In the fast-paced world of HVAC distribution, maintaining profitability and customer retention stands as the ultimate goal.
Three common blind spots, however, significantly impact HVAC distributors and their ability to achieve these objectives.
Through the lens of real-life case studies, let’s take a look at each blind spot and how distributors can overcome these challenges to thrive in a competitive market.
Customer segmentation and pricing matrices are crucial for driving profitability. However, even with these in place, many HVAC distributors face the challenge of nagging manual price overrides, leading to margin erosion.
The problem? A lack of comprehensive customer analytics tools, pricing training, or pricing authority discipline.
With 12 locations, one distributor was facing persistent price override challenges despite having provided pricing guidelines to their team of over 50 salespeople.
ACTvantage’s analytics tools and insights revealed that overrides among their top salespeople were costing the company a hefty $27,000 in gross profit per salesperson each month.
After raising awareness of the magnitude of the problem and arming their team with actionable insights, the distributor managed to reduce total overrides by 22% over three months. The result? Substantial bottom-line savings and an astounding 12x return on their investment.
When it comes to stocking (or dropping) specific SKUs, purchasing and sales teams’ conflicting goals can lead to inefficiencies in inventory management and strained relationships.
Often, inventory reduction decisions are made in isolation, without input or data from the sales team, who conversely have no access to inventory data, which leads to discord between these two vital teams.
Here’s how to handle it…
In this case study, an HVAC distributor with multiple locations grappled with a surplus of slow-moving inventory and declining margins. They tackled the chronic friction between departments with our Analytics-to-Action™ strategy. Here, ACTvantage's "done-for-you" approach proved transformative, equipping the teams with the analytical tools and last-mile insights they needed to collaborate.
By establishing a symbiotic link between customer rankings and inventory rankings, the distributor managed to achieve a remarkable 23% reduction in total inventory by addressing slow-moving or non-moving items. They also redeployed inventory savings into more strategic products, which enhanced overall fill rates. The cherry on top? An 18x ROI on dollars in inventory and GMROI due to the improved turns and fill rates.
It's all too easy for distributors to point fingers at internal inventory management when the real culprit might be subpar vendor performance, which can significantly impact cash flow, customer service, and working capital.
To mitigate this issue, distributors need to equip themselves with insights and tools to link vendor performance and inventory requirements, ensuring high service levels and optimal inventory turns.
A real-life scenario
In this example, a mid-size HVAC distributor, recently acquired by a private equity firm, addressed increasing cash requirements by investigating key analytics that impacted the business.
The guidance by ACTvantage provided visibility into vendor performance, linking it with inventory requirements. These actionable insights helped the distributor negotiate better terms with 7% of vendors who each accounted for more than $500k of annual spending. They were also able to shift spending from 47% of underperforming, tail-end suppliers to core and emerging suppliers who demonstrated reduced lead time variability. This resulted in significant rebate growth, higher customer satisfaction, and a stronger bottom line.