Equipment Shortage? Plan Accordingly
There will be plenty of 13 SEER-plus units on display at the McCormick Center, especially since manufacturers can only produce 13 SEER and higher equipment beginning today.
Trouble is, Sands does not desire to see 13 SEER and higher units. Rather, he wants them available in his neck of the woods.
"I can get a smattering of 10s and a few 12s," said Sands, referring to 10 SEER and 12 SEER units. "But that's it. There are no 13 SEER units to be found. It's bad here."
An informal survey conducted by The NEWS suggests that Sands is not alone in his predicament, as equipment is especially scarce in Florida and along the Gulf Coast because of back-to-back hurricanes that damaged many homes and businesses earlier last year. There are some industry consultants who believe that manufacturers will not be able to produce enough 13 SEER product to meet replacement demand and fulfill demands placed on the industry by the Gulf Coast reconstruction.
"I foresee shortages around mid-summer, perhaps a little earlier," predicted Richard Harshaw of Lodestar Consulting Systems Inc., Kansas City, Mo. "More than likely, the law of supply and demand will work at its best, with what product that is available going to those firms who are willing to pay enough to get it and install it for customers who are willing to pay well-above-normal prices to get it."
Rather than getting caught in a possible equipment shortage quagmire, industry consultants believe there are issues contractors can and should be addressing now to avoid such a business-damaging fate.
"There are several things a contractor can do to ensure that the company can serve its customers, because at the end of the day that matters more than the relationship with the manufacturer, distributor, or availability of equipment," said Drew Cameron, president of HVAC Sellutions, a marketing, planning, and sales recruiting, training, coaching, performance enhancement, and sales management support organization.
Patrick McCormick agreed. "As 13 SEER becomes law, it is more important than ever to differentiate," said the owner of Sales Excellence Training (SET), Prescott, Ariz.
THE POSSIBLE SCENARIOEven though most manufacturers will have 13 SEER equipment available, it appears not all parts of the country will always have the equipment in a timely manner during the early stages of the transition. Since his local supplier, Mechanical Equipment Co. in Gainesville, did not have any 13 SEER units, Sands said he recently had to drive to Partners Supply in Chattanooga, Tenn., in order to find the 13 SEER unit he needed. Just to be on the safe side, he also took home two 12 SEER units.
"Everyone is having a problem," said Sands, referring to the tri-state area of Georgia, Tennessee, and the Carolinas.
Doug Standridge, branch manager for the Gainesville, Ga., distributor, admitted, "13 is all we've got on order."
"Seems like we have been unable to get 13," he said. "It's been really spotty. We do have some 10s, but no 13s. I have not seen it like this before."
Needless to say, local contractors are not necessarily happy. At least Standridge still has his Southern humor intact. "No one has shot me yet," he confessed.
Kent Kendrick, CEO of Dale Supply Co., Nashville, Tenn., said the biggest problem he currently faces is product availability.
"We ordered ahead in anticipation of our 10 and 12 SEER needs, as well as tried to place orders for higher efficiency products," said Kendrick. "Not having the new product in, of course, you don't want to have too much of the higher-cost 13 SEER still in stock when the newer, less expensive version of the 13 SEER comes onto the market. We've been trying to time all of that out."
In Kendrick's case, he anticipated and ordered enough 10 and 12 SEER units to carry over into this year. "We've been telling everybody that there are a few things we've already sold out, typically heat pumps right now." He said that certain sizes are in and some are out. It has been challenging to keep everything stocked.
In Tennessee, Kendrick said his area had a big shift from gas heat to heat pumps.
"The governor of our state announced that gas prices should be going up 70 percent, and utilities say it could hit 100 percent, and to expect bill averaging. People are so afraid of gas that everybody went to heat pumps. What typically was our gas pack and gas splits market has shifted dynamically to the heat pump. We may find ourselves with gas packs until the fall and be out of heat pumps in February. You take your best guess. We'll take orders until we are out."
BETTER TO BE SAFE THAN...In the eyes of Harshaw, the fact that there is a tremendous demand for product for the Gulf Coast reconstruction, coupled with a new minimum SEER platform, "will probably create as much chaos as the hurricanes!"
"First, most manufacturers have all their 10 [SEER] to 12 [SEER] inventory and/or products sold, so there is no more 10 [SEER] to 12 [SEER] equipment to be had," he said.
"Much of it has gone to Gulf Coast firms, and some to speculators hoping to make a fast profit at the Gulf Coast's expense. But, that's American enterprise for you."
He does not expect it, but Harshaw would not necessarily be surprised if the federal government stepped in and required that 13 SEER product go to the Gulf Coast first. "That could cause sheer chaos in the rest of the nation and lead to a dangerous distribution precedent."
Rather than bemoaning the fact there could be equipment shortages now or in the future, McCormick and Cameron believe it's best not to let that dictate what a contractor does. Just as one should not count on the weather to provide income, contractors should not always bank on their wholesaler or distributor to come through, they said.
