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This newsletter series will give you insights and techniques to help you build a better business no matter how large or small yours is. I always say that success comes from working on your business as opposed to in your business. I want to share with you the systems and philosophies that have been successful for me over the years.
This is newsletter #28 in the series. If you have missed prior newsletters, and are enjoying the series, we encourage you to purchase the program. More information can be found by clicking on the coupon at the bottom of this page.
Your inventory could conceivably represent more than 50 percent of your current assets. This is a significant amount and means that you must keep a close watch on this account. You should know whether the amount of inventory is reasonable in relation to sales and other operations of your business. Know how rapidly your inventory turns over. Be sure you’re not investing in slow-moving items (six or less turns per year). Balance your material and tool purchase decisions between maintaining an adequate supply on hand against possibly losing sales due to an inadequate supply and rent equipment that will show little or no return on the investment. Take action to maintain the size inventory necessary to get the job done effectively and profitably.
How large should your inventory be? If you have an efficient estimating system (particularly a computerized one), you’ll maintain a very low inventory and order materials as a contract is received. Materials are to be shipped to the jobsite as each section is ready for work and in sufficient quantities for that amount of work. An added advantage to this kind of control will be less theft, waste, loss and pilferage, because you’ll not be over-ordering and leaving extra materials around after the work is done.
By maintaining the lowest possible inventory, you improve cash flow. However, it’s possible to affect savings by buying in truckload quantities that qualify for a discount. You may also order materials for possible future work when you have information that the price will be increased shortly. Be sure that the extra handling and storage cost over a long period of time doesn’t eat up anticipated savings. Remember that low price is not everything. You’ll want to develop a relationship with suppliers who will help you solve your problems and be there when you need them.
Excess inventory usually is maintained until it “ages” and the cost of storing it, moving it, and ultimately dumping it costs more than the value of the material stored. Clean up and get rid of “junk.” If you don’t need something, don’t pay to store it. Identify your dead inventory on a regular basis. Consider the handling costs and the management costs involved in maintaining unneeded items.
Shop supplies or "staples" should be maintained at levels that allow you to immediately roll-out and begin a job without the delay of waiting for a delivery. Most of these items are transferrable from job to job and turnover quite rapidly. Set pare levels and re-order points for such items to maintain adequate stock.
Truck stock is too often overlooked as part of the inventory control process and this is perhaps the costliest of inventory losses. The more vehicles in your fleet, the more inventory is exposed to such losses. Customize each vehicles inventory to match its primary function and train the operator to maintain and report inventory on a routine basis.
Use your inventory evaluation as a measure of your ordering procedures. Determine what you ordered and what you used. If there’s a discrepancy, try to determine if it’s because of an incorrect ordering procedure or due to a situation beyond your control. Donating new but unneeded materials to local trade and technical schools can sometimes be used for tax and personnel recruitment advantages.
If you can handle your supplies in an orderly, effective way, you’ll save a lot of hassles, and a lot of time. Your workers’ attitudes will also change because when they see that you care, they’ll start to care too.
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The above content is extracted from Mike Holt's Business Management Skills Program.
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