In previous columns we have discussed workload management and estimating as “hard” basics in the plumbing/mechanical subcontracting business. Inventory control is another area that can either make your company more streamlined and profitable, or bleed it. Over the years I've had the experience of watching plumbing shops close their doors. It was amazing to see what these shops kept in inventory and the dollar value of it. In some cases, the value of the inventory, if kept in cash, could have saved the company.
What type of inventory?
Most jobbing or service shops must keep a fresh parts inventory on hand, especially if they provide 24/7 service, and even more so if they service rural areas. The variations of exactly what and how much a shop keeps on hand are hard to calculate. Companies whose work is geared more to tract, apartments and custom residential contracting would generally keep larger quantities of material on hand as their needs dictated. A company which works in the commercial/industrial realm might stock their jobs, but not keep a yard for inventory on hand.
Whichever type of shop or combination you run, keeping a handle on your inventory is critical. If you are at all computer literate or have someone on your payroll that is, you can use programs such as Microsoft Office to create your own, customized inventory control program, or you can purchase one, from basic to elaborate that fits your needs. It is not really difficult, and it really does pay to have such a control in place, especially today. As with estimating, the effort put in at the front end will save a lot down the road.
What do you do with it?
Holding inventory only makes sense if you use it. Having a stock of faucet repair parts for a product that is obsolete, which you have repaired once or twice in the past several years and which is uncommon to begin with makes absolutely no sense. Better to sell the customer a new faucet than to hold on to stale stock. The same holds true for large ticket items such as water closets, lavatories and bathtubs. Those items can be easily purchased from your supply house as needed. It is a rare occasion that you would need a fixture on an emergency basis.
More common is the commercial guy who keeps moving overstock from one project to another. When you figure the cost, in manpower alone, of relocating a decent quantity of material across town or even across the street, it's just not worth it. Send it back to your supplier, take the credit and move on.
Another variation is to squirrel away overstock or over ordered materials for that rainy day job where, since the material has already been paid for on the previous project, you can give it away to buy a job in a tight bidding situation. Think about that for a minute — you've paid your hard earned dollars for materials that you didn't use on a project whose profit margin might have been greater if you had controlled your material purchases better. So now you are going to take that wasted money and give it away to buy a job where chances are you'll end up doing the same thing. Do you see anything wrong with that picture? That is a bad way to do business and, frankly, does not bode well for the long term health of the company.
What do we have, where is it?
Buying and keeping inventory without a clear plan for its use is like shooting craps; you're betting on the come line. Sometimes you roll the numbers, but most times you lose your bet. It is a far better plan to keep a tight rein on your stock material. Use your estimate to order your material. Check to see if you've estimated correctly. If not, why not? Make sure that the materials you ordered have been installed correctly and make mid-course corrections to prevent ordering too much. Make sure to return overstock to the supplier as soon as possible!
If you stock for a service shop, keep your inventory fresh. By using some type of control program you will know which items you sell the most of and which will gather dust. Also keep your eyes on employee pilfering. It happens, so making your employees aware that you are aware of the materials purchased and how they are used will keep your losses to a minimum.
Make sure to utilize your supply house. They are in the business of keeping inventory. Work with them to keep stock on hand for you, readily available, but not in your shop or on site. For commercial and large scale residential work, you can order an entire project's worth of material (from your estimate sheet) and have the supplier set it out in bulk, ready for delivery as the work progresses. Most supply houses will gladly work with you if they can be assured you will purchase the materials from them. They have the trucks, the teamsters and the stock on hand. Why wouldn't you use their services?
The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].
Read more articles by Al Schwartz