Forecasting: A Wholesaler's Perspective
I had a chance to catch up with Jeff Corken, president of Florence, Ky,.-based The Corken Steel Products Co., to capture a glimpse of what they do regarding forecasting on the wholesale side of the HVACR industry in the Midwest. (For a manufacturer’s perspective, see the interview with Mike Reilly.)
Everyone conducts the forecasting approach a bit differently, and Jeff’s approach matches up well with his particular circumstances and leadership style. However, it’s always interesting to compare your approach to a highly successful wholesaler. (Jeff’s company was 39th on the annual Distribution Center magazine’s Top 50 Distributors 2015 list.)
Tom Perić: Jeff, You do forecast, whether or not you use that term, so let me begin with the obvious: How’s the New Year going to shape up?
Jeff Corken: We forecast every year about right now. We have an operations committee meeting where we sit down and talk about it. We’ve already put together the budget and we talk about how we arrived at it for next year. We talk with the sales guys to see what’s happening with their customers and what they think is going to happen, [we examine] major projects and things of that sort that may be coming down the road.
Tom Perić: You’ve mentioned Alan Beaulieu before this conversation officially started. Is he playing a role?
Jeff Corken: We’re going to see him speak here [Cincinnati] in a couple of weeks to see what [he] says. We also get forecasting and information from our equipment supplier, ICP, all the time. We like to get a couple of these [sources] together, and then, of course, it’s a gut feeling.
One of the other things, and this is going to sound kind of goofy, we do a monthly bonus for our rank and file employees.
Tom Perić: Really?
Jeff Corken: A couple of hundred dollars [bonus] for all employees. It’s based on gross margin dollars. We’re always very mindful of not putting the target so high that we can’t reach that in a reasonable amount of time. It’d be great if we reached it monthly. It can get up to $200 [per employee], if we hit the target or if we’re a few percent over. We try to be conservative about what we estimate that our number is going to be for each given month. Again that may sound like a backward way to look at it, but that’s what we try to do. And it’s been very successful for us.
Tom Perić: No, this is the whole point. Everybody does it in their own way, and I just wanted to get a flavor [of how you do it]. Let’s just go back a little bit. We’re talking on [Oct.] the 26th today; have you already started on the forecasting for next year?
Jeff Corken: The budgets have already been put in place, as far as what we estimated. We’ll sit around, our actual [forecasting] meeting date is Nov. 16. Five of us will meet and analyze what we’ve come up with and just offer opinions and talk among ourselves about how realistic it seems.
There’s another wild card for us. This is not common among your other [wholesaler] folks. We have a roofing division. They’re tied in with one of the major manufacturers of roofing that goes on flat roofs, essentially for commercial roofing. It’s difficult to predict how that’s going to go in any given year. You could get a couple really big jobs that could be $3 million or $4 million. For us, that can either be a plus or a minus, depending on what we’ve predicted is going to happen.
It’s a wild card. We have generally a pretty good idea, but we’ve only been with them about three or four years. We don’t have a lot of history [to forecast].
Tom Perić: Is that commercial or residential roofing?
Jeff Corken: Strictly commercial. It’s Carlisle Roofing, and it’s one of the two huge manufacturers that do probably 90 percent of any major project. You ever heard of Freedom Hall down in Louisville?
Tom Perić: Yep.
Jeff Corken: We supplied the roofing material for that. That kind of thing. Wal-Mart, you name it. Any big flat roof commercial building. If it’s in our trading area, we can possibly participate in. Its small margins, but it’s huge bucks.
Tom Perić: Let me back track a little bit. You said if I heard correctly, five other people, so there’s a total of six of you who engage in the forecasting part.
Jeff Corken: Right.
Tom Perić: Who are the other five in the company?
Jeff Corken: Jay Kaiser, director of sales and marketing; Andy Bucher, sales manager; Dennis Smith, director of finance; my brother, Don Corken, who runs our roofing division; and Mary Burck, director of operations.
Tom Perić: That’s your brain trust then.
Jeff Corken: Yes. That’s a very scary thought [laughing].
Tom Perić: I like the term brain trust. It’ll work. You mentioned the roofing component, which I do admit is a bit odd compared to what a lot of wholesalers do.
Jeff Corken: There’s really only one other one that I’m familiar with.
Tom Perić: Is there anything else that you think is sort of unique to the wholesale HVAC business that other businesses don’t face, such as [wholesalers] electrical or auto parts?
