Demand, But No Product

Back in 2008, all the HVAC product in the world was available, but the demand wasn’t there. So contractors had to learn to navigate and manage the fact that demand was light. Today, contractors are dealing with the opposite problem. The demand is most certainly there, but due to supply chain challenges, the inventory is not.

So which is the “better” problem to have? Daniel Todd, inventory coach for Nexstar Network, would say the latter — removing the whole COVID-19 variable, of course. Businesses, in general, are far more healthy and profitable.

Once COVID-19 hit and questions from HVAC customers regarding IAQ became more specific, such as whether or not a product actually kills the coronavirus, manufacturers had to get a bit more creative and up their game in the testing process specific to the coronavirus, said Steve Mores, divisional president at Dynamic Air Quality Solutions.

What Mores or the rest of the world didn’t expect, however, were the shortages. One of the things Dynamic Air Quality Solutions did was create certificates when IAQ products were bought, even if they didn’t have said IAQ product in stock yet.

The certificate basically congratulated the homeowner on their purchase, assured them they were doing the right thing, and said that when the product was back in stock, the homeowner would be next in line to receive it.

But the demand for certain products didn’t stop after COVID-19: It increased.

Managing Inventory

So how does a company manage all that inventory when it finally comes in?

The short answer is, they still are. On top of extreme price increases, disruptions to supply chains, backups at ports, and labor shortages persist.

“We’ve been doing our trends a little bit differently … If we’re increasing this much a year, we know we need this much inventory,” Mores said. “So if our projections are correct, what we're able to do now is control that inventory, and keep more than we probably need.”

Todd noted that most people could probably relate. But having too much inventory impacts cash flow and profits, just like having too little inventory impacts efficiency and profits.

“We have a million and one things happening, and here we are sitting in distribution,” said Stephanie Streck Schiappa, national accounts manager at HD Supply.

HD Supply worked hard to both diversify and be creative with vendor partners and customers in response: moving products to different areas, finding new sourcing. They even leased 13 cargo ships to transport product from Asia, and they chose smaller ships so they could utilize the ports that weren’t as backed up.

Going forward for HD Supply, technology and improving time and accuracy are key. At a few of their locations, they’ve even been test piloting robots to pick up and pack up orders.

Nic Ayoob, senior manager - demand generation, Rheem water heating at Rheem Manufacturing said they’re dealing with the same things. He explained Rheem has taken a look at how they make their products in order to ensure when a customer places an order with a distributor, Rheem can make it and make sure it gets there on time.

“At the beginning of COVID, we were in a really good spot, because [our] model requires us to carry a lot of raw material goods to make these products when we need them,” he said.

When things got a little more volatile, Rheem had to take a step back and reassess this model.

“Whether that means we hold stock, or we change up the way we build our units, or how many suppliers we have … And so we upped our inventory to be able to hopefully make enough units to supply what you need in your business,” Avoob said.

Increasing Demand, Working Better

In terms of inventory, Todd asked, how does a company decide whether they have too much or too little?

Now Rheem has returned to more normal volumes, Ayoob said. The demand for water heaters, for example, was favorable. So the question was: “How fast can we get it in to be able to make those turns?”

Adjusting and adapting is the game.

“How can your company and members work better together?” Todd asked. And what should the focus of HVAC companies be as 2022 ends and 2023 begins?

The No. 1 thing to focus on in 2023, Mores said, would be having truck inventory and training technicians on how to communicate IAQ to a homeowner, posing questions like, “Would you like me to fix it or really fix it for you?”

Naturally homeowners would ask, “Well what does that mean?” Enter: technicians trained on communicating IAQ.

“When they do have that knowledge and that skill to communicate to homeowners the types of accessories available on the truck, homeowners are more interested,” Mores said.

When it comes to what to focus on in 2023, there’s still work that needs to be done on price increases, Schiappa said.

Price increases will still be coming around the mountain in 2023.

“But the elephants in the room are: an election; talk of a recession; gas prices going up and down; and consumer confidence. Are consumers going to spend the same or not? … Those are the things that we’re really watching closely.”

Inventory is not black and white, Todd said. Workshops, courses, and education on inventory challenges in general is what allows HVAC, electrical, and plumbing companies to be more proactive.

“There are positives and negatives of all inventory management types,” Todd said. “But what we’re talking about here is cash flow … Cash flow is king. You can allow for things not to fester and to be transparent on where your business is going, how it’s changing and evolving, how it’s growing, whether or not it’s time to transition into different departments … It provides the ability to quickly read challenges and creates opportunity to help manage your inventory better.”