Number Knowledge Essential to Business
As most all distributors know, it is important to watch the company’s financial numbers on a consistent basis. This allows an owner to compare performance to previous years. But how about comparing those numbers to various distributors from both your area and all across the United States? That is what the Heating, Air-conditioning & Refrigeration Distributors International (HARDI) allows its members to do thanks in large part to the Management Methods Committee.
“We are providing information and data that distributors can use to find out their performance,” said committee chair and COO of Dakota Supply Group, Dan Miller. “They can compare their numbers relative to their peers and high-performing HVAC distributors. Our committee really strives to provide the benchmarking tools that allow the distributors to do this comparative analysis.”
Dan Miller, committee chair and COO, Dakota Supply Group
Raise the Bar
Miller equates the HARDI benchmarking philosophy to that of the four-minute mile. At one point, nobody thought the four-minute mile could be done. But once one person accomplished it the bar was raised. Now a lot of people can run the four-minute mile.
“It is the same in business,” Miller said. “If you see someone who is achieving a profit rate of 6 percent and you are performing at 1.5 percent, you can look and see how they are accomplishing that. Using our tools you can look at your P&L sheet and determine where the gaps are. This gives you a direction on how to set a path and move forward. We give you recommendations on how to change strategies to improve your profitability.
The reports available to HARDI members that participate include:
• TRENDS report: Composed of HARDI member data gathered by the ITR Economics, it includes monthly and year-to-date distributor sales and days-sales-outstanding broken out by geographic region and annual sales volume. Sales per employee are also reported.
• Profit report: Analysis of financial and operating characteristics of more than 100 participating HARDI firms.
• Compensation study: A detailed review of compensation and benefit programs for approximately 2,000 distributors from 30 distribution
• HARDI-JP Morgan midseason HVAC study: Survey captures distributor experiences and impressions regarding residential end market demand, commercial end market demand, inventory levels, raw material and OEM price pressures, and government policy measures.
The latest edition to HARDI benchmarking is the Vendor Scorecard program.
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, Profitability Analytics Unlimited, to perform this assessment and produce a final report with recommendations on best practices within the HARDI membership.
The committee is right in the middle of this process and plans to have a scorecard for public comment by October. They are getting the information from both distributors and vendors.
“There are a number of different areas we are drilling down into including the definition of lead time consistency, the average number of shipments per order, what equals on-time delivery, and much more,” Miller said. “These all drive the financial performance of both the distributor and the vendor. Having common definitions on the measurable objectives will allow directional conversation when the distributor gets together with the vendor partner.”