TOP TEN LISTCameron provided 10 ideas to keep a contractor afloat before, during, and after possible equipment shortages. They are:
1. Work with suppliers to explain current needs. Forecast short-term pending needs based on existing lead flow, current marketing promotions, closing ratios, and mix of products typically sold at this time of year. "An informed supplier can make things happen on your behalf," said Cameron.
2. Order equipment as soon as a sale is made. "Don't wait until the job is scheduled. If you are running a backlog of installs, the extra lead time may be all that your supplier needs to ensure the appropriate delivery date. This can certainly be done with large housing development contracts."
3. Develop a 12-month marketing and sales plan based on history and goals. "This will allow you to proactively plan for your equipment needs based upon your goals, closing ratios, mix of products typically sold, and seasonality," he said. (Cameron recommended visiting www.hudsonink.com for planning software.)
4. Forecast future equipment requirements as far out as possible based upon a sales and marketing plan (from idea #3), specific promotions, closing ratios, and mix of products sold month by month for the year. "Your manufacturer should be able to give you such a report for the current year," said Cameron. "Allow for product shifts due to the 13 SEER mandate and marketing promos that promote specific products. Communicate forecasted needs to your supplier and provide weekly updates."
5. Develop marketing promotions to promote specific brands and/or models of equipment that are readily available. He suggested negotiating special deals on available equipment from suppliers to help them move "low-moving products that are readily available." High-end equipment usually carries higher margins that will allow for such deals. As he explained, moving any equipment for some margin is better than moving no equipment for no margin.
6. Consider investing in a floor plan of equipment from a manufacturer. "I am never one to promote carrying large quantities of inventory, but if you must in order to serve your customer, then do so," said Cameron. "Get extended payment terms and negotiate a volume discount or rebate for a large purchase. While equipment may be scarce, manufacturers will typically take care of their best customers first. We all do."
7. Consider a consignment floor plan, where equipment is warehoused without being invoiced "until you actually sell it." Said Cameron, "This does require you to turnover the inventory usually within 90-120 days to avoid being billed. Warehouse the equipment, have your supplier store it for you or rent space and split the cost with your supplier."
8. Have an agreement with suppliers to upgrade you to the products they do have available at no additional charge or get a discount on a lower-tiered model. "They should be offering to do so anyway in order to keep your business," he said. "Communicate product changes to customers prior to install and amend sale documents accordingly."
9. According to Cameron, loyalty to a brand or distributor is a good thing, but not if it does not allow you to serve your customers. "Don't place all your eggs in one basket with one supplier or manufacturer if they cannot fulfill your equipment supply requirements," he suggested.
"Have relationships with as few suppliers as necessary to serve your customers effectively and maintain purchase volumes and some level of loyalty. Your loyalty will hopefully be remembered and rewarded by your suppliers when the shortages subside."
10. Bundle products and services in order to increase the average sale and scope of work sold. "This will allow you to make more money on each sale and keep techs busy for more days," he said. "Include humidifiers, air cleaners, UV lights, duct renovations and enhancements, zoning, ERV/HRV, attic fans, etc."
In the big scheme of things, Cameron said he has had success with ideas #5 and #10 with clients. "So I personally would put my efforts here immediately, while I began working on the other initiatives," he summarized.
To reach Drew Cameron, call 888-621-7888, or e-mail email@example.com. To reach Patrick McCormick, call 800-779-8738, or e-mail firstname.lastname@example.org. To reach Richard Harshaw, call 816-468-0929, or e-mail Lodestar@kc.rr.com.
Sidebar: Ideas To Keep In MindCHICAGO - Pat McCormick has been, as he put, "actively perfecting his talents in this industry since 1976." The first 11 years were focused on in-home sales with a progressive contractor in Southern California. Here are some of the things that he said his company used to do "when we didn't have the equipment readily available."
1. Install portable units (window air conditioners) "until we could get the inventory for the total comfort system. Once we established trust with our customers, they would wait for the equipment." According to McCormick, the portable units helped make the wait more bearable "and gave them some relief from the heat."
2. Prepare a home for the equipment arrival. This would include abating the old, inadequate duct system and installing a new air distribution system that was sized, cleaned, sealed, and insulated properly, he said. "We would install the new furnace/air handler, accessories, and needed electrical work. On occasions when we had to wait a long time for the equipment to arrive, we would pipe in a used unit on a temporary basis."
3. Focus on other products and services offered: IAQ diagnostics, insulation, solar, electrical upgrades, water purification and softening, duct cleaning and sealing, and central vacuum systems. "It was easy for us to add the vacuum systems because our installers already knew how to run ductwork and cut in outlets. It helped us dramatically during slow times on the HVAC side of the business, and it helped our customers by cutting back on the particulate in their homes."
4. Take advantage of stocking and consignment programs offered by preferred distributors, and even rent storage space if necessary.
5. Offer rain check-type coupons that would lock in discounted pricing "if they would be patient and allow us to schedule at our convenience." Added McCormick, "We also gave incentives for their willingness to wait for the proper installation with gifts like first-year maintenance agreement, upgraded thermostats and accessories, and gift certificates."
"The key is to have a system that builds trust and value," said McCormick. "Be prepared for the worst and hope for the best."
- Mark Skaer
Publication date: 01/23/2006