Inventory is a bet. Many of you have heard me say it. Yet, I still see contractors wasting their hard-earned money on inventory "bets."
One of the contractors I work with is in the process of cleaning out all of his trucks and replacing the "standard" inventory in them. Even after 20-plus years in this industry, it still amazes me how many thousands of dollars are wasted in broken and damaged parts as well as inventory that is bought but never used.
I told them to donate the usable, but obsolete, parts to technical schools and get a tax credit. That will at least recover some of the cost.
I see out-of-control warehouses every day. Technicians and installers have the run of the place. They choose the parts they need for a job. They have a "shopping cart" with no cap on spending - they can fill it to their heart's content.
A mechanic says, "I think I may need this," so off the shelf it goes. Or, "The drawings say I need 10 boots. I'd better take 12 just in case." Or, "I'd better take an additional box of flex duct - just in case."
Does any of it ever come back? Rarely.
A technician says, "I used a motor; I'd better take two for my truck, just in case I need it this weekend." And when you inventory his truck, there are thousands of dollars in equipment on there, some of it damaged from being thrown around.
Stop the runaroundDo not give your employees run of the warehouse. It's like giving them a blank check. They don't even think twice about taking the materials and tools they might need. They don't have to pay the bill and after all, they figure, you're the owner and you can afford it!
Stop running a "supermarket" warehouse. Limit access to the warehouse. Lock it up with someone watching at all times.
Have a materials list for jobs. Pull materials from that list. Service parts should be restocked from invoices that show a technician used a part.
It takes a little time to reset procedures. You will encounter resistance from field labor who are used to having free reign.
If it takes a parts runner or a warehouse person to accomplish this, then hire one. With the savings from increased productivity and decreased material expenses, it's easy to pay for them.
Please lock up your warehouses. Lock up your parts rooms. Lock up your tools. It's the best way to save your hard-earned cash.
However, keeping the warehouse locked isn't the only solution. You also have to make sure you don't have too much inventory on hand. The key is to make conscious decisions about your inventory "bets." You will make some good ones and some bad ones. The key is to keep your bad bets to a minimum. This way you will be using your dollars wisely.
How do you know whether you have too much inventory? If your current ratio (current assets divided by current liabilities) is more than double your "acid test" (current assets minus inventory divided by current liabilities).
If you have too much inventory, try not to buy any parts for a week. This does not apply to materials going directly to jobs. I know the distributors hate this statement. However, they would rather you be able to pay for the parts and pieces you purchase and use them profitably on jobs.
Copyright 2006, Ruth King. All rights reserved. Write to Ruth King, 1650 Oakbrook Drive, Suite 405, Norcross, GA 30093. Call (800) 511-6844; e-mail email@example.com.