Last week, I wrote an article for a contractor-focused publication titled, “Are You Getting Everything Your Favorite Distributor has to Offer?” In this piece, I imparted two very important points: First, contrary to popular belief, distributors don’t produce enough profits to impact the contractor's price of materials substantially, and, more importantly, most contractors don’t get all of the value their distributor partner has to offer. Strangely, this piece led me down a winding path of thought on the future of our industry.
As I see it, our industry (suppliers, distributors and contractors) is in a state of flux. Throughout all of this change, suppliers are under pressure from new and emerging technologies. One need only look to the appliance industry to see the impact of offshore manufacturers bringing in new and unique approaches to the old American designs. The same is happening in the HVACR business and chances are, at least some of these new suppliers have no preconceived notions about the value of distribution.
Distributors face a number of threats, too. Hardly a day goes by that some story about Amazon and other online offerings doesn’t hit our ears. With Amazon’s continued push for bigger and more efficient distribution centers and drone-based delivery hovering off in the not-too-distant future, distributors are about to lose their time-space advantage. Simply put, the advantage of local inventory and fast emergency delivery is about to be put out to pasture.
Contrast to the challenges facing contractors are a different set of circumstances. There is no replacement for the folks installing and servicing systems; no offshore company with lower labor rates, no technology breakthroughs set to make their products obsolete and no lurking internet threat looming over them. The contracting business faces one major issue: finding and maintaining the right staff.
Demographic studies point to a current shortage of skilled technicians, which is most likely only going to accelerate. Contractors will no doubt see the cost of their workforce escalate in coming years. Contractors will derive a competitive advantage from figuring out ways to improve processes and streamline the way they do business. This is a focal point for progressive distributors.
Returning to the point of our contractor−focused article
Our article “Are You Getting Everything Your Favorite Distributor has to Offer?” focuses on the services that distributors are prepared (and positioned) to offer to contractors. None of these were price-oriented. Instead, we talked about the services distributors might provide to drive costs out of their business. I took the liberty of suggesting what I call a Strategic Supplier Meeting with their favorite distributor, which is where you come into the equation. Here are some of the points we mentioned:
How can we do business more efficiently?
This covers everything from communications to getting the right products to the job site. While every distributor sets their sights on the ease of doing business, small details often add to the costs of both the contractor and the distributor. The key is to look for ways to take inefficiency out of the transactions tied to doing business together. Here are a few points to consider:
How user-friendly are the invoices and billings associated with the distributor? Is it easy to identify invoices and process payments, or are there issues associated with handling them?
Would summary billing work better on service department purchases at the counter? Would things be more easily handled if the distributor put an identifier on the invoice to give you the proper service truck number or the job name?
Are we processing orders in the most efficient way? For instance, are we phoning in orders that we could handle better via fax, email or some other manner? Do we have several people independently sending orders for similar materials at the same time?
Does it make sense to package orders into kits that are transferable to job sites on a single pallet or box?
Are our companies communicating in the most effective way? Do we send emails with copies to everyone? Are the right people receiving product updates and training opportunities, or must we forward this type of information to the appropriate people by someone internally?
Can you eliminate freight issues by changing our procedures? Incoming freight for special orders and emergencies add to the cost of the contractor/distributor relationship. It is possible that slight changes in behavior could streamline the process and take waste away from the total expense?
Does the distributor have a list of materials always in stock? Is there an easy way for you to check availability from the field?
Should the distributor establish a web-portal for you to enter orders?
Can the distributor help solve bottle necks in your labor processes?
Thinking through your process, there are many skill sets for which distributors carry special expertise. For instance, inventory management is a core distributor strength. Moving materials from one place to another with some degree of coordination is another. The question becomes, "Are you spending labor dollars in areas where the distributor might manage some of the tasks?"
For example, improperly staged materials are often a source of damage and loss on job sites. Would it make sense to work on job site solutions with your distributor partner? Here are a few other examples:
Can a distributor replenish your stock automatically and eliminate costs? This falls directly into one of the distributor’s core competencies. If done correctly, the contractor would end up with a more accurate record of inventory on hand, a better-managed inventory and a plan for eliminating obsolete products. Further, there could be cost reductions in labor as many distributors develop automated systems for entering orders.
Can a distributor stage products that are required for larger projects? Large projects often involve a mix of equipment with long lead times as well as products generally found in the distributor’s warehouse. Eliminating downtime on jobs due to material outages can save big bucks.
Might the distributor provide container service at various job sites? Running special trucks with needed parts to keep a job going requires manpower. In many environments, it can lead to short-duration work stoppages. Many distributors in other industries are providing containers at the job site that act as extensions of the distributor’s warehouse. These impact workflow and have the side benefit of streamlining the hassles of returning unused materials.
Service work may require some special consideration
Service work and keeping your crew out producing revenue bring along a unique set of issues. During peak times tied to 100-degree weather or massive cold spells, customers often measure your value by the efficiency of handling their problems. Common sense dictates the need to examine your service business thoroughly and often.
We can characterize most service trucks as mobile warehouses. The service truck drivers have much on their minds, and maintaining the right level of products is often not one of their major skill sets. Further, any inventory work they do takes them from the more important task of getting the customer’s HVAC system up and running. With this in mind, does it make sense to consider some form of distributor-managed inventory system for the truck? Again, this is your distributor’s core competency and with their help, your trucks become more efficient.
Extending further, regardless of the best plans, sometimes the service technician simply must stop at the distributor’s counter. But is the time put to good use? Does the service tech sit idly by for 40 minutes waiting for the proper items? I recommend formulating a plan to attack this wasted time. Here are some suggestions:
A no-wait policy where you move technicians to the front of the line;
A plan for technicians to text in orders so needed materials are waiting upon arrival; and
A special work zone designed to allow service drivers to handle paperwork or other needs. Ideally, these would be comfortable and equipped with a computer, printer and other resources.
During peak season, some service-related visits are outside of normal business hours. Does your distributor have a plan for extending warehouse support to your company past the traditional 8-5 hours? Could the distributor establish a lock box for storing after-hours pickups?
Distributors are the contractor’s competitive advantage
Returning from my contractor-centric message, it’s apparent that distributors can impact the bottom line of their contractor partners in many ways. Extending on that thought, one might surmise that the distributor who embeds their business deep into the contractor’s process reinforces their position with the one piece of our industry not subjected to outside forces of change.
By enabling the contractor, the distributor provides services unavailable from Amazon, direct sellers or any of the other threats facing our business. The distributor becomes their contractor’s competitive advantage and a resource integral to their long-term success.
Setting up a Strategic Supply Meeting
We closed our contractor piece with a call to action - encouraging the contractors to call and set up a Strategic Supply Meeting with you, their favorite distributor. My guess is a few of the more progressive contractors will be reaching out. However, it makes little difference as to who calls the meeting. The important thing is that the meeting happens.
As we come to the launch of a new season, now is the time to reach out to your best contractors. Ask if they would like to explore how you might work together to solve issues. Engage in meaningful discussion of their business. Explore ideas for driving cost out of your relationship. Employ this article or the contractor version in your discussion. Finally, we have a more comprehensive list to explore with your contractors and dealers. Shoot us an email, and it’s yours.