Problematic trends are heating the industry. Here’s our cool-down guide.
If you are an HVAC or plumbing distributor, much of your business has had to change because of significant changes in how your customers run their businesses. Understanding their changing needs and being able to adapt your products accordingly is key to delivering value and driving your growth strategy.
Although there are many differences between the HVAC and plumbing industries, they are both riddled with three challenges – which we refer to as the “The 3 S’s” – that are plaguing customers (including yours):
- Stiff competition
- Shortage of skilled labor
We want to help you sift through the noise of the industry by getting to the core of the issues and their corresponding solutions. What do these trends and challenges mean? What should come next? Continue reading to find out.
Stiff Competition is on the Rise
While both industries are growing faster than others, costs and competition are tight, limiting the cash available to order products. To put the matter of competition into perspective, research by IBISWorld found that no company has a dominant market share in the HVAC industry, with the largest company accounting for just 5 percent of the industry’s revenue.
This is where you have the opportunity to step in and make a difference. How so?
Now might be a good time to offer promotions and other incentives – like forward buys – to your customers to offset the dip in purchasing power. By reducing costs, you’ll allow customers to increase their buying power while simultaneously reaping the benefits of stronger sales and a competitive edge. We call that a win-win solution.
A word of caution, however: don’t run a promotion or offer without fully understanding the math behind it and how it impacts the bottom line. What true value does a particular promotion bring to your business? What does it cost in return? Suppose you can’t answer those questions definitively. In that case, distribution-focused software with demand forecasting capabilities can quickly analyze the economic trade-offs of promotions to ensure they make sense for your business.
In addition to strained buying power, another by-product of competition is that your customers may not be willing to pay the prices you set. With that in mind, it’s essential to consider these questions:
- How much insight do you have into your prices compared to the competitor?
- Are overpriced or underpriced products a threat to your revenue and margins?
- What if you could strategically lower prices to deplete inventory surplus or raise the costs of higher-demand items to stimulate sales, turns, and margins? How much time and money might that save?
If any of the above questions yield murky responses, innovative pricing technology might be a needed go-to. Smart pricing technology will allow you to run a value analysis on pricing, demand, and the market. Additionally, you’ll automatically receive recommended price adjustments based on customer willingness. Many distribution businesses don’t realize that a 1% change in price can result in over a 22% change in gross profits (for better or worse!). In a digital era where online sales are increasing, price comparisons are at the tip of a consumer’s finger, which means a price tag can make or break your bottom line.
Seasonality Consequences are Constantly Rising
Seasonal demand is quite an elusive (and expensive) challenge that carries a hefty consequence because of its strong impact on customer experience. While proper forecasting of seasonal demand will reap handsome rewards, scattered and misaligned parts inventory can result in lost business for you and your customers.
Unfortunately, forecasting seasonal demand has always been a thorn in the HVAC and plumbing supply chains. Now, it is even trickier, as the guidelines around lead times, regional uniqueness, and supplier constraints have become increasingly blurred:
- Lead Times: Industry demand is undoubtedly there, evident in the projected global market size of more than $208 billion. The problem is predicting lead times and communicating that information accurately to consumers down the pipeline. In an environment riddled with supply chain setbacks, lead times have been anybody’s guess.
- Regional Variances: Supply chains are highly regionalized based on what products people buy, when they make their purchases, and how they complete the sale. Tracking every variance in a global supply chain would require a Ph.D. in data science and a massive team of planners with a ton of time on their hands. Do you have that lying around? (Yeah, we don’t either.)
- Minimum Order Quantity: Forecasting seasonal demand is complicated because exclusive relationships between authorized distributors and service contractors greatly dictate the supply chains in the industry. The nuances of these relationships mean that customers suffer – which in turn causes your business to suffer.
Industry expert Adrian Gonzalez wrote a story centered on minimum order quantities in Talking Logistics that could throw any distributor into a state of PTSD. He describes the following scenario:
A residential end customer’s AC evaporator coil was leaking. The service contractor couldn’t procure a replacement due to a four-coil order minimum set by his supplier. The contractor had to inform his unhappy customer that they would have to endure the 80+ degree temperatures in their home until he had at least three other customers in need of the same coil. After getting the same story from a different contractor, the homeowner went online instead and bought the coil from a distributor out west with 25 units in stock – and no order minimums.
