HRAI Supply Chain Q&A: Members weigh in
HRAI has been tracking the supply chain crisis and its impacts on global industries. Now, we've reached out to several of our members to ask how equipment shortages and delays are impacting their business and how they're navigating these challenges.
Special thanks to the following Q&A respondents:
Tom Boutette, owner of Johnstone Supply - B&B Trade Distribution Centre
Chris Hann, national category manager, HVACR, Wolseley Canada Inc
Bruce Passmore, region manager, HVACR Canada East, Emco Corporation
How has your organization been impacted by supply chain delays/backlogs?
Tom: For our organization, the supply chain challenge has resulted in an increase in inventory by about 25-30%. This, in turn, has impacted our carrying costs and operating line. It has also created a false demand in which our customers try to order excess inventory.
Chris: We've had to fundamentally shift how we procure and forecast our seasonal demands. With longer-than-normal lead times and uncertainty, it's forced us to buy deeper and longer out than ever before. We are now carrying more inventory than in pre-peak times, as well as more inventory on hand overall, to make sure that we're in a good position.
BP: Before COVID, we embraced a "just-in-time" (JIT) inventory philosophy with a corporate KPI of six turns. Now, we're relying on a "best and favourite right now distributor" (aka BeFRieND) strategy and are far more comfortable with turns of three, or even lower for "A" products.
Everyone is living with the thought of having at least six months of inventory in the warehouse and ordering the seventh month. I wish this worked 100% of the time, but we have seen demand outpace our forecasts and manufacturer lead times extend beyond six months, especially with in-season products. I wouldn't say we've maintained a 100% fill rate, but we feel we are doing as good a job for our partner dealers as possible.
We turn down a lot of business to take care of the contractors who have been loyal, well organized, and professional to our teams. It still feels uncomfortable saying “no” to a potential customer, but we do what we must to protect our partners.
How have you navigated these challenges?
T: We have navigated these challenges by increasing our lead time from many suppliers and, where we are limited to purchases by allocation, we try to share equally with our customers. Also, at the beginning of the supply chain issues, we assigned one person from senior management to work with our vendors and cooperate by providing long-term forecasts and extending purchase orders to ensure availability.
C: We've had to adjust our forecast modelling and start months in advance of when we normally would to have a preferred place in the manufacturing cue with our key, strategic vendor partners. We've also created new roles within the organization with the sole responsibility of monitoring, adjusting, creating, and executing on those specific demands by category within the business.
B: For one, we have more than doubled our square footage and almost quadrupled our inventory compared to 2019. Secondly, our procurement professionals are more important in our business than ever, as our local decision-making around procurement and inventory planning has helped us with favourable fill rates.
All told, communication and relationship-building have been more critical than ever before. We've worked with our rock-solid manufacturers to ensure we forecast demand – often 12 months in advance. We have also learned to separate the people from the challenges. It's not fair to judge individuals along the supply chain for delays beyond their control.
What, in your opinion, needs to be done to solve these supply chain challenges for good?
T: There is no long-term solution. The supply chain will eventually catch up with demand and logistics will get a chance to get things rolling. Nothing can be done to avoid a perfect storm; sometimes, you just have to ride it out. The big problem will come when prices stabilize, supply normalizes, and warehouses have too much inventory.
C: More North American manufacturing of components and parts that make up equipment that we sell. The equipment is built here but the componentry is manufactured overseas. This has created a vacuum in a lot of cases when componentry is late or short shipped as a result of disruptions from either a transportation standpoint or labor shortage standpoint due to COVID.
B: I’m not sure what the new normal will look like after the market adjusts to the current challenges, but I’m confident that we won’t go back to six turns and a JIT “it’s not my problem” supply chain.
I also know that I will choose my supplier partners very carefully and invest in those relationships. Part of my selection will depend on how well they can plan and partner with their suppliers. Our belief is that we must be deliberate in choosing - and investing in - great vendor, teammate, and customer partnerships. After all, if you want to go fast, go alone. If you want to go far, go together.
Back to Newsletters
