for its distributors titled Market Center Distribution (MCD). MCD is defined as “the integration of information technology (IT) with regionally established distribution centers, staffed and managed by persons familiar with local markets and customers. This concept is intended to bring order and efficiency to the distribution channel by eliminating redundancies through seamless information exchange among suppliers, distributors and customers, and the use of appropriately trained distributor personnel.”

Since that time, NHRAW has evolved into the Heating, Airconditioning & Refrigeration Distributors International (HARDI) and the MCD business model has been relatively dormant - until recently.

With the emergence of new business processes such as the HARDI-backed Certified Counter Specialist (CCS) program (see story on page 12), MCD is once again being discussed as an important business model for the wholesale distribution industry. Don Frendberg, HARDI executive vice president and COO, saw MCD’s importance in 2000 and sees it now, too.

“I was involved with a visioning meeting in Canada a number of years ago [Kananaskis, Alberta, February 2000] and we talked about what we visualized would happen with wholesale distribution,” he said. “The knowledge of the individual branch locations within the market is their real value. They know everything that goes on in their markets - that’s what is the most important. How do we help those wholesalers be better at what they do? MCD was driven off of that thought. The market center is where the distributor gets his knowledge and then applies it to the benefit of their customers.

“It’s time to revisit and revitalize MCD. Our global expansion of wholesale distribution in Europe and China would greatly benefit from MCD.”

Frendberg noted that the CCS program ties strongly to MCD. “The counterperson becomes one of the keys in the MCD concept and we recognize that. The information that they derive from contractors and technicians on a daily basis is what drives the MCD concept.”



PLANNING BUSINESS STRATEGY WITH MCD

According to HARDI’s publication, “An HVACR Distributor’s Planning Guide Toward Best Practices,” the MCD business concept has two purposes:

• To serve as a testament to the effectiveness of locally sited, independent distribution in an era when the function is under attack by new channel entrants who would have us believe that the middleman is no longer necessary. MCD affirms the role of the stocking distributor and all he or she brings to the table as the key linchpin of the distribution channel.

• To challenge the distributor to continually improve his performance in the channel. This will be done by continuing identification and strengthening of core competencies possessed by those distributors. To accomplish this, trade associations like HARDI must provide education and training programs to facilitate the process of distributor self-evaluation and improvement.

According to HARDI, the entire distribution channel can benefit from the MCD model. For the manufacturer, MCD offers a commitment from distributors to work openly with them to reduce channel costs and maximize market share. For the contractor, MCD offers a commitment from distributors to ensure products are made available to them in the most cost-effective “total value” oriented way. For the distributor, MCD offers a rallying point to perpetuate their pivotal role in the supply channel in the face of a changing markeplace.

With changing technology, such as Internet purchases, it is becoming imperative that local, market-driven knowledge becomes a key component for any sized distributor, according to Frendberg. “Even if the distributor is very large with many locations, each location has a sense of uniqueness to it,” he said. “The value lies in how each individual branch performs in the local market. This is not a one-size-fits-all solution for every branch.”

A great deal of emphasis is put on the distributor’s local market knowledge, and as HARDI Vice President Talbot Gee, said, “The successful distributors that comprise our membership continue to be the source of product and market knowledge in each territory they serve for their suppliers and customers alike regardless of how large the company as a whole becomes or how many territories they cover.”

According to HARDI, what makes MCD different from the traditional two-step distribution process is the realization that there can be redundancies in costs among the different participants in the product supply chain. It calls upon the manufacturer, distributor, and contractor to each define their core competencies - those functions they perform better than anyone else - and to seek the support of other channel partners in providing their own respective core competencies. Rather than thinking of the distribution process as a series of sequential steps, it looks at the total process as a unified system with each participant taking responsibility for the functions he or she does best.

In the end, HARDI believes that the distributor should provide the impetus for better communication with its channel partners and turn the MCD business model and its knowledge base into the future of HVACR wholesale distribution.

Bud Healy, HARDI director of education, referred to something he heard from former NEWS’ editor Frank Versagi, who spoke highly about the role of distributors in the community. “Versagi said that if he wanted to know what was going on in the local HVACR market, he would talk to the best distributor in town,” said Healy.

With the MCD concept, there will be many distributors vying to be the best.

Visit The NEWS' Editorial Archives page for more information via MCD-related articles. For more information on HARDI and MCD, visit www.hardinet.org.

Publication Date: 07/23/2007

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