The past year has seen a constant struggle for obtaining supply. Manufacturers face numerous challenges, from issues with the supply chain to a lack of factory workers. Meanwhile, demand — at least in the consumer and new-home construction segments — has surged. This creates a challenge for distributors.
Many contractors have responded to the situation by expanding the number of distributors they use. Distributors now need to find ways to keep the business they have and possibly add new clients. The answer, consultants say, comes from adopting new ways of taking and delivering orders.
The biggest change has been a shift to ecommerce, said Lisa Anderson, president of LMA Consulting Group Inc. Almost every industry that sells anything has seen a boom in ecommerce in the past year. This includes HVAC distributors.
“It was always expected to increase, but what we expected to increase in 10 years happened in one,” Anderson said.
Managing Inventory With Technology
That need for speed has created some issues. One is that distributors are shipping smaller orders. Anderson has one client that doubled the number of orders shipped in the past year, but shipped fewer actual projects. This means distributors often have to quickly reconfigure their warehouses. Some are designating areas for ecommerce orders, while others are creating new layouts to more easily access inventory.
Companies have made fortunes by mastering inventory logistics. Often this means incorporating technology that ranges from Wal-Mart’s use of RFDs to Amazon putting robots in its facilities. Anderson said distributors need to look at what investments they need to make in technology.
“By all means, not all problems can be solved through technology,” she said. “But if you can utilize technology to be smarter about your warehouse operations, then you can better serve your customers’ needs.”
Not managing inventory creates all kinds of other problems. Contractors count on distributors for their reliability, and it’s much harder to be reliable these days, Anderson said. It’s also really easy to wind up with the wrong items at the wrong place at the wrong time. In addition to using technology, Anderson said distributors need to keep their people engaged so they can anticipate customer needs.
Promoting Adoption with Incentives
Christopher DeBoer, HARDI’s director of sales and marketing, said he is hearing of more distributors offering incentives to encourage contractors to shift to ecommerce. Like Anderson, DeBoer has heard distributors talk about the eventual boom in ecommerce for the past few years. He said those with ecommerce platforms were able to at least maintain their business during the start of the pandemic, when social distancing and contactless payments became requirements for many transactions.
“A lot of distributors have built in ecommerce growth for a goal in 2021,” DeBoer said.
To make this viable long-term, distributors need to change the purchasing behavior of a majority of their customers. The pandemic did some of the work, but it will still require some nudging from distributors. DeBoer said many are now looking at incentives such as point systems for online purchases.
Delivery Becomes Advantage
Ordering a part or a piece of equipment is half the battle. The other half is getting it delivered. This is another area where savvy distributors are using new methods to meet customer demand.
Howard Coleman, principal at MCA Associates, said more distributors are looking at off-hours delivery. They will deliver a product to a designated site some time after hours. This may be a locker at a job site or outside of an HVAC contractor’s business. Some distributors are even providing secured boxes with their company logos, Coleman said.
With off-hours delivery, the needed part is waiting for the contractor in the morning. This solves the problem of having to schedule those early drop-offs and risk irritating a client.
“Not everyone can be the first delivery,” Coleman said.
Offering this kind of service requires new ways of operating for distributors. They will have to change shifts around and keep the door open longer. There are also benefits beyond an improved customer service. Coleman said driving at night makes for faster deliveries and less wear and tear on vehicles, as employees don’t have to fight their way through traffic.
Some distributors are also looking at using final-mile delivery services to drop off parts and equipment. This adds some cost, but it also keep staff working at the warehouse or supply house. With workers hard to find, using such a service can be worth it.
Coleman said taking steps to improve service will get distributors through this period of short supply. He said the situation will mitigate in the near future.
Winners Embrace Change
Even then, though, distributors shouldn’t expect a return to the way things were, Anderson said. This is the direction the industry has been headed for a long time, even if it seems like a sudden surprise. It shouldn’t have been a surprise to anyone, but it was a surprise to many.
The initial reaction to the pandemic from the HVAC industry last spring was the same as many businesses — it pulled back. Then, it suddenly took a huge leap forward. Distributors found themselves in a position where they needed to invest capital and hire employees. Unfortunately, both capital and employees have been fairly hard to find in the past year.
Going forward, the winners will separate from the losers, Anderson said. That’s what always happens during a time of crisis. She points to all the companies that emerged from the Great Depression. The distributors who will be in the winners’ category will move quickly, rethink partnerships, and adopt technology.
“The good news is you can pull away from your competition and be very successful for many years to come,” Anderson said.