Will New Supply Chain Issues Put Small HVAC Contractors Out of Business?
Buckle up, HVAC contractors. The word on the street is supply chain issues are going to get worse instead of better for the rest of 2022 — and even well into 2023.
I know … not exactly the news you were hoping to hear at this point. How can that be the case two and a half years after this all started? Well, while COVID feels over for the most part in the United States, that is not the case around the world. Specifically, countries in the Far East have been shutting down cities and production facilities. You can almost hear the supply chain slowing down again.
And that is not the only reason for the issues. Closer to home, there is a lack of available and willing workers to put in shifts at HVAC factories around the country. Or take any job, for that matter. I am sure HVAC contractors can empathize with the issue manufacturers are having. They, no doubt, are having similar troubles. I talked to one CEO at a major HVAC manufacturer and he said it is workers, not raw materials, that is slowing their production down. When that loosens up again is anybody’s guess.
In this new post-COVID world, contractors are juggling suppliers to make sure they have enough product. Many more contractors are working with two or three manufacturers, even though they would prefer in many cases to stay with one or two. The bottom line is getting your hands on product in a timely manner.
So expect the supply chain issues to get worse before they get better. What does this mean for the HVAC contractor? Matt Michel, Service Nation president, had some advice for contractors when he was a guest on a recent ACHR NEWS podcast.
“They need to grow,” Michel said about contractors. Specifically, the smaller contractors.
The industry veteran elaborated that he is hearing that manufacturers are beginning to talk to contractors. The conversations are focused in on how they think the supply chain issues are going to tighten up again, there will be some shortages, and they are likely to cut off any contractor that is small. These folks are saying that by the end of 2023, there are going to be a lot of HVAC contractors under $1 million in revenue a year that will be put out of business — at least from a product changeout perspective — just because they can’t get product.
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It makes sense that manufacturers would like to protect their bigger customers. However, this is certainly cause for concern for the industry, and contractors need to have a strategic plan for these issues — even if that contractor is over that arbitrary $1 million threshold.
Now more than ever, it is important for contractors to be working very closely with their distributors. Those relationships and the open communication are absolutely vital. The contact with their territory managers almost needs to be constant.
For the smaller contractors, like Michel said, it is time to grow. If they are showing consistent growth and the manufacturer can see that, the supplier is more likely to continue that relationship.
This means it is time to tighten up everything in the business — from the simple stuff like clean trucks and technicians with quality soft skills to the tougher items such as advanced marketing based on analytics and a top-notch social media platform. The HVAC contractors that are running their business the most professionally are going to be the ones growing and receiving product.
Study the contractors that are doing things right. Join industry associations. Model your business after the ones that are being successful.
It goes against what some may think, but when economic times are tough, that is when HVAC contractors need to increase their marketing budget. When it is harder to find a customer, your company name needs to be in more places. This is when an HVAC contractor can gain market share.
