What are your core competencies and those of your trading partners?

Supply House Times:What is the status of NHRAW's efforts to develop and promote Market Center Distribution?

Scott Nicholson, NHRAW president: We have resolved to tailor our association programs to meet this need for continual improvement and learning under the umbrella of Market Center Distribution.

Our recent spring seminar with Michael Marks tied the MCD concept into sales and marketing techniques to help wholesalers grow their business. Our June business meeting centered on weaving the MCD concept into all of the programs planned for December. Programs at our December convention in Las Vegas will focus on building and developing core competencies of wholesalers. This will be combined with communication not only to our own industry, but to other distributor commodity lines through NAW and the trade press to stress the distributor's role and the importance of distributor firms changing and growing with the times.

At the forefront of this communication will be chairman Jim McNeill, president-elect Jim Truesdell, vice president Doug Young, treasurer Randy Tice and secretary Bill Shaw - our current officers - and our regional trustees and committee chairmen.

Q: In defining MCD, you call upon everyone in the supply chain to define their core competencies and remove redundant costs by "divesting themselves of some functions if a channel partner can perform them more efficiently." Can you give any specific examples of functions that certain wholesalers might perform better than others in the channel, or vice versa, that others might take away from certain wholesalers?

Nicholson: Partners in the chain have different strengths or core competencies that are sometimes a result of the specific skills of their personnel or their physical plants or locations. For example, a distributor with a seasoned product expert in a certain area might well assume some of the functions a manufacturer with a rookie sales rep would otherwise provide. Conversely, a manufacturer with such a seasoned expert might go further in providing technical assistance to a distributor's end users. Or, if one party had developed a higher level of e-commerce or Web site information, then the other party should certainly take advantage of it. The idea is to not unnecessarily duplicate costs so that maximum value can be provided to the end user customer.

Of course, a big question is who will decide who is better in any given area and who will take responsibility. This will require a much greater degree of openness in distributor-manufacturer discussions so that true win-win partnerships can be created. Distributors will likely want to share actual demand information and inventory balances to help the manufacturer set production scheduling, lowering overall inventory costs in the channel. Emphasis will have to be placed on jointly analyzing transactions to see where costs can be removed.

Q: You also state that "technology will be at the forefront" of MCD, especially e-commerce. The buzz I'm picking up around the industry is that e-commerce has been over-hyped thus far. Do you agree or disagree?

Nicholson: Technology has been over-hyped only if we believe that it can provide all of the solutions by itself. In fact, Market Center Distributors are ideally positioned to meet the needs of the marketplace by developing their e-commerce capabilities as a complement to their existing brick-and-mortar, experienced sales personnel, and established delivery services. Those who think the role of the distributor can be squeezed out by someone with a Web site, catalog and computer are sadly mistaken. This is particularly true for the kind of products in the HVACR industry.

Our NHRAW president-elect, Jim Truesdell, points out that "e-commerce" is a broader concept than merely electronic ordering. It is sharing timely and accurate information between all parties in the chain. It is a platform from which we can remove redundant costs and provide better service.

Q: Is MCD more appropriate to the HVAC sector of distribution, or do you feel it has equal relevance for plumbing and industrial PVF wholesalers?

Nicholson: Since Market Center Distribution is both an argument for the continued importance of locally sited warehouse distributors and a call for existing distributors to grow with changes in the market, it is equally relevant to all who wish to continue to be a strong player in the channel. In fact, we find a great deal of consistency in this message with programs and seminars being presented through other associations and are moving to share it with other commodity lines.

Q: Industry consolidation seems to have been the impetus for MCD. Yet, some of the big national consolidators are having their problems. Please assess the impact of consolidation on the HVACR distribution industry now and what you foresee for the future.

Nicholson: Yes, there do seem to be problems developing with some of the national consolidators. In a sense, this is a testimonial to the importance of keeping decision making close to the customers in local markets and maintaining a local or regional presence that can react most quickly to customers. There is nothing to prevent a consolidated company from providing a similar service, but it will require the facilities and personnel that local independents are able to provide if they are to serve their markets equally well.

Whatever impetus that industry consolidation had for MCD, it grew out of the recurrent cycle of manufacturers buying up distribution only to learn that manufacturing and distribution are different skill sets.