Jeff Corken: What is obvious in this business is the impact of the weather.
Tom Perić: True.
Jeff Corken: That’s the other wild card. This was a pretty moderate summer. Electrical and plumbing [wholesalers], they don’t have to be concerned with that, it’s definitely a driver for us.
Tom Perić: You know I’m going to ask the question, and I just paid you a compliment about your brain trust, but how do you sit down, all of you, and say, can you actually look at a weather forecast six months down the road? I don’t think you can, can you?
Jeff Corken: No, you can’t. The interesting thing about it is that cold weather really doesn’t drive the business at all. In fact, it’s a hindrance. It chills our roofing division; again, this is [unique] for us. You sell a few more gas valves and these kinds of things, but in general, a bad winter is a killer.
Tom Perić: Let me ask another obvious question, put you on the spot: Have you ever been wrong in your forecasting?
Jeff Corken: Sure, but we’re usually [forecasting] low. Our rationale for our budget is so that we want to make sure that we hit those targets if it’s a normal kind of a year so we can pay our folks, and they earn their bonuses monthly. It’s a big deal [to everyone].
Tom Perić: Let me see if I can say this accurately. What you are really doing is that while everyone wants to advance the business, you don’t pluck them [numbers] from the sky because they look impressive. You try to take a number that you think is truly realistic and then shoot for that, so that when the company makes a profit, the employees also benefit. Is that correct?
Jeff Corken: That says it perfectly, I think.
Tom Perić: All right. Do the employees have a sense of direction because of the bonus?
Jeff Corken: They watch it [the bonus path] like a hawk.
Tom Perić: Really?
Jeff Corken: Absolutely.
Tom Perić: OK, so I don’t know if you intended that, but what you did is you brought the employee participation right into the forecasting process.
Jeff Corken: Yeah, they’re very mindful of it. We have one of our finance folks send out as weekly update to all the managers.
Tom Perić: OK.
Jeff Corken: They’re very mindful of letting me know where we are with it.
Tom Perić: What role does HARDI play in these forecasting efforts?
Jeff Corken: I go through all the HARDI data. I go through it monthly, and we participate in all their data collections.
Tom Perić: Is it safe to assume then that you use that as some kind of framework when you’re punching in your own numbers?
Jeff Corken: I would say framework. I look at it every month to see where we’re situated with the other folks within our region and nationally.
Tom Perić: Let me throw you a real open-ended question. If you had to sit down, and you’re doing the forecast of 2016, I also guess that you’ve been doing this for at least a couple of years now, right? A little joke there. My real question is this: Is there anything that you wish you could get from out there that you don’t get that would make either the forecasting A: more accurate, or B: simply easier to do?
Jeff Corken: I really don’t think so. The other thing, and this might seem simplistic: We’re in Cincinnati, Louisville and Dayton. These areas tend to be fairly stable. There’s not these crazy variations you might get in some places.
Tom Perić: Like where I am on the East Coast.
Jeff Corken: Yeah. Weather or just general construction kind of things, there’s just not real highs and lows. Even in the awful 2007, 2008, 2009 time frame and through there, I would say certainly our company didn’t miss a beat. We were adding people.
Tom Perić: Really? I didn’t know that.
Jeff Corken: Yeah, we were very fortunate. I think the city [Cincinnati] in general.
It’s not hard [to forecast] and it’s not that we’re going to miss it by a ton. It’s generally always in this 3 to 5 percent range. The last few years, we’ve been like 8 or 9, 10 percent, something like that. That’s just where it always is.
Tom Perić: I’m reading into this that you really, really know your market.
Jeff Corken: I think we do.
Tom Perić: Let me ask one last question if I may. Is there anything that you’re doing now — and I say now, during the last two or three years — that in terms of the forecasting approach is significantly different than maybe what you did 10 years ago? Excluding the fact that we now have an Internet.
Jeff Corken: We now have eight fabrication shops that affect what we’re talking about here. It’s a big part of our business but I don’t know that that’s a predictor.
Tom Perić: Jeff, I could always look it up in the listing of top 50 distributors. I want to give my readers a sense of scale, so when people say, “how big are you?” how do you answer that?
Jeff Corken: We have a little more than 200 employees and 12 locations.
Tom Perić: Jeff, thank you for your time and being gracious enough to speak to Distribution Center magazine.
Jeff Corken: The pleasure has been mine, Tom.
Jeff Corken is president of The Corken Steel Products Co. Contact him at 859-291-4664 or email@example.com.