Is your business benefitting from a pre-season stocking program? Pre-season stocking programs can make a big difference in business. How much of a difference and how positive that difference often depends on the terms and conditions of the program. For distributors, these programs can represent significant cost savings through discounts, product availability, and more. In order to find pre-season stocking program success, it may be prudent of distributors to carefully consider the benefits and the pitfalls of each program offering.
The following distributors offered their experiences and expertise to help other distributors looking to better provide for their customers and increase their competitive advantage.
SUPPLY CUSTOMER NEEDSTodd Day, supply sales for Standard Supply & Distributing, Dallas, is a co-chair on the Heating, Air-conditioning & Refrigeration Distributors International (HARDI) HVAC Systems & Equipment Council. The company he works for runs pre-season advertising approximately a month or two before the season begins. According to Day, this move allows the company to book advance orders for products that will likely be widely used in the coming season. Selling early can also help the company take the guesswork of when the hot and cold seasons will begin out of the overall business equation.
"Our business is extremely seasonal, but we never know when that first hot or cold day will hit," he said. "Pre-season sales allow us to get inventory out in the field before that day hits. The orders don't necessarily add to our overall sales growth; they just help prevent an early stock out."
Standard Supply & Distributing, however, does experience growth from other resources. The company doesn't offer special discounts to accompany its pre-season stocking programs, but it often provides different billing terms.
AVOID BLANKET ACCEPTANCEAccording to Dan Hinchman, president of Aireco Supply Inc., Savage, Md., cost savings from pre-season stocking programs stem from deeper product discounts, improved freight terms, better payment terms, and the assurance that distributors will have the product inventory necessary to hopefully avoid possible stock outs and lost sales.
"The flip side of that is there is a significant cost in tying up capital with excessive inventories early in the year. Storage and handling costs can become expensive, and there is a risk that your forecasted sales might miss the target," he explained. "If that happens, you can be stuck with inventory that carries over until the following season."
Another concern Hinchman expressed about pre-season stocking programs was the challenge of obsolete products and model changes. These two factors can cause damage to a distributor's inventory position, especially if their pre-season forecasting was incorrect. Product pricing deterioration later on can negate some advantages as well.
He noted that with some vendors, there wasn't a choice of whether or not to participate in pre-season stocking programs. Long product lead times can make this impossible. Hinchman doesn't believe that distributors should keep away from pre-season stocking programs. His concern is that blanket acceptance may not be the best idea for each individual distributor.
"The sage advice is to evaluate each program on its own merits relative to a distributor's own financial and operational considerations," he said. "Some programs are 'no-brainers' and some are 'no way'."
STAY COMPETITIVEScott Jesse, director of aftermarket & store operations at cfm Distributors, said he would tell distributors who don't currently participate in a pre-season stocking program to, "Take advantage of them." His reasoning came from a participant's ability to receive inventory in the off peak months and be ahead of the competition.
At cfm Distributors, a monthly flyer is released providing its customers with a discounted price for pre-season product.
"It's a program that allows a customer to receive inventory and get it in place before their busy season," said Jesse. "They will usually receive some type of dating or discounted pricing, so it is beneficial for them to work on their forecasting."
According to Jesse, HARDI helps distributors create effective forecasting models by keeping the distribution sector of the HVACR industry informed about what is going on in the overall marketplace.
cfm Distributors is currently receiving pre-season stock from its vendors and will begin to offer the inventory to its customers in the spring months.
"Taking advantage of the discounts helps us stay competitive and that can allow us to help our customers stay competitive," said Jesse.
EXPERIENCE DIFFERENTHabegger Corp.'s Carrier Division offers its own unique pre-season stocking program. Its program provides extended terms to dealers to stock Carrier/Bryant equipment in their warehouses for the spring and fall.
"Typically there is five months of 'free' inventory," said Brain Newport, residential sales manager, Habegger Corp. "Pay for it when you sell it."
According to Newport, Habegger often offers an incentive to residential retail sales reps and the company has also introduced manufacturer rebates. He explained that the company's pre-season stocking programs helped keep its dealer supplied with inventory when it was most needed.
"It allows us more room in our warehouses to stock additional equipment and it 'fills the pipeline'," he said. "It is a well received program by dealers."
LOOK AHEADMuch of pre-season stocking conversations can be summed up in two words - look ahead. Carefully considering forecast models, economic reports, and equipment numbers can put distributors on the correct path to financial success. As for 2012, the die has not yet been cast, but some of the distributors referenced in this article think that 2012 might mirror many of the economic results of 2011. Newport is one who thinks that 2012 will be challenging, and Jesse is expecting a slow first quarter. He is hopeful that the second quarter will pick up and push ahead of second quarter 2011 numbers.
Forecasts aside, pre-season stocking programs are varied and widely available. Considering one of them for the 2012 busy seasons could be a wise decision.