Sales to Inventory Ratio

BY Brian Loftus
10/14/2020 - HVAC Market Intelligence

Key Takeaway: Operating rules during the pandemic have trimmed manufacturing capacity, and continuing COVID outbreaks are likely to cause future manufacturing disruption.

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Absence makes the heart grow fonder, especially when you are out of the product your most important customer needs. Did that happen to you this summer? You are the rare exception if it did not. This month we are adding more inventory insight to our monthly sales survey TRENDS to help participants keep their customers happy.

HARDI’s monthly sales survey, the TRENDS Report, includes the annual percent change of the value of inventory. The recorded analysis presentation that accompanies the report includes a comparison of the annual sales growth rate to the annual change of inventory value over the past 18 months for each region to see how planning is fitting with results. But could it get better?

Last month your Analytics and Business Intelligence Council asked our wonderful partner CoMetrics if they could use the same survey content to create the Sales to Inventory Ratio. The results are in the graph above and may be more attuned to the distributor participants. We see the annual seasonality and the challenges experienced this summer.

During their second quarter earnings presentation, Carrier Global CFO Tim McLevish told investors that inventories in the field were down by 25% at the end of June versus June 2019. During the same event, Carrier Global President/CEO David Gitlin shared, “June was the highest orders month that we’ve had in our company’s history. It was plus 100% and a lot of that strength in orders has continued into July when resi orders have continued to be extremely strong, north of 50% year-over-year.”

Trane Technologies told a similar story during their second quarter earnings presentation. Distributors were hesitant to place their normal level of orders during the April and May business interruptions. Trane also estimated channel inventories were 25% light, leading to record levels of orders during June and July. Trane Technologies CEO Michael Lamach commented: “The numbers were quite extraordinary. June bookings were up 40%, July booking up 50%. All that was pushed out from what would have been the normal seasonality of April and May.”

Lennox described a similar pattern of order delays during April and May followed by a surge in June and July. Below normal inventories levels contributed to the elevated light green sales to inventory levels in the above chart. One implication is inventory shortages could have trimmed distributor’s sales by 5% or more this summer.

Besides insight into their own inventory levels, the new Sales to Inventory ratio will provide participants with insight into the risk of another bottleneck disruption. The pandemic is a new variable when evaluating the appropriate level of safety stock. COVID-19 is gunk on the industry’s supply chain processes. Operating rules during a pandemic have trimmed manufacturing capacity and outbreaks are likely to occur that will unexpectedly disrupt activity temporarily.

The Sales to Inventory ratio is available in HARDI’s monthly TRENDS Report. Distributors can receive TRENDS at no charge in exchange for completing the monthly sales survey.   The report features insight at a regional level and from a dollar weighted perspective. All HARDI distributors should be participating in this program. This insight helps you track your performance and allows us the market insight to support you. The data in TRENDS has value, and it has more value when more of you are participating. Participants also receive the monthly HARDInomics report. The quarterly report includes seven regional sections with insight into the recovery progress of all 50 states.


This article was featured in our monthly Data Driven Newsletter. If you would like to receive these monthly emails, click here to sign up.

If you have any questions, or would like to suggest a featured topic for next month's DDN, contact Brian Loftus at bloftus@hardinet.org.