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  1. #1
    Join Date
    Oct 2004
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    9

    Question

    Hey folks. New guy here. Hope all is well.

    I'm thinking about entering the industry and I'm trying to do as much research as possible because the more I discuss HVAC the more confused I get. I don't understand who supplies whom, and who sells to whom. Seems like sometimes the OEMs compete with the dealers. Other times the dealers compete with the wholesalers. And lets not forget about the OEMs competing against the wholesalers. How is this sustainable (i.e. how can anyone really compete against an OEM)?

    I was hoping that you might help me figure out how the distribution and sales flow works between the OEM, wholesaler and dealers.

    Can someone help me understand how the order flow would typically work for the following 4 situations:

    A 30 unit apartment building
    A single family home
    A 10,000 sq ft retail store
    A 100,000 sq ft office building.

    Specifically, I'm looking to understand the following questions:
    Who is responsible for the original sale?
    Who supplies the equipment?
    Who does the install?
    Who services the equipment long term?

    My guess is that everything "depends" but I was hoping that you guys might help me make a bit more sense of things.

    Thanks for your help!!!!

  2. #2
    Join Date
    Jun 2005
    Location
    Near Chicago, IL
    Posts
    3,317
    Originally posted by nu2hvac
    ....Specifically, I'm looking to understand the following questions:
    Who is responsible for the original sale?
    Who supplies the equipment?
    Who does the install?
    Who services the equipment long term?

    My guess is that everything "depends" but I was hoping that you guys might help me make a bit more sense of things.

    Thanks for your help!!!!
    It depends

    All of the equipment and ductwork was provided by the owners of a large retail store. The HVAC contractor provided labor only. If the ductwork was damaged before turnover, the contractor had to replace it. Go figure. The HVAC contractor did the equipment start-up. I suspect they have their own service people.

    Another commercial outfit became a dealer for their rooftop HVAC equipment. The HVAC contractor supplied ductwork and labor for install. The HVAC contractor did the equipment start-up. They have their own service people.

    Some resi shops here have salesmen for a builder of single family homes. Other shops have a salesman/installer/fabricator/service guy/etc all rolled in one.

    Some resi shops have specific crews for certain tasks (layout, rough-in, flue pipe, basement duct, AC install, etc). Other shops have a one guy does it all approach.

    I have never worked at a shop that has installed homeowner supplied HVAC equipment, but that doesn't mean that it doesn't happen somewhere.

    Like I said, it depends

    Hope this helps some.
    Proper Prior Planning Prevents Piss Poor Performance

    "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey. It's unwise to pay too little.
    When you pay too much, you lose a little money -- that is all. When you pay too little, you may lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

    John Ruskin


  3. #3
    Join Date
    Oct 2001
    Posts
    6,945
    take McDs for the retail end....they build stores all over the world from a/c to refer,they have groups of engineers that handle all aspects of purchasing and installation quotes.contractors bid to do the work and they say....this is what we'll pay you to build it.local service company that do their service work on exsisting stores pick them up later on as the warranty goes out.larger office buildings hire companies like TURNER CONSTRUCTION that do all the spec work and run the job till completion,with HVAC OEMs in for start-ups on the larger tonnage eqiupment and have it for one year under warranty.in the following years most owners stay with the OEMs and all the maintanence and parts sources.larger retailers like NORDSTROM a California based company buy all thier equipment from Seattle Trane with the same HVAC designs across the country(local contractors install all aspects).this means if you walk up on a roof of the store you will see 125 ton Trane units 4 to 6 per store,and the same controlling of them thru building automation monitored from Seattle.if there is a problem a local Trane office gets the call to check it out and do repairs or follow-up work to solve the problem.the pressure to keep NORDSTROM people happy is top priority with Trane,and the last thing they want is a call from the executives of the company on problems and Trane gets 100% of all the work.
    "when in doubt...jump it out" http://www.youtube.com/watch?v=U1qEZHhJubY

  4. #4
    Join Date
    Jun 2005
    Location
    Near Chicago, IL
    Posts
    3,317
    There are some nationally known big GC's that will always withold that last 5% to 10% job payout from the subs due to "warranty issues". They have plenty of lawyers. A holdback like that on a big job can bankrupt a sheet metal outfit, especially if the warranty period is a year or more.

    You can also bid on a job, be told that the schedule will be "this", which will be quite different from reality and the result of the incentive-based GC pay for the superintendent.

    "Little things" like Dumpster clauses and the GC labor rates for jobsite cleanup can sneak up on you pretty quick.

    Big jobs and big GC's are not always a good thing.
    Proper Prior Planning Prevents Piss Poor Performance

    "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey. It's unwise to pay too little.
    When you pay too much, you lose a little money -- that is all. When you pay too little, you may lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

    John Ruskin


  5. #5
    Join Date
    Oct 2004
    Posts
    9
    Thanks for the feedback guys.

    So how often do you find yourself competing against the OEMs for business? Has anyone ever been able to beat out an OEM on a bid?

    And no one mentioned wholesale distributors. Are they becoming less relevant?

    Also... My gut tells me that this is a dumb question but I'd rather ask it now than feel the pain later... what's a 'dumpster clause'?

  6. #6
    Join Date
    Jun 2005
    Location
    Near Chicago, IL
    Posts
    3,317
    Originally posted by nu2hvac
    Thanks for the feedback guys.

    So how often do you find yourself competing against the OEMs for business? Has anyone ever been able to beat out an OEM on a bid?

    And no one mentioned wholesale distributors. Are they becoming less relevant?

