HVAC Distributors can Channel Supply Chain Harmony with Analytics-Driven Tactics

It's challenging to find a precedent for the supply chain disruption distributors have experienced in the past two years and more. In HVAC specifically, getting necessary parts and equipment has been complex, delayed and often impossible. HVAC prices are skyrocketing as the demand for HVAC equipment and components remains and increases. And average annual sales growth for HARDI distributors from March 2021 to March 2022 was 25.3%, according to recent HARDI data.

It’s reasonable to frame current conditions across the world as a VUCA state: a state characterized by volatility, uncertainty, complexity and ambiguity. Saying we’re in a VUCA state does more than define our times. It defines our challenges so that we can face them directly with the most appropriate strategies and tools.

What HVAC Distributors Need to Overcome VUCA Challenges

One framework developed by Bob Johansen of the Institute for the Future addresses VUCA head-on. The framework is called VUCA Prime, and it’s rooted in Johansen’s research of key traits leaders need to manage such a state. For this framework, he poses four traits that help leaders combat and overcome volatility, uncertainty, complexity and ambiguity. They are:

• Vision

• Understanding

• Clarity

• Agility

HVAC distributors and supply chain managers can use these traits to make their supply chain operations more resilient. This approach puts you in a more active, offensive role. It involves suiting yourself up to exist and thrive in a VUCA state instead of reacting impulsively and hoping for a stable outcome.

Before you proceed, level-set your expectations.

A "normal" supply chain is far off. So, waiting for it to normalize isn't the best approach. After all, even if we emerge from a VUCA state, the industry will have evolved to new supply chain technology and capabilities standards. If you haven't evolved in kind, your operations may not perform as needed in a changed industry.

Your strategy should not hinge on returning to pre-pandemic conditions. Instead, it should hinge on improving supply chain resilience such that no matter how the conditions shake out, you have a clear view of and confident handle on your operations.

What can VUCA Prime look like in HVAC distribution? We’ve seen a few excellent examples over the past two years.

Vision: Change your perspective on supplier relationships.

One of the most volatile areas in supply chain operations today is supply itself. Strengthening your relationships and communications with suppliers will help you reduce volatility and get closer to an in-the-moment view of supply as it fluctuates, so you can act to reduce the impact of disruption. In addition, solid relationships and communications mean you'll have more control and visibility of your actual and potential product availability. Having that relationship with your supplier will also help you align priorities and ensure access to products that matter most.

For example, one executive realized their distribution company needed stronger supplier relationships. So they shifted the company vision to perceive suppliers as customers to build partnerships and demonstrate value. Part of their strategy to verify and provide more value was to share data and analytics with suppliers.

Understanding: Use data to understand your optimal focus.

Throughout this disruption, HVAC distributors have had to decide which items, suppliers and customers to focus on in the face of supply variability and limitations. Typically, their decisions and understanding are based on personal experiences, interpretations, opinions and biases. So, you can imagine the potential for inaccuracy and missed opportunities here.

A better approach is to use your data, such as transaction data. For example, one distributor used channel data, categorizing items according to their data-proven supply and demand variability. The categories were surge, slump and static. Surge items saw variability over 10%, slump items variability under 10%, and all others were static.

With this data-driven understanding, they could make more informed decisions about which items to focus on, which items to improve communication to manage volatility, and where to invest in expediting orders or negotiating trade-offs. In addition, leveraging data analytics in decision-making made them a more cost-efficient distributor for suppliers.

Clarity: Gain a clear view of supplier performance.

HVAC distribution operations are complex. Inventory, suppliers and customers are at once separate and interconnected. This can make it challenging to get clarity around the next steps when product shortages occur, and you need to build a more agile supply chain. For example, where should you consolidate suppliers? Which products need more diversified supply sources? And how should you manage multi-category suppliers?

The key is to look at supplier performance, not just spend. For example, one distributor assessed supplier performance for more than 300 suppliers by each of their 22 product categories. They categorized suppliers based on performance using annual purchase order data, identified which ones had costly inefficiencies, and had clarity amidst complexity for diversifying supply sources for specific categories.

Agility: Unify critical data to see the best decision for the moment.

Making the timeliest buying decisions is like a superpower in the HVAC industry. However, the information you need to make the best decisions now may not be as readily accessible as you need. Instead, it's ambiguous, siloed and dispersed throughout your operations – trapped in different systems and delivered via spreadsheet. As a result, when a shift or delay occurs in your supply chain, you're at a time disadvantage.

Data and a solid analytics program are crucial to building your supply chain operations agility. For example, one distributor applied analytics for items, customers and suppliers – all critical to supply chain operations. They deployed inventory, customer and supplier stratification. This gave them a clear view of their operations – reducing ambiguity – to make the best decisions in all areas.

Turn Challenge into Opportunity

These are not the only ways to use VUCA Prime in the HVAC distribution industry. However, analytics are a great starting point for building the traits you need to thrive in the current VUCA state of the supply chain. In addition, being open to what your data tells you will help you eliminate bias and form a plan of action based on facts.

It’s imperative that you evolve as the industry evolves and remains volatile and that you adopt these traits to become more resilient. It is impossible to say for sure what the supply chain will look like five or even two years from now, although experts have suggested scenarios – some more favorable than others. No matter how the supply chain unfolds, the customer and supplier analytics you put in place today to set yourself up for success will only help you.