The HVAC supply chain is an ever-changing entity. Distributors work to understand it, but the intricacies can prove to be difficult as industry players attempt to grasp the moving targets of distribution theory and practice. To help, Heating Air-conditioning and Refrigeration Distributors International (HARDI) has developed several initiatives and programs. Each addresses a specific sector of HVAC distribution in an attempt to define challenges, discover solutions to these challenges, and explore practical applications of the solutions in order to improve distribution business performance.
Objective Metrics Boost Performance
One of the programs HARDI has introduced to help is the Vendor Scorecard program. Earlier this year, the Management Methods Committee commissioned a study to identify best practices for distributors to evaluate their supplier vendors. Anecdotal discussions led the committee leadership to believe few HARDI distributors had formal processes for evaluating their suppliers and those who did relied heavily on subjective measures.
The committee learned of a robust vendor scorecard produced by the National Association of Electrical Distributors (NAED) which achieved a number of objective performance measures. However, there was concern the NAED scorecard may be overly complicated and cumbersome for HARDI members, making widespread adoption difficult.
Before embarking on a significant project to design a vendor scorecard with objective measures, the committee decided a better first step would be learning how HARDI distributors are currently evaluating their supplier vendors and what best practices already exist within the membership. Further, the Management Methods Committee hoped this study would also focus on areas of most need should the committee wish to pursue development of new tools.
Largely due to her experience leading the development of NAED’s vendor scorecard, the committee retained Bethany Sullivan, president of Profitability Analytics Unlimited, Johnstone, Pa., to perform this assessment and produce a final report with recommendations on best practices within the HARDI membership.
Sullivan built on the Vendor Review Tool developed by HARDI’s Controls Council in 2007, in order to create standard definitions throughout the HVACR industry in hopes that they would be used as a catalyst for planning and collaboration. The definitions to be used are:
• Administration Metrics: Communication of back-order status, availability of electronic pricing, and price change notification;
• Purchase Order Entry Metrics: Bids entered and won, numbered purchase orders, dollars per purchase order, EDI 850 by line item and dollars, stock sales percent, direct sales percent, and sales performance to forecast;
• Scheduling and Expediting Metrics: Initial fill rate, average lead time, lead time variance, and average number of shipments per order;
• Shipping and Invoicing Metrics: Shipping accuracy, shipping damage, product quality, invoice accuracy, and electronic invoices; and
• Inventory Policy Metrics: Inventory turns, inventory investment per vendor, number of items stocked per vendor, number of customers purchasing an item, dead stock, slow-moving stock, and returned item percent.
Quantifying Demand Creation
The HARDI Education and Research Foundation headed up what it described as a major research project to study and define the distributor’s role in the demand creation process. Michael Marks, managing partner of Indian River Consulting Group (IRCG), Melbourne, Fla., and his team have joined the HARDI Foundation to lead this research effort and the results are set to be presented this December at HARDI’s Annual Conference in Phoenix, Dec. 7-10, 2013.
Distributor and manufacturer participants agreed to let the IRCG team do a deep dive into the companies’ data as a starting point for the research.
“We did some deep diving with a project development team comprised of several distributors and manufacturers where people agreed to share confidential and financial information,” explained Marks. “We also went from the top down with some broad-base surveys with the whole HARDI membership, both manufacturer and supplier side, and the distributors and reps as well.”
According to Marks, the plan is to cross tie the information together so that the researchers can understand the entire cost in the entire system.
“The presentation and the research project were designed to try to articulate the services and the things that distributors do to create and hold on to markets,” Steve Deist, IRCG partner explained. “We want to use the data to make these things more objective. In the channel we have a lot of discussions between distributors and manufacturers, and they tend to be data-free discussions.”
According to Deist, data-free discussions aren’t productive and can become emotional as opposed to business discussions based on facts.
The entire results of the study will be presented during the HARDI 2013 Annual Conference.
“This study is certainly going to be interesting and I hope we have a couple surprises for everyone,” said Marks. “December is going to be fun.”
Capturing the ROI of Education
Understanding that education solutions are needed, HARDI continues to enhance its education offerings at HARDI’s Education And Training University (HEAT.U).
Emily Saving, HARDI’s director of education and research, explained that the Branch Manager Certification program is a position-based curriculum that has been carefully designed to provide training needed to ensure branch managers are able to achieve and demonstrate a clear return on investment (ROI) with tangible, measurable results in this critical position. The program focuses on four competency areas. The areas are leadership, sales and service, financials, and operations. According to HARDI, these topics will demonstrate to branch managers the crucial role they play in the overall success and operation of an organization. In addition, HARDI said it takes proactive steps to ensure that all participants entering the program have a full understanding of the requirements, and are enthusiastic about moving forward as well as successfully completing the program.
According to Bob Munch Jr., president of Munch Supply Co. Inc., Morris, Ill., the program filled a much needed void for his company.
“With the recent growth that our company experienced and the changing economic climate, the expectations of our managers has increased dramatically over the recent years,” he said. “Unfortunately there are not many educational resources available that focus on the unique skill set that a manager in HVAC distribution needs. When HARDI announced the Branch Manager Certification program, we did not hesitate to enroll our staff.”
The association will host an informational webinar about the Branch Manager Certification program on Dec. 16.
Benchmarking Database and Performance
As the HARDI Management Methods Committee worked to support members by providing tools and services to help run operations profitably and efficiently, benchmarking became a primary target of many of the committee’s initiatives as well. One of the committee’s goals was to increase the participation level in HARDI’s performance reporting solutions. What the association found was that to increase participation, it would likely have to make some changes to its process and output.
“Overwhelmingly, the feedback we received was that the data was not timely and actionable,” explained Greg Borr, corporate operations manager at the O’Connor Co. Inc. in Lenexa, Kan., and co-vice chair of the committee. “There was also dissatisfaction with the inability to filter the data that was output.”
He noted that this feedback pushed the committee to look for another performance reporting application and when one couldn’t be found, HARDI decided to move forward with creating a distribution-specific solution.
“Through committee we voted to present this to the HARDI board of directors, where we received approval and funding to move forward.” said Borr. “The end was the creation of Distributor Performance Analytics LLC.”
Talbot Gee, executive vice president and COO of HARDI, is the current chairman of the Distributor Performance Analytics LLC’s board of directors. Borr, who has been involved since the beginning of the project, is the chairman of the Software Development Committee for the company.
“The goal of this project is to provide a solution that will not only increase participation by providing industry benchmarking that is modern, timely, and actionable, but by also providing cross-industry benchmarking capabilities,” said Borr. “The ability to ad-hoc report and filter dashboards will enable HARDI members to have a completely customizable performance benchmarking application. That, combined with the increased frequency and timeliness of the outputs, will help HARDI members develop measurements and key performance indicators that effectively drive business strategy and goals.”
Publication date: 11/18/2013