HVAC Distributors Prefer Two-step Supply Chain
While online sales are growing, many HVAC distributors prefer a traditional distribution model
When e-commerce exploded onto the scene more than a decade ago, some in the HVACR industry predicted the traditional two-step model of distribution may be heading the way of the dinosaurs. After all, why would consumers want to continue buying through a middleman when they could potentially purchase whatever they wanted, whenever they wanted, from a website?
Those predictions turned out to be premature, as the two-step distribution model — where the manufacturer sells to the distributor and the distributor then sells to the contractor — continues to be alive and well. And, while online sales are growing in popularity, many HVACR parts and equipment companies still prefer doing business through the traditional supply chain.
“We strictly sell our products into the OEM and wholesale distribution channels,” said Matt McGrath, global channel and distribution manager, Sporlan Division, Parker Hannifin Corp., which specializes in the manufacture and application of refrigeration and air conditioning flow controls. “Aftermarket requirements are serviced through Sporlan authorized wholesale distributors.”
Online sales have not greatly affected Sporlan, said McGrath, as the company does not sell products through that channel. “There are benefits to buying online, such as 24/7 purchasing, checking inventory levels in real time, and the expectation that your purchase will be at a lower price than a traditional retailer. However, our products require a high level of technical and application knowledge, and our distributors have that expertise available at the counter, over the phone, and, increasingly, online. We support their efforts in marketing and selling Sporlan products online, which extends their overall value to the contractor.”
Dallas Rohrer, president, Aftermarket Specialties Inc., is also a fan of the two-step distribution model. As an international distributor for Panasonic industrial products, he imports and distributes compressors for air conditioning and refrigeration applications. “We sell to domestic and international wholesalers and manufacturers, and we also export products. I very much believe in the methodology where we sell to wholesalers, wholesalers sell to contractors, and homeowners buy from the contractors. That’s how we go to market.”
As for online sales, Rohrer doesn’t sell into that channel, but he does believe it’s an important part of the sales process. “I sell to wholesalers that sell my products online, and that doesn’t bother me. What does bother me is when the consumer enters into the transaction and attempts to buy directly from the wholesaler or the manufacturer in order to cut corners on cost. That is a threat to the industry, which is why we, as distributors and manufacturers, have to be righteous in who we sell to — whether that’s across the counter or through the Internet.”
Steve Lazar, founder, Lazco Corp., is all too familiar with customers who try to circumvent his company in order to buy directly from the seller. As a national redistributor of HVAC equipment, he helps manufacturers and distributors buy and sell new and used equipment, domestically and abroad. “I’ve had companies try to go around me many times. Sometimes, I’ll contact a potential buyer about inventory, and they’ll go directly to the seller and try to bypass me. Fortunately, I have good relationships with the sellers, and they’ll call me up and tell me when that happens.”
Even though his inventory is located on his website, online sales have not affected Lazar at all. “I contact buyers directly when I feel a product may appeal to them. I’m very proactive. I know who my buyers are, so even though you can see our inventory on our website, I will personally offer that inventory to people who are in the market for that product.”
The online issue has not affected Cooney Coil either, as this manufacturer’s representative for replacement HVAC coils only offers custom-made products. “Part of our service includes giving customers the peace of mind to know the products they buy from us are going to be exact duplicates that will fit in perfectly,” said Francesca Choi, marketing administrator. “There’s no stress put on customers to take responsibility for selecting a part that may or may not work or fit.”
Like the rest of the HVACR industry, parts manufacturers and distributors were affected by the economic downturn, but many are experiencing growth toward pre-recession levels. “We took that opportunity to review all areas of our business and focus on our lean transformation to improve operational efficiencies and processes,” said McGrath. “That focus allowed us to weather the storm and positioned us to grow when the markets improved. Our lean transformation is most evident in our manufacturing plants, though we implemented it in all facets of our business.”
One issue that continues to be a drag on the HVAC industry is the financial sector, said Rohrer, and until that is fixed, growth will continue to be slow. “When the financial crisis hit in 2008, the government stepped in and forced the banks to change. As a result, banks are choosing not to finance small- and medium-sized businesses and mortgage loans. They’re very reluctant to help finance inventory, because they’ve seen too many companies fail due to excess inventory that couldn’t be sold.”
This problem is especially acute for distributors that do not have adequate cash on hand to buy inventory, said Rohrer. “Distributors can’t make money unless they have inventory to serve their clients. But they either can’t or choose not to stock inventory because they prefer to buy as their customer needs it. That can be a problem with products like mine, which come from Asia and are 120-150 days away. If my customers don’t stock product, then there’s this huge vacuum once summer comes, and everybody wants compressors, but they didn’t order them during the preseason.”
The solution to this problem, said Rohrer, is for the banks to get back to banking and lending. “They need to start financing inventory and providing money for home purchases again instead of pushing it off and acting like it doesn’t exist. Only then will we get back to a more normalized inventory control situation and economic growth. People and businesses at each level of the channel need to be carrying respectable amounts of inventory so it’s there when customers need it.”
Publication date: 8/17/2015