Just out of college, I purchased a combination street and off-road motorcycle. It was not long before I was invited to do some enduro riding. This is where someone leads you to believe that you will be riding on a trail through the woods, but in reality there is no trail.
I occupied the week before my ride looking forward to the weekend. Visions abounded of trees zipping by as I noted the occasional deer. Little did I know that looking forward was key to a successful ride. I spent the entire weekend head down, my eyes fixated on the front wheel of my motorcycle. Job had nothing on me; I was miserable. Every branch, rut and rock provided an obstacle demanding my immediate and full attention. Enduro riding, it turns out, is not that different from running a business — you have to look forward or you will find yourself stuck in a rut, wishing that you had worn boots.
What do head-up, forward-looking controls distributors look like today? Most likely, they are a multibrand direct digital controls provider serving the commercial market. Their business is growing because they anticipated where business would be today and are positioning themselves to be where they expect it to be in the years ahead. They are doing this by offering a range of services, broadly labeled as “system integration.”
An integration distributor is not a “supply house” offering only inventory and credit to service contractors. Effective management of the stocked commodities business is certainly important, but it is not a growth engine for the integration distributor. Consciously or not, this business segment has probably seen a reduction in service levels. This is almost unavoidable due to declining margins driven by the emergence of low-cost commodities distributors and the importance replacement parts supply has gained at equipment suppliers.
In order to avoid the commoditization of their business, the integration distributor has packaged a bundle of value-added services that helps their customers grow their business. Providing customers with growth takes the proverbial win-win value proposition and puts it on steroids. The integration distributor develops customer employees through training while actively helping them win projects via owner relationships and the specification process.
Many distributors are creating previously unthought-of partnerships with manufacturer-direct controls contractors and factory branch offices. If provided more than a supply house, the direct controls contractor and factory branch will embrace their local distributor. This is a significant change for a group that often wears their independence from distribution like a badge of honor. Looking back, it is interesting to review some of the factors that precipitated this change.
When markets are in a period of significant change, a concentration of resources occurs. Market demand for open protocol systems created a dynamic where depth of product knowledge was concentrated among fewer industry players. This situation is favorable to local distribution because manufacturers cannot aggregate all of the information about time, place and circumstance that exist at the contractor, building owner or specification level across the country. A qualified distributor, however, can become the local hub where all of this comes together.
When rapid changes occur, the manufacturer is in a situation akin to the old Soviet Union, where centralized planning of individual demand for shoes, nails or wheat was an abject failure. The local feet on the street distributor can react much more quickly to the fluctuating demands of his market. At the distributor level, there is a market-of-one effect, whereby each individual customer becomes a market one should serve by whatever means and with whatever products or services are required.
Another significant factor acting in favor of distribution has been the ability to provide integrated systems. Bringing multiple control brands into one cohesive package, or integrating HVACR with other systems such as lighting and access control on the scale currently available, is relatively new to the controls distributor. Lastly, after decades of successfully selling systems based on brand, many manufacturer-direct contractors and branch offices have been slow to adjust to a protocol-driven market. Forward-looking distributors who recognize these opportunities are leading integration distributors today. Scarce technical and product resources created a void that they were well-prepared to step into and fill.
You can further explore the controls integration distributor with a toolbox analogy. An independent distributor has the ability to bring together a broad range of services, product and protocols. Many contractors and factory branch offices have only one brand and protocol to offer. This is the equivalent of carrying a toolbox containing only a hammer, and it presents an opportunity for the organized distributor to provide whatever tools are needed for a given project. A typical distributor offering may include BACnet and Lon protocol product, integration products from Tridium and Plexus, system engineering, lighting and access systems integration, startup support and training. Few contractors or branch offices have access to all of these products and services, but most will need at least some of them on a regular basis. By offering such a broad mix, the integration distributor has something in his toolbox for everyone.
By stringing that bundle of products together and selling some of each to virtually everyone in their market, the integration distributor can become a central clearinghouse. With this model, adding a new manufacturer's product to the distributor toolbox will often result in growth of his existing manufacturer's business for the same or similar items. This is by no means obvious, and explaining it to existing partners can be tricky. Best to practice in front of a mirror or explain the potential benefits to your wife first. Ronald Reagan used to make reference to “a rising tide lifts all boats,” not everyone understood him either, but he was successful even without their understanding.
What products and services are driving the integration distributor today, and what are the likely drivers in the future? Product sales remain the primary goal of the integration distributor today. A sober look toward a future with the possibility of fewer field-mounted controllers has many investing heavily in engineering services. Billable engineering and field support hours can help to ensure that product sales are provided with them. They also provide a training ground in case of declining product opportunities in the future. Whatever turns out to be the case, the first to know will be those who take time to look beyond the rocks and stumps commanding their immediate attention and find a trail in the woods ahead.
Peter Walsh is president of Columbus Temperature Control Co. based in Columbus, OH. He is considered somewhat of an expert by leading authorities. Contact him at [email protected].