    Also... My gut tells me that this is a dumb question but I'd rather ask it now than feel the pain later... what's a 'dumpster clause'?
    "Dumpster clause" is when either the sub has to provide their own Dumpster at the site (which sucks because everyone else fills it up) or when the GC supplies the Dumpsters, then divides the costs between the subs at the end of the job (which sucks because not everyone generates the same amount of trash).

    Companies I have worked for use wholesale distributors for most of the "stock" stuff that is installed: equipment and traditional sheet metal products like elbows, round pipe and such.

    The wholesale end seems to be fragmenting. Now there are places that make rectangular duct, spiral duct, specialty stuff to order... The pieces of the pie seem to be getting smaller, and you have to be bigger to get a piece of it.

    I don't see how anyone could beat an OEM on a bid- even if the contractor bought direct from the manufacturer.
    Proper Prior Planning Prevents Piss Poor Performance

    "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey. It's unwise to pay too little.
    When you pay too much, you lose a little money -- that is all. When you pay too little, you may lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

    John Ruskin


  7. #7
    Join Date
    Oct 2004
    Posts
    9
    Thanks for the definition Neophytes.

    I thought that certain wholesalers/dealers were "exclusive wholesalers/dealers". My understanding of this arrangement is that in exchange for being aligned with one brand (Trane/Carrier/York etc.), a wholesaler/dealer would be given a territory and a spectum of products that they could sell without worrying about the competing against their own product line. Does this type of arrangement still exist? Is it going away gradually? Which of the major brands still have these types of arrangements?

    And Outside Rep: Can you explain in detail how Trane/York messed with you? Is there any way you could have prevented them from doing it?

    Again, this stuff is super helpful. Thanks for your help. I can't find information like this anywhere on the web.



  8. #8
    Join Date
    Jun 2005
    Location
    Near Chicago, IL
    Posts
    3,317
    Around here, there is only one wholesaler for one particular name brand, a nationally known brand. They also have control over who is able to sell the A List equipment. The "other stuff" lacks some of the features and bells/whisles of the premium line, in addition to the "name".

    Kinda sucks if you have a customer that insists on a particular brand, but the contractor isn't able to sell it.

    There are two other different local supply wholesalers, one of which that will sell retail OTC, that sell the same brand of furnaces.

    Basically, if you want to be able to sell many different brands of equipment around here, you will need many different supplier accounts. To cut back on that, some wholesalers are requiring a dollar amount commitment to get the A List stuff.
    Proper Prior Planning Prevents Piss Poor Performance

    "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey. It's unwise to pay too little.
    When you pay too much, you lose a little money -- that is all. When you pay too little, you may lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

    John Ruskin


  9. #9
    Join Date
    Oct 2004
    Posts
    9
    Do all top brands operate this way? Am I stuck going through a wholesaler in order to get the A list equipment?

    If yes. Are all wholesalers created equal or are some substantially better than others? (My sense is that this is probably going to become a Coke vs. Pepsi question).

    And are there any instances where I can bypass the wholesaler and go directly to the OEM?

  10. #10
    Join Date
    Jun 2005
    Location
    Near Chicago, IL
    Posts
    3,317
    Do all top brands operate this way? Am I stuck going through a wholesaler in order to get the A list equipment?

    I only have familiarity with a few brands. Yes, you will probably have to go through a wholesaler/supply house. Otherwise, you will be just another retail customer.

    If you plan on selling lots of equipment, maybe you can become your own distributor. Probably big $$$ commitments there.

    If yes. Are all wholesalers created equal or are some substantially better than others? (My sense is that this is probably going to become a Coke vs. Pepsi question).

    No, they are not all the same.

    And are there any instances where I can bypass the wholesaler and go directly to the OEM?

    Don't know. Probably not, at least not without going to the OEM "supply house" like Carrier/TEC around here.
    Proper Prior Planning Prevents Piss Poor Performance

    "There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey. It's unwise to pay too little.
    When you pay too much, you lose a little money -- that is all. When you pay too little, you may lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

    The common law of business balance prohibits paying a little and getting a lot -- it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better."

    John Ruskin


  11. #11
    Join Date
    Oct 2004
    Posts
    9
    Thanks Outside Rep. My gut was telling me as much but you confirmed it.

    There is something I just don't understand. If the OEM's are competing downstream against the wholesalers and the dealers then how do the wholesalers and the dealers make $$$??!

    Do all brands of OEMs compete like this in all areas of the country?

    Are there certain areas of the business that OEM's generally don't touch?


  12. #12
    Join Date
    Oct 2004
    Posts
    9
    Thanks Justin. This is really helpful.

    Do you think your experience in PA is pretty consistent with the rest of the US?

    The reason why I'm asking all of these questions is because I'm trying to figure out where the best opportunity is for the future. If you had the choice of either becoming your own dealer or working with a successful wholesaler where would you choose to work? Where is the better long-term opportunity?

    Becoming a dealer seems to me to be a much tougher route. You have to build a business from scratch and the margins are already thin. Initially, I'd say aligning with a successful wholesaler would be a pretty good gig. You work on large projects and play a unique role in the local HVAC market: you work with the dealers (training, sales support, etc.) in a capacity that the OEMs are unable to.

    But now my gut tells me that wholesalers are in a tough spot. OEMs are looking to pad their bottom lines and the only way to do that is to compete downstream. Why can't the OEMs just cut out the wholesalers altogether?

    Seems like this is already happening.

  13. #13
    Join Date
    Dec 2003
    Location
    Nevada
    Posts
    1,815
    Originally posted by outside rep
    Originally posted by fat eddy
    Who you going to sell for ?

    Militry Spec items or work for one of the big drug companies




    Great plan, after a while selling to the Military HVAC will look good again!








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