Part 1 – How manufacturers are re-examining their HVACR distribution channel strategy for 2023

Leading manufacturers are always preparing for and examining their HVACR distribution channel for adjustments in 2023. Get yourself prepared for the coming manufacturer-manufacturer rep- distributor realignment games to come.

Future-focused manufacturers have been re-examining their channel strategy for the past few years. As business slows, they will step up communication with end customers and put themselves in a position to make channel adjustments they have been planning for years in 2023.

By John Gunderson

Manufacturers are now in position to make some of the channel shift changes they have been thinking about since the pandemic. HARDI is reporting that demand is slowing. We probably won’t be seeing that 20% YOY growth we have seen the past few years in HVACR distribution.

In my career as a B2B Distributor leader, channel shift has been slow.  The balance of power and partnership between the distributor and manufacturer relationship has been very stable.

Manufacturers are critical to your future success and they will be examining their distribution channel to find growth in 2023. The past few years have been so chaotic with supply chain issues that even HVACR items like line sets have experienced shortages and volatile price increases. Manufacturers have been preoccupied with internal issues (building and expediting shipments), but they have realized that the distribution business is changing.

This change coupled with the digital shift in the channel caused by the pandemic, supply chain, and inflation has caused many manufacturers to put many potential channel adjustments plans on hold.

The economic slowdown will cause some manufacturers to bring those secret distribution realignment plans out of the Bat Cave and put them into action in 2023. How can you be prepared as a distribution channel partner- manufacturer-manufacturer rep- distributor to participate as partner in the potential channel disruption to come?

In this 2-part column we will start with tips for the B2B distributor to reset their plans with their key manufacturers.

Revise/build a new Annual Plan. For the manufacturer rep, manufacturer, and distributor the annual planning processes between each group is traditionally where you set sales goals, talk about key end user accounts to pursue, and negotiate terms and rebates.

If you have a defined supplier strategy by category – Preferred/Strategic, Approved, and all others starting quickly with your largest suppliers with a revised go forward plan can position you to take share in 2023.

Sales Goals- As distributor if you can come in with a detailed sales report on your top accounts in the current environment it will help you be part of the discussion.

Some suggested key data to have by account by manufacturer for your new planning document are as follows-

  • 2023 Annual Sales
  • 2022 Q4 Sales
  • 2022 Annual Sales
  • 2023 projected Q1 sales or current backlog of orders for the manufacturer – This may be difficult to calculate but even an estimated number will be of great value for your discussions.
  • Key Value Adds that the Customer Utilizes– For example- Inventory Management Services, Kitting, % of online sales, automated services (e-billing, e-invoicing, electronic ordering, etc.) Engineered Services, Project Management Services, etc. It’s a critical time to show your partners the key barriers to exit that you have in place for each end customer.
  • Relationship Commentary/Notes- In the past you may have commentary on your account manager or team’s relationship with their team and how important that was to your success. That is still important, but I would add in detail from your team on the individual end customers that are key to your total business together.

In general, I recommend that you have as much of the above data for each of your top 10 accounts for the manufacturer you are meeting with, and if possible, go down from the largest account down to have data by account for over 50% of your business for the manufacturer. I’m not suggesting you provide all this data in the meeting, but having it and presenting it without giving away  account level or POS data can be very powerful.

Company Scorecard by Manufacturer-

  • Number of sales by category for the HVACR manufacturer, and backlog/sales projections going forward.
  • Sales and projections moving forward of the competing manufacturers in the same categories. You may choose not to share this in the meeting, but you should know what business by category you have with others. A key bargaining chip to meet next year’s rebate tiers may be moving sales from other manufacturers to your strategic partners.
  • Have your operational issues that you normally cover in these meetings prepared like Fill Rates, Disputed Invoices, Inventory Values, Stock and Direct numbers, etc. prepared for the meeting, but I would concentrate on the sales and key operational issues.

Other items to consider presenting or track-

  • Customer segment expansion plans- If you have a strategy to expand into new segments to grow the manufacturers business it can be very impactful in 2023. Manufacturers are going to be hungry for growth in 2023.
  • Digital Update- If you have a strong digital story that is better than your competitors share it in detail. Partnering with distributors that have a digital advantage is going to be a focus for manufacturers going forward.
  • Sales Realignment- if you are building an inside business development team, changing your inside and outside sales mix, or changing your coverage plan it can be a great time to present your vision. Manufacturers realize that the belly-to-belly relationship selling model is changing for everyone.

Your manufacturer partners will be looking closely at their channel and having to make some tough partnership decisions. Who they partner with, what business do they look at taking direct, and whom their key partners as reps and distributors will be going forward are all in play in 2023.

In our next column, I will cover Part 2 with examples of what manufacturers and manufacturer reps need to consider optimizing their channel and go-to market strategy as we move forward.

We’ve had a lot of unanticipated change with pandemic, supply chain issues, and inflationary impact and it would be foolhardy to expect this is business as usual if growth slows in 2023 as expected.

This is different than the 9/11 or 2008 contractions many of us went thru in distribution. How you sell, and how customers buy have undergone significant change, and it won’t go back to the way it was even 2-3 years ago without channel conflict or change.

As always, we would love to get your feedback, so please feel free to comment below or reach out to me at john.gunderson@dorngroup.com

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