Exploring Trends in the HARDI Profit Report

They say time flies when you are having a good time, but for those of us in the HVACR distribution business, the past year hasn’t been all that much fun. And if time has flown by at all, it probably has more to do with the momentous task of keeping our businesses rolling along—without much assistance from influences such as recovery plans or economic rebound.

Back in 2008, I did a review of the HARDI Profit Report—times were good back then. In that report, we outlined the benefits of using the Profit Report as a "no brag factor" benchmarking tool. Today, we're going to touch benchmarking and move further down the road with some quick analysis of our industry in general.

• Before we begin, let me make a couple of quick housekeeping points:
• The 2010 HARDI Profit Report uses data from "The Recession" 2009.
• The 2008 HARDI Profit Report uses data from "The good days" 2007.
• The page numbers we refer to are in the actual Profit Report.

The 2010 Profit Report reinforces what most of us suspected: The bottom line of most distributors took a hit in 2009. We won't use this article as an excuse to recite profit numbers; instead, we want to drive home a few trends that will help you make better use of the report today and help you improve your business throughout the next business cycle.

Benchmarking –Activity based costing
There is an old saying, "facts, not opinion, drive good decisions." Yet, most distributor teams still lack reliable data on which to base their customer selection. Understanding cost data is the first step in recognizing which customers contribute to the bottom line. More importantly, this data provides a bit of insight into the overall efficiency of the logistics engine driving the distributor’s business. If you lack the resources to produce Activity Based Costing data for yourself, the Profit Report provides you with a good industry approximation. If you do have ABC data, compare your numbers against the Upper Quartile firms.

For illustration, I have dissected the numbers for a "typical" HARDI distributor. If you signed up for the Profit Report (and I encourage you to do so), I recommend using your own numbers following this model. If you do not take part in the PAR process, you can still benefit by looking at the "typical" numbers.

In the box provided in Chart 1, I have provided several details regarding the typical distributor. I compared numbers from the 2008 and 2010 reports. I selected these numbers because I thought it might be fun to contrast "the good days" against last year'’s nasty little recession. In each case, I have provided the reference page from which the information was gathered. The intent here is to allow you to follow along and plug in your own numbers.

What is the cost of processing an order?
Remember what I said earlier, this is a very good approximation. It's not "dead on," but if you lack a real process, it gives you a guideline. In this calculation, we are going to make a couple of assumptions:

• Inside sales and counter people are the ones most likely to enter orders.
• The credit department's time is equally spread over each order.

Based on this information, it now costs the typical HARDI distributor $13.15 per order just to get it into their computer system. What’s worse is that the price for this little task has ratcheted upwards 18 percent in just a couple of years. Interestingly, during the good years, high performing distributors actually paid just a bit more for entering an order. But when tough times hit, they were able to control expenses more closely and drive the cost downward by 36 percent.