Part 2- How manufacturers can re-examine their HVACR distribution channel strategy for 2023

Part 2 of our series on how leading manufacturers are 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.

In Part 1, I discussed why manufacturers are going to be looking at their distribution coverage plan closely and gave some tips and advice for distributors to consider. In this column it’s time to look at the other side of the HVACR coin from the manufacturer perspective.

The stable foundation and balance of power between the manufacturer (and their reps)- the distributor – and the end customers that has been relatively stable for decades Is showing some major cracks since the Pandemic.

How can you be prepared as a distribution channel partner — manufacturer, manufacturer rep, distributor — to participate in the potential channel disruption wars to come? In this 2nd part of the series we will share tips for the B2B manufacturer on how to reset plans with their reps, key distributors, and end customers.

Start over with a New Annual Plan

For the manufacturer rep and manufacturer the annual planning process and meeting with distributors usually follows these some basic steps.  You review last year’s sales and projected sales for the upcoming year. Then you have a discussion on some of the largest end user accounts you share. Then you discuss the rebate and usually you will spend a lot of time on the operational side of the business.

These meetings often result in a lot of talk and limited action. If you are honest with yourself are these basic meetings really driving your business forward?

It’s time to revise your Distributor Scorecard to play offense

As a manufacturer, if you can come in with more data points it will help you make better decisions with your channel partners.

Some suggested key data to have for your new planning documents, by account by distributor, are as follows:

  • 2022 annual sales
  • 2023 forecast
  • 2022 current backlog of orders with the distributor and overall commentary on backlog
  • Relationship commentary/notes. In the past, you may have had commentary on your account manager’s or your manufacturer reps relationship at the distributor level. Going forward you are going to have to have relationship information at the end customer level. If your distributor provides you POS at the customer level, I would have my analyst team working overtime to try and project business at the end customer level for every major planning meeting. If you do not have end customer POS come to the meeting with your aggregated end customer data from your website.

New Scorecard Data

  • Amount of sales by category for your line, and if possible by customer if you get POS.
  • Sales estimates of competing manufacturers in the same categories. You may choose not to share this in the meeting, but you should know what business that could be moved to you with others, by category. It could be time to use the move business to me as key bargaining chip for your strategic distribution partners.
  • Be prepared to discuss operational issues that you normally cover in these meetings, such as fill rates, disputed invoices, inventory values, stock and direct numbers, etc. However, I would concentrate on the sales and key operational issues first.

Other Items to Consider Asking For

  • Customer segment expansion plans. Ask what the distributor’s plans are to expand into new segments.
  • Digital update status. The distributors who will be long term leaders in general will have a digital advantage vs their competitors. It’s time to look at partnering with those distributors more aggressively.
  • Sales Realignment. Does the distributor plan on building an inside business-development team, changing their inside and outside sales mix, or their sales coverage plan. Buyer beware on partnering more aggressively with distributors who tell you they are just going to hire more salespeople to make more calls.

If you have manufacturer reps how do you maximize them?

Reps have traditionally filled three important roles in the value chain- Distributor Access, Relationships with distributors and end customers, and product knowledge.  The relationship value is diminishing for everyone currently as getting quality time with end customers is harder than ever. Manufacturer reps play a vital part of the channel, but you have to find ways to get more from them for 2023.  It’s not a straight-line answer for anyone, but it is hard to argue that the distributor access and relationship building aspect of what they bring to you is being changed and may be of less value.

A Manufacturers ideal distributor checklist

  • Digital Leader
  • A plan and vision to pursue and grow in new customer segments
  • Ability to move products from competing manufacturers to you.
  • Willingness to make some stock inventory investments (or cut it less than the competition)
  • Revamping their sales coverage plans (more inside/less outside, business development)
  • Ability to get paid, and pay you accordingly
  • Share some level of end customer data or intelligence

You have two extremes – you can eliminate some distribution and partner more with fewer distributors, or you can authorize any distributor with heartbeat. What is best for you will land between these extremes, but I would say it’s the time to not just stand still and make no adjustments to your 2023 plan.

How you sell and how customers buy have undergone significant change, and it won’t go back to the way it was pre-pandemic. It won’t be easy and there will always be channel conflict, but it’s time to adjust your distribution plan for optimal success in 2023.

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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3 thoughts on “Part 2- How manufacturers can re-examine their HVACR distribution channel strategy for 2023”

  1. John – some other thoughts on what the manufacturer should bring to the table …
    * Their marketshare
    * Their top 50-100 SKUs for that market with % of sales by SKU. Is the distributor selling / stocking appropriately?
    * Training plan
    * Their marketing plan to build their brand in the market. They should be prepared to discuss a joint, customized sales and marketing plan to achieve the desired revenue goal.
    * Clear messaging on their value proposition
    * Their NPI plans for the year
    And, while digital is desirable for discussing partnering, the manufacturer has to do their part and have eCommerce ready content that they can syndicate to the distributor, and maintain on at least a monthly basis. Can’t expect a one-way street.

    And, the robustness of the planning process should vary based upon the strategic importance of the distributor / relationship.

    And if the rep isn’t involved in the planning, the odds of successful implementation / execution of the plan diminishes due to lack of field execution and follow-up. There will be limited accountability on the manufacturer’s side due to lack of personnel resources (it is different with national chains as typically a NAM is assigned.)

    Just some food for thought

    1. David,

      As always you add great comments and I agree with all the above. I think one of the weakest areas for Manufacturers is New Product Introductions. In my distribution career it was rare to have a manufacturer partner who did NPI’s well.

      As my first boss once told me at Crescent Electric Supply “New Products don’t launch in our industry, They escape”. I think that problem has never really gone away, and the manufacturers that actually have launches vs. escapes outperform those who do not.

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