With apologies to Charles Dickens, it’s the best of times and the worst of times for HVACR distributors.
Amid challenges like the coronavirus pandemic, unprecedented supply-chain kinks, raging inflation, and a labor shortage, distributors found out in 2020 and 2021 what they and their teams are made of, with many rising to the occasion to meet those challenges and more. For some, the work resulted in record revenues or a newfound sense of company solidarity (or both), as well as new connections in the industry.
Now, in early 2022, the pandemic appears to be receding, but many difficulties remain. We sat down for conversations (via email) with leaders at four successful distributors to talk about the recent past and what's ahead. Panelists represented companies of various sizes working in different parts of the country.
Participating in the roundtable were Lauren Roberts, president and CEO of cfm Distributors Inc. of Kansas City, Missouri; Bob Mucciarone, COO of F.W. Webb Company of Bedford, Massachusetts; Rhonda Wight, chairwoman of the HARDI board of directors and president and CEO of Refrigeration Sales Corp. of Valley View, Ohio; and Michael Riley, president of Riley Sales Inc. of Plymouth Meeting, Pennsylvania.
Here, edited for length, is what they had to say.
The supply chain crisis is still with us, and probably worse than a year ago. How are you handling this disruption, and do you see the situation improving before the year is out?
Roberts: We brought on temporary warehouse space to allow us to bring in inventory as soon as it’s available so we can serve customers’ needs while not taking on long-term overhead. We are also working closely with our wonderful vendor partners to communicate our needs to help them work through their inventory allocation processes, and in most cases we have been served extremely well.
Based on what most of our vendors are telling us, I don’t think the supply-chain situation will improve overall before 2022 is over. Some vendors will fare better than others due to the way they are handling orders and adding production. I would say it will get slightly better before the end of 2022, at best.
Mucciarone: We’ve seen improvement in the supply chain crisis — to the point where today, we have minimal disruptions. The vendors we work with have done a tremendous job solving the problems.
Now, we will say there are still some issues, but we see those as minimal compared to what it was a year ago.
Wight: Unfortunately, I don’t see the supply-chain issues improving. In addition to component-sourcing issues and trucking issues, the labor shortage is also impacting manufacturing plants. The continued disruption has been very difficult.
We are on allocation with our major supplier, which makes forecasting and communication with our dealers very challenging. Communication is key. Additionally, new efficiency regulations [beginning in 2023] further complicate the supply-chain issues as manufacturers prepare for this change.
Riley: We had to shift into another gear. You had to quickly find new suppliers as your incumbent suppliers. We’re struggling to keep up with demand. We all had to adjust our inventory levels, as lead times have doubled, tripled, quadrupled. Being part of the Blue Hawk Cooperative has allowed us to maintain those important relationships with our current and new suppliers.
A related issue is the increased demand for HVACR goods in the past nearly two years. Has that continued at your business as we moved into 2022? Do you see it leveling off this year?
Roberts: Demand has remained relatively strong for us to this point, but we expect it to slow down in the second half of the year, due to what we are hearing from analysts.
Mucciarone: Not only has that demand continued — it has increased in 2022. The push for green energy has spurred demand for heat-pump technology in split systems. We see great demand in 2022 for these. Couple that with rebates being offered by states to convert to systems with heat pumps and we should see continued increases in sales for this type of technology.
Wight: The increased demand has been difficult to manage due to the supply-chain issues. There are many factors contributing to the increase in demand. Some of the increase will continue due to the premature obsolescence of units due to refrigerant changes and mandates. I expect this to continue for several years.
Riley: With everything going on in the world, it has to level off. Stick with those in the supply chain that have made the shift, worked with you, communicated with you. Those of us who have gotten their inventory and adjusted to the lead times should be able to handle things.
Inflation is another problem that has likely worsened since a year ago, and is more top of mind with the public. How have price increases affected your operations, and how do you plan on getting your business through these inflationary times?
Roberts: The ongoing price increases have been a challenge and are becoming more of a struggle to implement throughout the whole channel, with consumers and contractors being more sensitive to them. On the positive side, price increases have driven up revenue numbers for manufacturers, distributors, and contractors.
With extra financial assistance for consumers from the government drying up, we are encouraging contractors to be diligent about offering consumer financing and leasing options. We are exploring new markets to help us work through our overly inflated inventory.
Mucciarone: Inflation certainly has been a huge issue in 2021, and it continues in 2022. In some segments, such as steel, we do see inflation slowing. While product inflation has been an issue, it is a shared one with customers.
However, our operating expenses are also up across the board, and we cannot pass these on. Two big areas of increases are fuel and wages. We have been able to manage our overall operating expenses more closely to alleviate some of the pain.
Wight: The price increases have been difficult to manage due to the frequency. Implementing a price increase is time-consuming, and to have four in one year is unusual. Our margins are negatively impacted. We are seeing price increases in all areas of our business, including wage increases. We are working diligently to be a good supplier during these turbulent times.
