ProSource Dealers Scrambling to Get Goods Amid Shortages

LAS VEGAS -- The big picture for the chip supply chain is expected to improve midyear, but ProSource dealers are battling major shortages, we heard at the ProSource Summit here this week. Some have lost projects, and all have had to come up with workarounds to get product they need, often not the product originally specified.

Tim Bashford, ProSource senior sales director, said supply chain challenges are “plaguing the business.” ProSource management is pushing dealers to plan purchases better, he told reporters during a Monday briefing. He relayed an account from an Indianapolis-area dealer who made sure he stocked the various pieces in inventory to complete a lighting job, including tape lighting, transformers and clips. “If it’s a 12-week lead time and you need it next week, you have to have a solution. If you have the wrong clips, it’s a problem.”

Manufacturers are struggling with their own supply chain issues, they told dealers. “Some of the stuff they can’t get to you is because of something stupid like a screw,” AJ Leslie, who owns Ergo Audio in Edinboro, Pennsylvania, told us. "They say, 'We have the whole thing, but we don’t have the screw to put the back on,'" he recounted.

Eric Grundelman, owner, Eric Grundelman’s Cool AV in Dallas, was told by a major CE vendor in the fall that the company tried to alleviate its chip problem by using a vendor it hadn’t used before to help fill back orders. The initial samples passed quality control, but when the order shipment came in, all the chips were counterfeit, he said, declining to name the manufacturer. “They were trying to correct the situation, and they wound up getting big-time burned -- seven-figure burned," Grundelman said.

Dealers are taking various approaches to the inventory “pain point,” said Sherry Dantonio, ProSource senior director-education and member recruitment. She relayed stories about how one dealer hired a warehouse consultant to help scope out more storage space, while others annexed warehouse space to have product when they need it, and another hired Saltbox, which provides external fulfillment capabilities for small businesses in markets around the country. Saltbox receives the product and dealers just have to “go get it,” she said.

Bright Audio Video is leasing extra warehouse space next to its facility in Fort Mill, South Carolina, Systems Engineer Ulmont Baker told us. The extra cost has been worth it for the jobs the company has been able to complete when “we’re the only game in town that has that inventory,” he said. “It’s an increased cost, and the cost of holding the goods is also an increased cost, but it’s outweighed by being able to do more business when other people are not,” he said.

Supply chain woes reversed a trend toward just-in-time purchasing, Baker said. Before the COVID-19 pandemic, he could order a product two days before he needed it and knew it would be there, he said. “You could buy things on demand through so many different channels that warehousing was becoming borderline obsolete," said Baker. "Now, I don’t know when I’m going to get product,” he said. “Everything ultimately comes in from L.A., which is backed up, and we just don’t know.”

Margin 'That's Just Gone'

Bright Audio orders product based on the cost of when it can get it, which doesn’t take into account warehousing expenses, Baker said. The client expects to pay what was quoted. If it’s a product the dealer was hoarding two months earlier because it was what it had in inventory, and a customer sees a price for less at Best Buy, “that’s margin that’s just gone for us because we had to hold the product for a month or two,” he said.

Innovative Concepts, in Decatur, Indiana, built its own warehouse two years ago, co-owners Chris and Tina Caston told us. The company had grown to the point where it needed more storage space, “and we’re really glad we did," said Chris. It’s "full now” with about $250,000 worth of inventory, he said. The company, which has a retail, car audio, security and custom installation business, has doubled its inventory in the past two years, Tina said.

Chris Caston said he no longer worries about market pricing pressure. Supply chain disruptions enabled his business to boost margin because “we have the product and most people don’t,” he said. Management calculates what it needs for profit margin, “and that’s what it costs,” he said. The company is “not losing many jobs because of it,” he said: “We have to stay in business, we have to have cash flow and we have to do what we have to do.”

Inventory management has become an extra part-time job for Caston, who orders AV gear every two weeks “just to keep allocations high,” he said. Before the pandemic, that was the purchasing department’s job, but inventory planning and management are far beyond the purchasing role now, he said. “With all the projects going on, it takes me to keep that information correct,” he said. He keeps checklists for inventory coming in and going out for jobs in progress, those that haven’t been quoted yet and those that closed the previous week, he said. “It added an entire day to my schedule each week.”

