ACHRNEWS

Managing Inventory On and Off the Truck

December 4, 2006

DENVER - Some of the best reasons for having a properly managed inventory control system includes increased profits and having money in the bank. How so? David Rosenthal, a trainer with the Nexstar Service System and third generation plumbing contractor, said it is as simple as looking at the example of a $20 part in the stockroom.

Rosenthal told seminar attendees at the Nexstar Super Meeting 26 that “inventory is a big beast in the back of our shops. Having a $20 part on the shelf for six months is like putting a $20 bill on the shelf and leaving it there. How many of us can do that with our parts?”

He said that having a good inventory control system eliminates waste and improves pricing. Rosenthal gave the example of a $2 million company that saved 5 percent by being more efficient. That equates to $100,000 per year. He noted that if a service tech spends 15 extra minutes a day tracking down a part and a company employs four techs, that equates to five lost billable hours per week multiplied by 52 weeks, which equals 260 lost billable hours a year while techs track down a part.

“Planning is a huge step in maintaining proper inventory control,” Rosenthal said. The questions and objectives of planning include: who is responsible, what inventories of parts to carry, location and space available for inventory, type of inventory system to use, etc.

David Rosenthal, a trainer with the Nexstar Service System, told meeting attendees that keeping control over truck and warehouse inventory can add to contractors’ profits.

Following planning are the steps: implementation, tracking, and maintaining. He asked attendees to close their eyes and visualize their warehouses and trucks in order to see what they should look like rather than what they really look like.

Implementing proper inventory control procedures involves putting the right person in charge and not turning control over to someone who cannot physically manage the stock, suggested Rosenthal.

“What is the benefit of using a vendor as a warehouse if they are 50-100 miles away?” he asked. “And the level of knowledge of the person in charge doesn’t have to be highly technical. You can use pictures of products attached to bins and the person can learn that way.”

At what point should contractors hire an inventory control person? Rosenthal said, “If your revenues reach $1.5-$2 million, it is probably time you need someone responsible for this.”

And should a bonus be paid to a person who runs a successful inventory control program? “It is reasonable to give something back to the person who saves the company money,” he said.

Rosenthal said one way of checking the inventory control of a company with several vans is to pull one van out of the fleet and replace the standard bins (which all vans have) with pre-stocked bins from the warehouse. That way, a company can accurately check inventory levels from the vans.

He noted there are five keys to a successful inventory tracking system:
  • Standardized technician paperwork
  • Purchase order system - the ability to tie in a truck/job to accounting via a software program
  • Accounting integration, i.e., tracking purchase orders
  • Replenishment
  • Proper training
Properly maintaining an inventory control system includes developing and cultivating a relationship with vendors. Of the 12 important keys to maintaining the system, Rosenthal said that contractors should “work towards reducing material waste and lower material spending costs to bring the percentage of sales figures in line. Evaluate and visit your company’s up-front pricing guide to ensure proper material amounts are calculated in the tasks and make necessary changes.”

Publication date: 12/04/2006