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By contributing writer Bruce Nagy

We all know that as Google and Amazon continue to disrupt HVAC buying and selling, it won’t necessarily change WHAT we do, but perhaps only HOW we do it. So why is this change necessary? How is it possible? Why is it happening? The answer in a word is: inefficiency.  Throughout human history inefficiency has created opportunity. Alexander Graham Bell’s telephone, Henry Ford’s production line, and of course the modern computer, were all more efficient that the way it was done before.

The consulting firm McKinsey says that, compared with other industries, the building construction industry is inefficient: “In the United States since 1945, productivity in manufacturing, retail, and agriculture has grown by as much as 1,500 percent; while productivity in construction has barely increased at all.”

It doesn’t matter whether Ford’s production efficiencies made life better for people or for the car business. The only thing that mattered was that once Ford decided to do it, the other car companies were forced to do something similar. People buy for both rational and emotional reasons and in both cases, the production line was what we now call a game changer. Cars were suddenly for everyone, rather than only the elite. They were more quickly available, more affordable, shinier, and because the company had become more sophisticated, its brand reputation strengthened, and its cars probably seemed safer and more reliable.

McKinsey also says that some of the larger construction players are becoming 20%-40% more efficient than the rest of their industry. We all know that 3D modelling is being used not only for eliminating design re-work, but for job-site conflict reduction and construction scheduling too. Factory-built prefab building modules are emerging that also offer significant measurable productivity increases (and more safety and comfort for trades).

Although advances are being adopted first by large companies and driven by financial interests, the remainder of the industry may be driven to participate. But knowing and doing are different. Some consultants say there is a high level of denial about the inevitability of disruption of sales, marketing and supply chain management by digital processes.

On the supply side Deloitte says: “More than half of surveyed manufacturers expect digital supply networks will provide benefits, but only 28 percent have started implementing them.”

Electro-Federation Canada (EFC) Survey

With help from PricewaterhouseCoopers (PwC), and the National Association of Electrical Distributors (NAED), Electro-Federation Canada (EFC) surveyed 75 electrical companies across the country. The survey’s authors Swati Vora-Patel and Erika TenEyck say that about 70% of respondents consider digital transformation of their supply chain to be ‘important’ to ‘very important’ for their business, and three-quarters are working on a formal digital strategy.

Writing in Canadian Electrical Wholesaler Magazine, Vora-Patel and TenEyck say:

Service is widely understood as our channel’s main strength: the personal connections that we have with customers are very important. These relationships have allowed us to work with customers to identify business opportunities, build strategies and provide services that cannot be matched by new market players.  But a word of caution: these connections run the risk of becoming weakened if we don’t address changing customer needs, which are being fuelled by business-to-consumer digital experiences that are forcing business-to-business practices to evolve. The prowess of digitalization has the potential to render legacy services obsolete.

Amazon is spending $40 million each year to improve its software. “As an industry, we can’t compete with that; it’s like poking a bear with a stick,” says Rick McCarten, Vice President, Operations at EFC. “But a service like Amazon is all about saving money. And in our industry, service is way more important. Make sure your customer gets the best service through you. That’s where the rubber meets the road.”

“Those who are doing open supply chain data sharing are finding that both the manufacturer and the distributor are benefitting from quicker turnaround and reduced duplication. There is a lot of duplication in our industry,” says McCarten. “I would love to have an annual conference all about supply chain management. Bring in the smartest supply chain people. And our larger company members should have 50 people in the room, not just one person. They need to change the culture. They need to all learn about Amazon and robots and the power of data.”

HRAI checked in with several experts who have spent years on detailed work in the HVAC field, for the other “Digital Transformation” stories in this newsletter. The value proposition is becoming measurable and clear, and what these specialists are doing and saying about the trades, about Amazon, and Google, is well worth the read, perhaps more so for the skeptics among us.