Supply-chain havoc required dealers to add a step in the design process to ask, “When is this product going to become available and is it even viable for this project?” Grundelman said. That’s often when a dealer needs to switch gears, said Ergo Audio's Leslie: “Do we switch out to a different product that we wouldn’t normally do because we know we have it or could get it?”

Beyond Hi-Fi in Bellevue, Washington, is “calling in favors where we need to” to get products, owner Rocky Snider told us, saying his business is leveraging its long-standing relationships the best it can. AV receivers and electronic window shades have been the toughest finds for Snider’s business, he said. The company has spent an additional $5,000 to remain in stock on key gear, he said.

Logistics management has become a headache, Snider said, especially when trying to juggle multidwelling unit installations: It can be “tricky” when dozens of jobs require product at the same time, he said. Shortages of electronic shades have been especially problematic, Snider said, because of the precision required. A quarter-inch mistake in measuring can result in a complete reorder and “another 12 weeks” to get the replacement, he said. He thinks manufacturers could “bear more of the burden than they have” during the crisis, he said.

At AE Audio Video, in Van Nuys, California, shortages have run the gamut from Sonos products to AVRs to Zigbee modules, owner Mikel Zimmerman told us. Robert Saracione, the company's head-sales and design, said he has taken on a “new job” of ordering products six months out, putting them on back order “whether we’re going to see them or not.”

Shortages 'Jump All Over'

AVRs have been a continuing issue, while the TV shortage seems to have “fixed itself,” said Saracione. Shortages “jump all over,” he said. “One time I can order this speaker and another time I’m ordering that model.” Getting Sonos inventory was the biggest hurdle for a while, then “anything that required power,” then speakers, Zimmerman said. Most recently, modules that “tie things together” have been the holdup, he said. The company lost a job Monday because it was waiting for Zigbee modules to complete a client’s smart locks, he said. The client canceled, not wanting to wait until April 1, he said.

Dealers said product availability is hit or miss. Sony’s 100-inch LED TV was nearly impossible to get since it launched last summer, Grundelman told us. He was expecting a four-to-six-week lead time on the $20,000 TV when he ordered on a specific Tuesday, then was stunned when it “arrived on the dock the next Monday,” he said. On the flip side, a shortage of standard white Decora receptacles is holding up some of his projects, he said.

Saracione of AE Audio Video said security products have been his biggest problem, with reps giving him an eight-to-12-week delivery window that turned into six months. The business buys direct from manufacturers where it can and has been preordering as much as possible, wherever it can find it. Saracione had been looking for Sony AVRs, but none in stock met his needs, so he called his old Denon rep and asked if his account was still active. “I hadn’t ordered Denon in years,” he said. “I just threw orders out there.” Zimmerman added: “We were ordering brands that we don’t normally stock just to fulfill jobs.”

From the vendor side, manufacturers want better visibility into dealer timetables, AudioControl CEO Alex Camara told us. Dealers don’t need to buy in advance, he said, but it’s hard to fulfill orders when dealers say they need product “within a week’s time,” he said. Dealers know their project timelines, he said: “Just let us know.” The company has been able to deliver most product within a week or two, he said.

Though AudioControl is U.S.-based, it imports components from Asia and has had to air-freight components to get products to dealers faster, Camara said. It raised prices by 8% in October in response to air freight and port cost increases, but the increase didn’t cover the company’s higher costs, he said. As a result, an additional “small” price increase is coming, Camara said, declining to give the percentage. The first increase didn’t get much pushback, he said: “Dealers get it." Dealers have also benefited from higher prices, he said.

Most price pressure has already taken place, Camara said, predicting a leveling off of costs. Audio Control has seen some improvement in pricing for air freight and port times, he said. “Ideally, we don’t want to rely on air freight,” he said, noting that air freight costs in the past two or three weeks have improved 15%-20%. Camara doesn’t expect peak logistics costs to return, barring a “dramatic situation,” he said.