Inventory: Potential Profit Drain

Many businesses have a profit drain in the guise of inventory sitting on their walls, whether it be for resale, for assembly or for use in performing company services. Dependent on the size of your enterprise, how this is handled can positively or adversely affect company profits. Too much of the wrong inventory and we are tying up much-needed cash for business operations; too little inventory and we may miss much-needed sales. This dilemma is always a hard decision for the business owner, should we invest to grow sales or operate in a lean manner with a just-in-time philosophy? The companies who have conquered this aspect of logistics the best, like Walmart and Amazon are the success stories of the 21st Century.

Many types of inventory programs and devices that can be used to track inventory, however, they all cost money and require someone to monitor, order and make adjustments. Do we need just one person in charge? Can we afford a warehouse manager? Do we need someone to deliver parts and materials to job sites? These are all factors one needs to consider when looking at the effect of inventory on your bottom line.

The focus of this discussion is a small, but important, aspect of inventory; that is, the items carried on a repair or service truck.

PRELIMINARY CONSIDERATIONS

1. How much time (money) will it cost to put in place?
2. How much will we need to invest to have an adequate supply?
3. Will buying in quantities save us money?
4. Will it save on unnecessary trips to a supplier or warehouse?
5. Will it prevent time lost in traffic jams?
6. How much will it prevent unnecessary stops at the convenience store?
7. How much do we need of any particular item?
8. How quickly is it attainable if it needs to be ordered?
9. How reliable are the suppliers?
10. Can we get items delivered to our door?
11. Will we need some backup storage?
12. Can we prevent employees from cannibalizing one truck to fill another?
13. Will we be able to maintain an accurate inventory?
14. Will it save us money in the long run?
15. What can we expect in shrinkage?
16. Will it make us more productive?

SPECIFIC ISSUES TO RESOLVE

1. How many trucks do we have?
   1. Are they of the same configuration?
      1. Can we store the same items in the same place in each truck?
2. What needs to be in the front of the truck for the driver?
   1. Time sheets
   2. A “calling card.”
   3. Place for invoices for items that are purchased.
   4. Forms
   5. Trash bags
      1. Keeping the truck clean.
3. How many trucks are focused on the same function?
   1. Repair work
   2. Installation
   3. Service
4. Have we determined what is needed on each truck for maximum performance?
   1. Is there a base requirement of tools or supplies for each truck?
      1. Tools required
      2. Materials
      3. Supplies
   2. What would be a specialty item?
      1. Most common emergency repair?
         1. Tools for that?
5. Could each truck be a mini-warehouse?
6. How will it be organized?
   1. Storage areas in the truck
      1. Shelves
      2. Boxes
      3. Bins
7. How will we track use and consumption?
   1. Manually
      1. Form to fill out
      2. Submit to whom?
      3. Periodic counting?
      4. Daily counting?
8. Who determines the quantities to order?
   1. What is the turn on the products?
      1. How often are they consumed in a week?
   2. Do Drivers pick-up at suppliers?
   3. Who re-enters into inventory?
9. Who tracks the prices?
   1. Savings here will lower our Break Even point.
      1. Can we buy wholesale?
      2. Can we negotiate a discount?
      3. Internet Pricing
   2. Local Supply house
      1. Quantity discount?
      2. Contractor discount?
10. Have we set a max-min number to follow?
    1. The 80% rule.
       1. Who adjusts the quantities?
       2. When do we adjust quantities?
       3. Adjust for seasonality?

This exercise is meant to address questions that might be asked before or even after setting up inventory in a vehicle. If we already have inventory in a vehicle, is it the right inventory? Is it sitting there and not getting used because it is unknown to the other drivers? Outdated? Obsolete?

Once we have made a decision to inventory commonly used items we need to make sure it is saving us money. Fewer trips to the supply houses, less time in traffic, more billable time by employees and are we getting better pricing? We must remember why we started an inventory in the first place. SAVE MONEY and INCREASE BILLABLE TIME and INCREASE PRODUCTIVITY.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: