Inventory Management

Transcription

1 Summary Report From Data Collected July 2018 Inventory Management In July 2018, EGIA surveyed its network of contractors on Inventory Management. This is a summary of the results.

2 Inventory Management Equipment represents an enormous cost in any contracting business, so planning and controlling inventory are crucial to maintaining (or achieving) profitability. In July 2018 s Snapshot Survey, we asked contractors all about inventory management to get an idea of what strategies and best practices are working (and not working) throughout the industry. Learn More About Inventory Management To learn more about inventory management, truck inventory, material handling and more, visit the EGIA Contractor University Contracting Best Practices Library Section 15, Material Handling Principles, to access resources including templates, videos, how-to documents and more.

3 Does your company have a formal, data-driven forecasting process to attempt to ensure the correct inventory is on hand? While every contracting company carries some inventory, only 17% of surveyed companies use a formal, data-driven process to forecast how much inventory they should have on hand, while 83% simply estimate. Of course, not having equipment when you need it can cost you sales, but holding excess inventory is likewise going to impact your bottom line by occupying capital you could be allocating elsewhere while increasing the many fixed and variable costs associated with warehousing. In a perfect world, you d have zero inventory on-hand while the supplier never misses an order. Short of that however, you should at least proactively incorporate data in order to forecast as accurately as possible. Consider things like previous sales history, planned growth, changes to equipment models and more (see Question 2). 17% HAVE A FORMAL, DATA-DRIVEN FORECASTING PROCESS TO ENSURE CORRECT INVENTORY Data driven inventory forecasting and replenishment can and will lead to overall purchasing efficiency, streamlined stocking procedures and consistency among tech trucks. - HVAC Contractor in New Jersey

4 Which factors are considered during forecasting? So, including those abovementioned forecasting factors and beyond, just what are contractors considering when attempting to accurately forecast inventory? Far and away the leading response was previous sales history at 79%, followed closely by planned growth (62%). No other factor was named by more than half of respondents, though seasonal marketing initiatives (45%) was close. While the two leading responses are universally considered best practices, several others such as potential rebate programs or manufacturer promotions need to be considered carefully. If they wind up saving money on equipment that needs to be ordered anyway that s ideal, but they can also tempt companies into ordering excess or unnecessary inventory because of the perception of a bargain. Make sure your company will see a net benefit before moving in that direction. If prices are being dropped, someone is paying for it, so keep your eyes peeled the costs could be hidden in the products. 79% 62% 45% 24% 24% 5% 4% FACTORS CONSIDERED DURING FORECASTING Check with your distributor/manufacturer to see what models will become obsolete and what new models are being introduced. Get a written agreement from your TM to remove equipment when it goes obsolete, or get a large price concession for obsolete equipment. If they do not want to play ball, a second line of equipment usually helps solve this issue. - Gary Elekes, EGIA Contractor University Faculty Member

5 Is your inventory forecast revised and updated throughout the year? Next, we asked how often yearly forecasts are being updated and found that 62% of companies are revising throughout the year. While it can be tempting to get the forecasting process out of the way and forget about, to maximize efficiency and minimize overspending on superfluous inventory you should regularly revisit and potentially adjust. Ideally, companies should set seasonal minimum-maximum quantities for necessary inventory, then look at inventory monthly and adjust as needed based on how quickly equipment is being sold and installed. This ensures on-hand inventory is based on real-time results in the business, rather than theoretical performance that was estimated six months earlier and may or may not actually be happening. 62% HAVE THEIR INVENTORY FORECAST REVISED THROUGHOUT THE YEAR Data drives everything. Once a year and hopefully increasingly, we run all the pertinent reports, combine with any updates from our manufacturers, and determine where changes need to be made. If a box of gasket sets has been on the shelf/in the truck for 2 years and we sold only 1 of them, then chances are there is an understocked or non-inventory item that could be a more profitable and efficient use of that space. - HVAC Contractor in Tennessee

6 Does your company have an established policy to determine exactly which parts, and in which quantities, are to be kept on the service vehicles at all times? Even more difficult than stocking a warehouse is accurately stocking a service vehicle with equipment. It s essentially a moving warehouse among other things but at a fraction of the size. More than half of surveyed companies (54%) have an established policy for which parts and quantities are kept on service vehicles, against 46% that have no such policy. 54% Having too many parts on a vehicle increases the probability of damaged parts and shrinkage, or parts becoming obsolete. Plus the added weight can add gas costs and increase vehicle wear and tear. On the other side, an understocked truck can lose you sales when techs don t have the parts they need, and drop overall efficiency between requiring callbacks and techs driving to supply houses. HAVE A POLICY TO DETERMINE WHICH PARTS AND QUANTITIES ARE KEPT IN SERVICE VEHICLES AT ALL TIMES All inventory is on the trucks. Everything is just-in-time. As parts are used on the job, they are added to the invoice and a replenishment is sent to the supply houses. On-hand inventory is only items which don't fit on the trucks and is needed for same day sales and installs (i.e. water heaters, toilets, etc). All HVAC equipment is ordered as jobs are sold and delivered in kits. Supply houses bring value by stocking inventory so I don't have to. - HVAC & Plumbing Contractor in Pennsylvania

7 On average, how much worth of parts inventory does your company keep on service vehicles? Finally, to get an objective measure of on-vehicle inventory across the industry, we asked contractors the total value of parts they re carrying on service vehicles. Far and away the leading responses was between $2,000 and $2,999, cited by 28%, with the next closest choices being $1,000-1,999, $3,000-3,999 and $7, each mentioned by 14%. Of course, the lower the value of your on-vehicle inventory, the more efficient your operation and the more capital can be utilized elsewhere to a point. As mentioned above, stripping down too much could lead to a tech not having a part they need and creating an unnecessary callback or losing the sale entirely. Bottom line, as with all inventory control ideals, there s a balance to be had. Less than $3,000 is a very respectable number, presuming the vehicle is stocked with the correct inventory, but some companies today have even dropped below $2,000 by perfecting inventory control and replenishment practices. 3% 14% 28% 14% 13% 3% 4% 14% 7% $0-999 $1,000-1,999 $2,000-2,999 $3,000-3,999 $4,000-4,999 $7,000+ Don t know $5,000-5,999 $6,000-6,999 AVERAGE COST OF INVENTORY PARTS KEPT IN SERVICE VEHICLES When deciding what parts to stock on vehicles, most suppliers can give you a parts usage report to let you know the quantities of every part you have purchased from them. Use these reports to help identify your commonly used parts and, as a guide, select the parts that turn a minimum of 4 to 6 times per year. Always use universal parts when possible, and don't forget to take note and consider which parts may become obsolete. - Gary Elekes, EGIA Contractor University Faculty Member