Riley: There is no playbook, no MBA degree, no previous experience to go to get us through this period. You have to pass along these increases. If you see an increase is coming, let your customers know so they can react accordingly. Hopefully, raw materials can stabilize, shipping costs stabilize. However, [rising] fuel costs will put further pressure on everyone. Let’s hope it starts to level off.
Federal vaccine mandates are largely off the table for your businesses, and a lot of states are easing pandemic-related restrictions. How is the pandemic affecting your business currently — or is it?
Roberts: The pandemic continues to affect us in some ways, most of which are smaller than in 2020 and early 2021. We continue to have some people getting sick, but we are hosting most internal meetings and vendor meetings virtually to be extra cautious. We do not have an employee vaccination or mask mandate. We had mask mandates in place in parts of 2020 and 2021 in accordance with local mandates.
We found that more people are capable of being successful working from home than we expected. We still have employees working remotely and some who work in the office a few days per week and at home a few days per week, but most of our team is back in the office full time.
There has been employee absenteeism due to coronavirus over the last two-plus years, but with changing CDC guidelines that we follow, those absences have been shorter as time goes on.
Mucciarone: We were considered an essential business, so we never left the physical buildings. Early on, we had to make adjustments to how we did business. We offered curbside pickups, for example. We had plastic hanging at counters to separate customers and employees. Some of our employees were allowed to work from home.
Everybody is back to work. There are no mask mandates and there are no vaccine mandates. We encourage all employees to get vaccinated and offered vaccinations in the workplace. Our stance is that it is a freedom-of-choice issue.
Wight: We have gone back to face-to-face meetings, and we are traveling again. Employees must show proof of vaccination or wear a mask in our offices, stores, and warehouses. Our employees returned to the office in May of 2021, and we sent them remote again in early December due to the Omicron variant. Our return to the office was February 28. We have not experienced employee absenteeism due to the virus.
Riley: We chose to follow the federal mask [guidelines] as the rules for our employees. If you were vaxxed, you didn’t have to mask; if not you were not, you were required to mask up. Our high-risk employees have continued to work from home, but they are not customer-facing.
We are a hands-on, physical industry. You must interact. Now that the warmer weather coming, the virus infection rates are coming down, I see us getting closer to business as usual.
The labor shortage — the so-called Great Resignation — continues. Has this been a factor at your company and, if so, what have you done to counter it?
Roberts: The Great Resignation has impacted us in a few positions. The best thing we have done to counter it is to think of the future needs of our business and have a reset in who we hire for certain positions and how we onboard them more effectively so they are happier and more comfortable in their job and can serve customers better.
Mucciarone: We have (and continue to) experience the effects of the labor shortage. That has put pressure on our wage scales, and we have had to pay more to attract good people. The pandemic has changed the workplace environment. Many people want to work from home. Our philosophy has been that people are more productive when they are in the office. That factor has also placed a limitation on the workers available.
Wight: It’s difficult to find people to fill open positions. We are working with recruiters more now than ever. We are also offering bonuses to current employees for a successful recruit. We’ve had much success with our employees working to help us fill positions.
Riley: We have recognized how hard everyone is working through these difficult times by giving raises above annual increases. We have given more bonuses. Those team members that “get it” have earned higher compensation.
There’s always plenty of bad news, but we’d like to hear some of the bright spots: challenges overcome, company growth earned, business insights gained, positive connections made.
Roberts: We have been able to plan for unprecedented demand and have had the foresight to stock up on inventory ahead of the supply-chain constraints, which allowed us to have very successful years in 2020 and 2021. We also launched a new ERP (enterprise resource planning) system and four integrated software platforms. We were able to make great connections with new customers we were able to bring on and support as a result of our strong inventory position.
We ultimately learned what our team is really made of in the face of extreme adversity, and we couldn’t be prouder of them for the way they pulled together.
Mucciarone: Good news is that business is great! We see that continuing through the middle of the year. The latter part of 2022 may be slower, depending on the impact higher interest rates will have on the economy. We continue to see new and innovative technologies in the marketplace from our vendors. We will jump all over these and promote them.
Wight: RSC has had record sales for nine years in a row. We have a great team, and while the pandemic created many challenges we were unprepared to navigate, we continued our streak of breaking sales records. Industry associations like HARDI and Blue Hawk were instrumental in guiding us through the pandemic.
I’m proud to be part of such a great industry. The last two years have been the most challenging of my career, and I look forward to referencing the pandemic in past tense. We are a better company because we were forced to think outside the box to serve our customers.
Riley: The good news coming out of all this is that our team has become closer. We have had to cover for those that were out, and we also got to know more about each other’s as well as our customers’ families as we heard about family members that got COVID.
We had veterans that really stepped up, as well as younger employees that learned they had another gear and learned a lot about our industry. We found some great new manufacturers who helped us through some stock outages, and now have gained our current business and will into the future.
Finally, we learned to appreciate life and how important it is being able to see family and friends, like life was before COVID. Hopefully we can all get back to normal sooner [rather] than later.