This month, HARDI's Focus Conference in Dallas brought together HVACR wholesale distribution leaders to address industry challenges and explore growth opportunities. Packed with educational sessions, the event highlighted key trends and insights essential for distributors aiming to stay competitive amid shifting market dynamics and rising inventory pressures.
Shaping Inventory Strategy and Supplier Tactics
The conference's central focus was understanding the state of the HVACR wholesale distribution channel, which has seen notable shifts since the pandemic. Speakers presented data from HARDI’s Voice of Distributor initiative, which aggregates insights from surveys of distributor executives and interviews with senior leaders from 15 companies. This data, combined with the 2023-24 State of the Channel Report, shed light on the following trends:
- Stabilized Sales Growth: While the HVACR sector experienced significant growth during and immediately after the pandemic, sales growth has since stabilized, driven largely by price increases rather than actual demand.
- Declining Equipment Sales: As a percentage of total revenue, equipment sales are decreasing, with supplies taking a larger share. This shift highlights changing customer demands and market priorities.
- Inventory Management Struggles: One of the biggest challenges distributors currently face is managing elevated inventory levels, which have become a financial burden for many businesses.
Predictable and Unpredictable Challenges
The conference identified several predictable market shifts, emphasizing the importance of addressing both anticipated and unforeseen obstacles. Key predictable trends include:
- Returning to Pre-COVID Conditions: After an initial surge, distributors are now grappling with the reality of slower inventory turnover, which has declined from pre-pandemic averages.
- Shifts in Contractor Behavior: Younger contractors are displaying less brand loyalty and a growing preference for e-commerce platforms, creating a shift in purchasing behavior that distributors must adapt to.
Unpredictable challenges discussed during the event include:
- Contractor Consolidation: Mergers and acquisitions are increasing, putting pricing pressure on distributors as larger contractors demand better terms.
- Regulatory Changes: New regulations, such as those related to A2L technology, are reducing safety stock levels and forcing distributors to rethink their inventory strategies.
Supplier Performance and Improvement Opportunities
Feedback from distributors at the conference highlighted both positive and negative aspects of supplier performance:
- Strategic Suppliers: Distributors rated strategic suppliers highly for communication, training, and product innovations. These relationships are seen as key to driving long-term success.
- Non-Strategic Suppliers: While non-strategic suppliers are often praised for competitive pricing, distributors expressed a need for better support, including more comprehensive training and product information.
In addition, suppliers were called to adopt a more partnership-driven approach, focusing on joint strategic planning rather than purely transactional relationships. Long-term planning, better communication, and reliable product information were identified as key areas for improvement.
From Replenishment to Investment
One of the standout sessions at HARDI Focus 2024 explored the shift from viewing inventory as a mere operational concern to seeing it as a strategic investment. Distributors were encouraged to adopt the mindset of an "Inventory Investor" rather than a "Replenishment Buyer." This shift in focus—from managing inventory reactively to proactively investing in it—was critical to driving profitability in the HVACR sector.
Key strategies discussed for inventory management included:
- Reducing Slow-Moving Items: Distributors should focus on minimizing stock of slow-moving items and evaluating customer reservations to better allocate inventory resources.
- Avoiding Overstock Situations: Attendees were encouraged to reassess the necessity of purchasing in multiples to avoid overstocking, which can tie up valuable capital.
- Continuous Training: The session emphasized the importance of ongoing training and highlighted that understanding key inventory metrics is essential for improving decision-making and optimizing cash flow.
Strategic Inventory Management
Focus 2024 reinforced the need for distributors to adopt a more strategic approach to inventory management. AI and machine learning (AI/ML) were positioned as powerful tools to help distributors optimize demand planning, inventory levels, and replenishment cycles. Distributors who have implemented AI/ML-driven solutions reported significant improvements:
- 24% reduction in inventory
- 41% improvement in forecasting accuracy
- 70% increase in inventory turns
These results demonstrate the clear financial benefits of adopting data-driven tools to manage inventory, reduce costs, and improve service levels.
A Call for Action
While technology and data are increasingly important, one of the strongest themes from the conference was the importance of people and relationships. The overarching message emphasized that distributors need to prioritize strategic purchasing and invest in their teams. Building strong internal capabilities and focusing on long-term partnerships are essential for thriving in today’s competitive market.
Distributors left the event with a renewed focus on the importance of strategic partnerships with suppliers, continuous improvement in inventory management practices, and the potential for AI-driven solutions to revolutionize their businesses.
