The year of 2020 and its accompanying pandemic brought a multitude of challenges to HVAC contractors looking to keep their customers and employees safe while still remaining profitable. The pandemic looks to be dwindling in strength within the United States, but a key remnant of the disruption continues: product shortages and supply chain issues. What inventory strategies should contractors be using to be sure their customers can get the products when they need them?
Causes of the Shortages
Understanding the cause of the shortages is important, as contractors may need to explain the situation to customers who are stuck waiting for products they would like sooner rather than later. The main reasons for this delay are shifting consumption patterns from the pandemic, as well as the lingering effects of COVID-19, according to Tim Fisher, team leader of Market Intelligence at HARDI (Heating, Air-Conditioning & Refrigeration Distributors International).
“We’ve got to remember that the products that are coming to the US are coming from other countries that might not be through the woods of the pandemic,” he said. “They might be dealing with their own labor shortages or their port might be out of line.”
Eventually, the mismatched supply and demand will unwind. More and more people are getting vaccinated and some ports, such as the one in Los Angeles, are slowly catching up on the backlog of products coming in. Fisher said that he does not expect for product availability issues to be even close to normal by the end of the summer, though he predicts the problem will ease up as we move further into the year and into 2022.
“We’ve heard from contractors across the country that are having inventory challenges, especially when it comes to refrigerants as well as finding parts and equipment,” said Chris Czarnecki, ACCA government relations representative and coalitions manager. “Unfortunately, this issue isn’t restricted to just the HVACR industry, as it seems supply chain constraints have touched every corner of the American economy.”
Part of these challenges trace back to the labor shortage, as businesses of many kinds are struggling to find employees. Czarnecki added that ACCA is continuing to focus on helping support the HVACR contracting industry, but is also looking at other ways to support contractors more broadly, such as working with manufacturers, distributors, and others involved in the HVAC product supply chain. ACCA is also working to help ensure the availability and affordability of refrigerants, which is impacted by the recently passed AIM Act and refrigerant phasedown.
Butch Welsch, owner, Welsch Heating & Cooling, explained that his company has had trouble getting almost every product it needs at some time or another recently. He said that the situation is worse than last year. Last year saw an equipment shortage as manufacturers shut down due to pandemic, followed by growth in demand for home comfort as people locked down inside. This year, Welsch said the shortages are affecting nearly everything: equipment, sheet metal, parts, etc.
“We’re usually able to work out something in the way of substitutions, having a product fast-freighted in,” said Welsch. “But it doesn’t seem to be getting any better, and that doesn’t take into account the price of things.”
Shortages cause a spike in demand over supply, leading to higher prices, and Welsch said this can particularly impact the new construction market, where contracts have already been signed.
Brian Mount, CEO of Tempo Air, explained that one of the most effective strategies his company has incorporated is talking to their equipment suppliers on a daily basis about product availability and lead times. Some suppliers will have products that others will not, and some have done a better job at stockpiling inventory. About six months ago, leadership at Tempo Air spent time looking at data and forecasting the product they would need for the summer, and then worked to get that product. They are currently forecasting what they will need in six months to a year. Company leadership is also working hard to stay informed on new home construction. They’ve also added “warehouse” space in the form of shipping containers in their parking lot, looking for unique ways to store the products they need.
HARDI’s Fisher said that contractors should be careful not to purchase or stockpile products out of fear if the market really doesn’t have the demand to support their orders. Anticipating future demand with accurate data-based forecasting is good, but simply hoarding product without any regard to how it will sell is different. The latter approach throws off wholesalers who are themselves trying to predict what contractors will be needing in the coming months.
“The reference to the toilet paper shortage has been done a lot recently,” Fisher said. “But it is similar to that. If this purchase is based on fear right now, it won’t fix the problem but will actually just serve to exacerbate current problems.”
Tempo Air has also looked at their relationships with vendors. They have worked to maintain their relationship with suppliers who they’ve worked with over the past years, but Mount said they also have worked to build some relationships with new suppliers to ensure they have the product for their customers.
Brian Stack, president of Stack Heating & Cooling LLC and ACCA board chair, also suggested looking at relationships with vendors.
“Adding a second line is not a bad idea; we did that with the supply shortages last summer,” he said. “We added an extra line to have as a fallback, then added a third line. A pro to having another line is having a backup if you are unable to get equipment from the main line. A con is having too many options for the customers to choose from.”
Stack recommended that contractors stock up on equipment that they forecasted and know they will need, but with caution to ensure they don’t overbuy and get stuck with extra materials.
Fisher said that if contractors are looking at adding new lines of product, they should be careful not to burn any bridges with distributors who have served them faithfully over the past years. In the short term, some suppliers may be able to provide certain products, he said, but in the long run, everyone is dealing with the same issues. He encouraged contractors to be open and communicative with their distributors.
“If you are buying something to put it in the warehouse, I think you need to be open with your distributor about that,” he said. “That helps them not overreact to spikes in demand, and helps them keep their order patterns can remain balanced.”
Communicating With Customers
Brian Mount explained that when discussing product availability with his customers, the B2B customers tend to be very understanding, as they are already very familiar with shortages affecting a wide variety of the economy. In new home construction, for example, HVAC systems tend to be some of the lower-impact products that can be installed late in the process, so those customers are worried more about shortages such as lumber.
When talking with customers, Fisher explained that contractors should be transparent with their customers are the final price and the timing of when product can come in, if a delay is occurring.
“You need to make sure they understand that this is not just your company, but that it is something your competitors are dealing with as well,” he said.