I believe one of the biggest challenges as distributor is managing pricing and inventory effectively because you can be handicapped by your own internal viewpoints.
Your culture as a distributor is crucial to your success, but it can be limiting you in terms of new ideas and approaches in two crucial areas – Inventory and Pricing.
I’ve been fortunate to work for six great distributors over my career as a pricing, inventory, marketing and sales leader for large public, private equity, and family owned distributors. In each case, we had our own culture and way of doing things.
How we set prices to win, and managed inventory was heavily influenced by our culture and history. In hindsight the teams I was on we all had some success, but the level of success varied widely.
So, what were the factors that drove best in class performance versus average success?
Expanding your teams knowledge base with outside training and networking
My first distribution mentor Dick Schmid used these lines he sensed we were getting a little too full of ourselves and thinking we had all the answers. “There is always somebody doing it differently and probably better. Let’s make sure we learn from them to constantly improve.”
It was good counsel because at that time we were very siloed and used to doing things our way . We had 20-30 veteran associates everywhere who had started with only worked for our company. We were very proud of our 100+ years of history and our growth to 130 branches across the US, but because we were privately held, but we had a culture of not being involved in any significant outside training and networking.
That all changed when we signed up for a series of courses with Texas A&M Industrial Distribution in the mid 2000’s. The Texas A&M team (the same team that today leads the Pricing and Inventory Certification programs for HARDI) opened our eyes on a few things we might be missing and ways to improve.
We had talked about using customer segmentation previously to make better inventory and pricing decisions, but we really had not done much with it.
At these sessions with Pradip and Senthil at Texas A&M were learned two important things – 1. We were doing a lot right 2. There were other distributors doing things that we could learn from that we could take back to our business and implement.
As a distributor it was eye opening to participate in educational sessions with a program and report out. It built valuable relationships with other participants (whom we did not compete with) that we could share ideas and approaches and it helped us build a better system for managing our pricing and inventory.
I found one quote particularly interesting concerning HARDI’s Pricing and Inventory Certification Programs from Mark Bray – President of ACR Supply. “It is affirming some of the things that we’ve already been doing, but we are also learning new things as well. ACTVantage’s training has led us to some very good internal discussions and we are developing some common language around pricing.”
There is always somebody doing it differently and probably better.
Customer and Supplier Segmentation is crucial to pricing and inventory success
In HVACR distribution having the right “Same Day” inventory is EVERYTHING. The average homeowner/commercial business needs HVACR service an average of roughly every two years. When that HVACR system goes your customers need the right parts to fix it – NOW. The service rates of the business require that you have to have the material as close to the customer as possible. You have to get that part to them either through a speedy delivery or will call counter visit the same day.
If you do not have proper customer and supplier segmentation it can limit having the right “same day” inventory on hand for the need it before I even call you customers that you serve.
For example – Let’s say you have 20 branches and the top customer for your branch in Omaha, Nebraska has a particular part they buy and need “same day” from a particular manufacturer they prefer. This part for them is an “A” item but to you because you only sell it primarily in one market is a “C or D” item company wide. If you do not have the ability to identify that particular customer and manufacturer you may bleed down your “same day” inventory of that SKU, because you are not aware of that singular customer and supplier intersection for Omaha.
In this example (which I have seen and unfortunately unwittingly done many times) you create a very poor customer experience with your top customer in Omaha. They come in or call and you are “stock outed” and they have to go down the street to a competitor rather unhappily to get that order filled. So, what happens when that competitor has it and gives your previously top customers a good experience?
The same example holds true on pricing. Let’s say you are smart enough to make sure you have enough inventory on hand, but since this a “C or D” SKU companywide you price it a higher than “A” SKU level for this customer? Eventually you may price yourself out of the market and create a reason for this customer to shop you to find a better partner.
Understanding that customer, pricing, manufacturer, and inventory synergy is the key to winning more often in 2024 in my opinion.
If you are looking to improve your pricing and inventory management approaches for 2024 and beyond. I would recommend you consider HARDI’s excellent certification programs to help your team learn and grow. https://hardinet.org/pages/certification-programs
- https://hardinet.org/pages/inventory-manager-certification-program
- https://hardinet.org/pages/pricing-manager-certification-program
Both excellent programs start this fall on September 17th.
I personally found that series of educational sessions I attended and the friendships I made with other distributor leaders doing the same job I had were transformative. It made a big difference to guess less based on my experience and know more based on learning from others who did it better.
As always, if you have any feedback please feel free to share at john.gunderson@dorngroup.com
