A white paper report to explore the possibility of a merger was issued in November and the possibility was a recurring topic at several sessions and in the hallways of NHRAW’s 55th annual convention in December in Las Vegas.
The topic has come up before, but the timing now may be right, according to some within NHRAW who appear to favor such a merger. In fact, even a name for the proposed joint membership association has been proposed: HARDI, for the Heating, Air Conditioning and Refrigeration Distributors International.
NHRAW is the larger of the two groups in some respects. It has 329 wholesale members versus 130 for ARW. It has 256 manufacturer members versus 145 for ARWI, and 120 manufacturers’ reps versus 61. However, the number of branch locations and the financial status of the two groups is comparable, both groups point out. ARWI has 22 international members while NHRAW has none.
It is the manufacturers especially who would welcome a merger of the two groups. Some say they would save money by not having to travel to conventions for both groups: this includes exhibiting at the trade shows, hosting supplier-related events, registration fees, etc.
At a task force meeting held in November in Chicago, members of both groups said they were optimistic that such a merger could take place. An early secret vote asking members “the level of confidence” they had regarding formation of a new organization revealed an 8.5 rating for level of confidence on a scale of 1-10. “Clearly, the process and results of the task force meeting were very encouraging.” By the end of the meeting, the confidence level rose to 9.6.
A website survey solicits input from members of both organizations in preparation for further steps to take place. Associations tend to have to make convention plans several years in advance. However, some type of joint convention could take place as soon as two years.
The task force will continue to work on three primary assignments:
- Create an organization that would form the combination of both NHRAW and ARWI.
- Create a value proposition that is so compelling to the membership of both organizations that they readily transfer their current memberships to HARDI.
- Both groups must make an official presentation as if they were talking to their prospective members urging them to become members of the newly combined group.
Welcoming changeChange continued to be a recurring theme in many of the talks and programs at the NHRAW convention. J. Michael Marks, Indian River Consulting Group, Melbourne, Fla., said he had some key messages for wholesalers for the next few years, including:
- You need strong input from your customers.
- Channels evolve to solve customers’ problems, not to push product.
- The internet will enhance, not replace, existing distribution channels.
Prepare for the future – don’t try to predict it, Marks urged. E-commerce is important to both contractors and wholesalers, but it probably will not replace the existing hvacr wholesale distribution structure. Customers will rely more heavily on the Internet as a tool to:
- Search for new suppliers
- Request bids
Will the Internet replace the existing wholesale distribution system as a means of providing information over the next five years? According to Marks, wholesalers, by a margin of 53%, say “no.” But it’s not as clear if you ask manufacturers or customers the same question. Among manufacturers, 43% say yes, it is likely, while 53% of their customers agree. Only 32% of the customers said no, it won’t replace the existing wholesale distribution force, while another 16% were unsure.
All of these factors will affect the way wholesalers will conduct business: alliances, consolidation, vendor reduction, margin pressure, product parity/excess capacity, channel margin pressure… Marks’ advice to all: no whining! Face change, deal with it, use it to grow and prosper in your business.
One thing Marks warned about is a trend to 3PLs – he joked that consultants are always coming up with new “TLAs” for “three letter acronyms”!) – or third party logistics providers. Most wholesalers are already well aware of the increasing threat from retail giants such as Home Depot. But lesser known competition comes from something called third party logistics providers, who are only in the business of providing space to manufacturers. They may lease warehouse space to hold air conditioners as they await dealer orders, but have little or no knowledge of the industries they serve. They have no training costs, they need no knowledgeable personnel. As a result, they provide a minimum level of service, but at a reduced cost. Marks said this is a trend that is growing nationally.
Letting vendors do itSupplier Assisted Inventory Replenishment (SAIR) was a presentation by Larry Rector, Climatic Control Co., Milwaukee. He discussed his own company’s history of computers and the benefits of SAIR. This company first linked its Local Area Network PCs to a server in 1998, when it began converting all its terminals to personal computers. It stepped up to full SAIR capabilities in 1999.
Having a manufacturer(s) in charge of your shelf stocking is a scary and uncertain concept to many wholesalers, but Rector and others say it is the wave of the future and has many benefits. For one thing, it leads to shorter lead times and more accurate forecasting. From this company’s own experience, non-value added costs such as expediting are reduced. There is an accompanying shift to demand based ordering, with less guesswork, and fewer returns for overstocked merchandise.
Manufacturers have advantages such as improved product forecasting, which leads to reduced inventories and factory efficiencies; all of which can lead to reduced end-user pricing.
Their supplier partner in much of this was Milwaukee-based Johnson Controls (JCI), which has been a leader in establishing successful e-commerce with hvacr wholesalers. But internally for the wholesaler there was a continuing education process that involved meeting and asking questions of other NHRAW and ARWI members to share knowledge and experiences. They used consultants and asked outside software vendors for their help and advice. Books and articles on this topic were passed around and discussed. Vendors’ UPC codes were used instead of in-house part numbers for uniformity. Certain seasonal products were identified because their ordering and stock level formulas are different from non-seasonal items.
While vendors can aid in stocking practices, ultimately the responsibility for inventory control is still up to the distributor, according to Rector. How long does it take to reach this level? It took Climatic Control about three months to prepare before implementing electronic data interchange (EDI), and then another nine months or several hundred manhours, to implement SAIR with the first vendor. The company has been using SAIR now for about two years, according to Rector, with 99% of its Johnson Controls products now stocked this way.
Nightly, the “852” activity reports transmitted via EDI from Climatic Control’s computers to Johnson Controls. Activity is cut off after Monday and Wednesday business hours, after which on Tuesdays and Thursdays Climatic Controls receives its “855” PO acknowledgements; its software then converts these to purchase orders and JCI ships the merchandise, with Climatic Control simultaneously receiving its “856”shipping orders.
Understand this: a lot of effort, patience and hard work led to this effort. It didn’t happen overnight. But it was ultimately successful for the wholesaler and, in the end, the contractor who should see better selection, availability and maybe even pricing.
- You need strong input from your customers.