As we enter the final 4 months of 2024, I am having many conversations with HVACR distributors and manufacturers about their into stock inventory positions.
HVACR growth rates have slowed from the 20’s% from April 2021 to April 2023 days and now are relatively flat (2023 vs 2024). Inflation and price increases have continued to climb since early 2023. So, that means that flat with higher prices = reduced unit sales potentially for your business.
Your ERP (Infor, DDI, Eclipse, P21, NetSuite, etc.) is built to manage your system inventory reorder points based on stable demand, but with slower unit sales the excess inventory for many distributors and the manufacturers that serve them has grown.
Those are some formidable inventory challenges and headwinds for your business if you don’t take some unique approaches to address them.
1. Your ERP sets reorder points primarily on historical sales data and when demand slows – Inventory levels build
As the HVACR business has slowed your proper inventory levels are more volatile, and chances are you will build or have built excess inventory.
For example: You also may have had in 2023 a SKU from a manufacturer that was an “B” SKU, but it now shows up in your system as a “D” SKU. In the same category you may have a SKU from another manufacturer SKU was a “C” SKU, but now has moved to a “B” SKU in your system. Your product depth for each SKU now in normal circumstances is off, and it is likely that your philosophy of the depth of each of your SKUs A-D you stock is creating system-suggested reorder points that are off.
Analyzing your SKU movement data is critical to uncover the SKUs that need an experienced team member to dive further into the data. This first one will help, but it will not be enough to uncover the full picture without additional data overlays.
2. Overlaying your customer sales data on top of your inventory analysis is critical.
This is as crucial a step as overlaying your top customers’ sales data at the SKU level will highlight additional SKU movement. For example: maybe historically one of your top and most loyal customers that prefers a particular brand for an “A” SKU. In 2022 you were not able to get that brand or had to substitute to another brand because of an availability issue — or another supplier had it in stock at a cost that was significantly lower, as they had bought it in large lower-priced quantities before prices went up. So, your customer went to another supplier to fill the order. This caused that former “A” SKU to move to “C.” What happens when the customer comes back for another order and needs 50 of them, and you only have 25 on hand because your system only said to have 25 of that “C” SKU on-hand? The customer again goes down the street and orders that SKU from the competition. Without deep dive on SKUs that have moved in importance (“A” through “D”) with your top customers, you might just get caught in a “we-don’t-have-it inventory hamster wheel” that hurts top-line sales and customer relationships.
3. Get out of your own Echo Chamber- Often in my distribution career we were so focused on what we were doing and our processes that we “group thought” ourselves into trouble. There are other ideas and paths to consider. One of the best programs there is for HVACR distribution to combat that problem is from HARDI.
That is why I would recommend you consider a HARDI certification program for yourself or a teammate. I would recommend you check the virtual inventory management program they offer at www.hardinet.org/certification-programs
HARDI has a great program led by the ACTvantage team that is all about exposing your team to best practices and other ideas and paths to consider (It starts soon, so do not wait!). I would recommend you consider those type of programs as it is an effective way to get out of your own group think today and learn from others.
The Final Word
Now is the time to be ready to make sound inventory and purchasing adjustments by looking at SKU movement and overlaying your top customers’ past and current purchasing data. The market dynamics with slower growth may be wrecking havoc on your inventory planning and metrics, and it requires your team to bring a bit of experienced art to the science of the numbers.
Effective inventory management today is a data project that requires your experienced personnel to make the right manual adjustments to craft an effective inventory plan.
As always, we appreciate your comments so feel free to reach out to us with any questions.
