Keeping Stock

Careful inventory control is critical to keeping your business healthy and boosting profits.

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If you think of your business as providing a service more than selling products to a customer, you might not think much about inventory. After all, that’s really an issue for retail stores – isn’t it?

Think again. Even if your business is confined to pumping septic tanks or cleaning portable restrooms, you still have inventory to consider. You may be a service company first, but you’ll have items like tank lids and risers and portable sanitation replacement parts that will need to be stocked.

If you keep too much of anything on hand, you’ve spent money you didn’t have to to buy the stuff in the first place. Even the storage space is costing you something. And while some of your stock might keep on the shelves forever, other products will go “bad” over time. For example, I once made the mistake of buying a lot of ink cartridges for my computer printer because of a discount – only to learn the hard way that ink can get “old” in the package. I had to throw out some unused cartridges, and now I only buy ink as I need it.

But too little inventory can hurt you, too. Suppose you’re unclogging a drain and discover a previously undetected leak demanding a replacement drainpipe. Do you really want your customer to wait an extra day until you get the pipe? Not if you hope to get called the next time they have an emergency.

Make it “just right”

It’s the same kind of problem Goldilocks had when she visited the empty home of those three bears. You want to avoid the extremes – not too much, not too little – and figure out what is just right. For some suggestions, I called up Ted Angelo, executive vice president at Grunau Co., a large mechanical contractor based in Oak Creek, Wis., that does business across the country.

“We’re unconventional when it comes to inventory,” Angelo says. Indeed, that’s true, and I’ll explain why and what you can learn from that. But first, a word or two about the basics:

Remember the 80-20 rule: That old formula fits your inventory supply just as it does many other aspects of your business: Roughly 80 percent of what you do probably entails a pretty small selection of components. Angelo calls them the “bread-and-butter items” for the business, and Grunau maintains a master list. They represent about 80 percent of what the company keeps in stock.

Keep a 30-day supply: For those bread-and-butter parts, tally how much you’ve used in the last year, then keep enough to last 30 days. Set a trigger point for stocking up; don’t wait until you’re all out before you re-order. But also, be sure that whoever is responsible for maintaining your supply isn’t replenishing it two or three times a month – that means wasted time.

If your employees perform specialized tasks, you may find regular items for one are quite different from what a co-worker may need to stock. Make sure you take those differences into account.

Don’t use it all up at once: When a big job demands all, or even a significant portion, of your 30-day inventory of a particular part, don’t take it out of the regular inventory. “On that particular occasion, we’ll get a whole box to use on that job,” Angelo says. “We don’t want to use up our inventory on one job.” That way workers don’t run short on a high-demand item when they respond to routine customer needs.

The lean difference

Those are straightforward principles for managing inventory that turns over regularly. But what about the products you only use 20 percent of the time? Do you keep all of those products around, taking up space in a warehouse when you seldom need them? Grunau doesn’t do that anymore, says Angelo. And that’s where the company’s unconventional approach comes in.

The company has been pioneering the use of “lean” techniques for several years. Lean is all about removing waste and inefficiency from a system. It’s been a popular concept in manufacturing for more than a decade, but it’s still new in industries like construction. 

Part of thinking lean is rethinking inventory. How do you do that? Here are ideas Grunau has put in place:

No warehouse: The bread-and-butter components are stocked directly on the company’s service trucks, Angelo says. Products used only 20 percent of the time aren’t stocked. For the most part, they remain with Grunau’s suppliers. Instead of wasting space storing them, paying cash for them up front, and using the fuel to haul them around, the company waits until it needs those components to purchase them.

To make that work, suppliers must be able to stock you at a moment’s notice. Grunau has made sure every supplier can fulfill that expectation, and has a diverse pool of suppliers to minimize the risk of lost time and wasted traveling when a component is needed.

Another important factor is making sure stock on the trucks is easy to find. “I stress to our people over and over again, if the technician or his helper can’t go into his van and find something in 30 seconds, he hasn’t labeled it properly,” Angelo says. Regular audits make sure the techs hold to that standard.

Push responsibility down: Every service technician is assigned a truck and is responsible for keeping it adequately supplied with bread-and-butter items. At the beginning of the year, drivers stock up and then restock as needed, going directly to the supplier. Grunau doesn’t perform a regular annual inventory of supplies. This way, there’s no time, energy or manpower spent double-handling materials, Angelo says.

Sure, that means allowing employees to exercise freedom in how much of an item is kept on hand. But along with trusting employees, the company also verifies, conducting periodic audits to make sure components are stocked at an appropriate rate.

Learn more

You can learn more about Grunau’s lean strategies – which may be applied in a variety of contracting businesses – by visiting the company’s website devoted to the topic:

If inventory problems are costing you money – or costing you customers – it’s time to do something about it. Getting inventory management wrong will cost you. Getting it right is money in the bank, and in your pocket.


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