The moral of the story? Your customer’s loss is your loss, too.
You can circumvent this by getting a supply chain planning solution designed specifically for the HVAC and plumbing industries that can manage seasonality with advanced analytics, order cycle optimization, and automated replenishment capabilities. Such software tools can neutralize the costly impact of seasonality, make lead times more predictable, eliminate inefficiencies and inaccuracies in tracking regional demand, reduce risk, and improve customer service by keeping close tabs on supplier constraints.
A Shortage of Skilled Labor Has Lengthy Drawbacks
There are several reasons for the current labor shortage, from social and economic issues to rapid growth in new products and techniques. Understanding your customers’ labor challenges and how they strain their business will put you in a better position to help them overcome the effects of the shortage. In the long run, you’ll drive long-term customer trust and retention and revenue growth for your own business.
With so much havoc in the industry, HVAC and plumbing businesses are scrambling to keep up with service calls, scheduling, parts acquisition, and crisis management. Service demand is high, but many have little time and resources to hire and train technicians. That debacle and the shrinking labor pool mean more requests than hands to fulfill them.
The U.S. Bureau of Labor Statistics (BLS) estimates:
- The current technician shortage exceeds 70,000 people.
- Meeting demand within the next four years will require 115,000 new professionals.
- Job availability will rise more than 15% by 2026, spurred by new trends and products and overall growth in market opportunity.
Additional factors contributing to the labor shortage include the following:
- Retiring baby boomers: There are not enough young adults pursuing trades to replace retiring technicians and installers.
- Social image: There is a social stigma around blue-collar jobs and a pronounced emphasis on getting a four-year university degree.
- COVID-19: In response to the pandemic, many transitioned from office work to remote work and adjusted other aspects of their lives to abide by safety precautions. As a result, in-home technician visits decreased as they found different ways to address their issues.
- Demand for intelligent technologies (Internet of Things or IoT): Distributors must train staff on high-demand new tech products, and there have been as many as 25 billion new smart devices since 2020. The exorbitant number of devices equates to more hours of training than some can provide.
- Demand for “green”: New carbon footprint-reducing products and services are also in high demand, but the shift from standard to eco-friendly takes time, money, and you guessed it – more training.
- Personalization preferences: We are seeing increasing investments in process modifications. Particularly, providers are allocating time and money to learn how to couple their current processes with the element of personal touch. According to a study, 78% of younger consumers expect customer service representatives to know their purchase history and contact information as soon as they speak to one another. In addition, 45% of workers prefer text over email. Knowing customers intimately and adjusting to new expectations is a significant shift that technicians might not find easy.
Each factor we’ve listed above requires a shift and varying degrees of time and resources that many of your customers simply do not have.
If you have problems, we have solutions
Better Demand Forecasting is the Key
It’s more than likely that your customers are struggling with a cash problem of sorts. More hired help means more opportunities to increase sales, but their hands are tied with costs on the rise and time slim.
Consider this: What if the solution to such a problem lies in reducing your costs to free up cash, and in turn, passing those savings down to your customers? When you can curb expenses, your customers can save along with you.
If you like that approach, you need better forecasting to make it a reality.
Demand forecasting software built for distributors reduces inventory by 10% to 20% on average. Tech solutions of this sort analyze and translate the intricacies of customer behavior into an accurate plan that empowers you to respond to their volatile needs with less safety stock. As a result, you can increase margins while driving organic customer loyalty and top-line revenue growth.
If it sounds too good to be true, it’s not! We recently completed a software implementation with a full-service wholesale distributor of heating and air-conditioning equipment and accessories. After their ERP system failed to meet the rapid growth and complexities of the business, the company decided to implement the Blue Ridge demand forecasting software. In just a few months, they were able to:
- Improve forecast accuracy for seasonal demand (without excess safety stock)
- Reduce inter-store transfers by 30-40%
- Increase economic buying power
- Generate consistent, positive customer experiences
*Request a copy of the full case study here.
If you have problems, we have solutions
As an HVAC or plumbing distributor, we want to help you enable your company and your customers to successfully navigate the 3 “S’s”: stiff competition, seasonality, and a shortage of skilled labor. Trends don’t last forever, and we are adept at helping our clients improve their efficiency and bottom line with a better demand planning and supply chain management solution that stands the test of time.