As kids, our parents would often instruct us to use the buddy system when going somewhere alone, or “buddy-up” when we’d go swimming at the lake or public swimming pool. Buddying up was a way for our parents to feel like we were safe, and someone had our back. But what does that have to do with HVAC/R? I mean really.
Even before COVID, the smart businesses already buddied up with suppliers they trusted, looked after them, and always greeted them with a smile and enthusiasm. Did you? We are hopefully close to halfway through the COVID-19 battlefield. I say halfway because predictions argue that we are in for material and labour shortages for another 24 months or more. Suppliers will have to ration out their product and they will be making tough choices of who to supply.
Will you be on the list? If not, I’d suggest that you start buddying up. Choose the supplier like you used to choose when you were a kid. You need to have their back and they in return will have yours.
We often refer to our internal staff as a team and smart business owners will expand that list of team members to include product suppliers, insurance and benefit suppliers, and vehicle supply and maintenance providers. The list could go on.
Let us identify what our needs would look like if we were interviewing a supplier to buddy up with. Let us start by asking what their fill rate is pre-COVID and mid-COVID? How about what their delivery schedule and invoice order accuracy is? Look for a supplier that has as many product lines as possible, including universal parts to keep you in revenue-generating mode. Do they offer competitive pricing? Look at their inventory levels. Do they offer bulk buying or rationed buying? Buying in bulk can lower their transactional cost hence making them more competitive.
Turning the tables
Remember, we are in a time when there are more buyers than products available. Now that we have chosen a couple of buddies, it is our turn to be interviewed. It can be summed up in one word: loyalty.
Do you pay your bills on time, every time? Remember, suppliers face rapidly increasing prices and crazy transportation costs, and they need their cash to buy in bulk too. Do you limit your main suppliers to one main wholesaler and one backup? Annual purchases worth $100,000 may seem like a lot to you, but it is small potatoes in the big picture. There are lots of companies spending multiple times that in a month.
Buy in bulk wherever possible—don’t be afraid to buy a couple of months of inventory at a time. We don’t want to lose a revenue-generating day.
Buy only what you need and minimize returning items. If you really must, make sure it is in a condition that you would want to buy it yourself at the other end of a return/sell. Be respectful, I have never seen service improve because you yelled at them. And finally, be honest even if it hurts. Being honest will get you far more assistance than you thought possible.
Once you find a supplier, stick with them. Are there going to be days where you will be disappointed? Absolutely. Will there be days where they pull one out of the hat for you? Absolutely!
Being a part of your team is particularly important in these troubled times of supply. You need someone in your corner to support you. Your goal and their goal is to help increase your revenue.
Breaking down pricing
We are all convinced that when there is a price increase someone is lining their pockets. Therefore, it is important to understand what goes into determining the price of a product. Let us look openly at an example.
A lack of staffing created a bidding war on labour which bumps up hourly rates by 15 to 17 per cent. Additionally, statistics show we are now dying at a rate higher than we are reproducing and immigration has all but halted. The Canadian economy is accustomed to having 400,000 or more people added to the workforce. Add the fact that shipping costs have risen by 1,000 per cent while manufacturing commodities have risen 54 per cent. In addition, service vehicles are in such high demand that you are paying MSRP or higher. It also appears that the cost of gas doesn’t have a ceiling, and no one knows where it will end up. Not to mention the carbon tax affects every litre of gas in your tank.
Yes, prices have risen exponentially—have you raised your price? If not, why not? Your competition is not price. I’m not suggesting that you start ripping people off but if you are making 45 per cent gross profit pre-COVID, then you should be making at least 45 per cent gross profit during and after COVID.
The relationship you build with your vendor partner will determine your ability to succeed now and in the future. Loyalty and respect are two-way streets. If both you and your vendor partner share mutual feelings, there is no telling what roads it might open for you. Better pricing, better access to limited product availability, and less stress!