Take Charge of Your Inventory

Having the right amount of supplies on hand can make a difference in your company’s bottom line

Remember the day last summer when your portable sanitation company came dangerously close to running out of toilet paper? Or maybe that time you doubled your usual order on deodorizing chemicals to get a “deal” and then you couldn’t walk through your warehouse without bumping into a 55-gallon drum?

Inventory control is a tricky challenge.

A LITTLE STOCK

Keeping a low inventory of supplies has advantages. You don’t need much storage space and you can quickly and easily change products without having to “use up” a large quantity of something that no longer meets your needs.

Of course, you risk running out of stock if there’s a hitch in the system. You have little room for negotiating with suppliers about price or delivery if you’re in an emergency situation. Do you really want your drivers to have to stop at a convenience store to buy paper towels on the way to a jobsite?

To avoid situations where you end up buying emergency inventory at high prices (like paper towels from the convenience store) build a safety margin into basic inventory figures, even if your goal is to keep the amount of supplies in storage relatively low. To figure out the right safety margin for your business, try to think of all the outside factors that could contribute to delays, such as suppliers who tend to be late, problems with goods being shipped from overseas, a large job that comes up with a short lead time, etc. If you’ve been in business for a while you should have a feel for delivery times and be able to calculate your safety margin.

A LOT OF STOCK

Too much inventory can be almost as expensive as too little. Excess inventory costs money in extra overhead and even debt service on loans if money was borrowed to purchase the inventory. Buying excess inventory also reduces the liquidity of your business.

Keeping lots of supplies in stock increases your storage and insurance costs. You may save money buying in bulk, but more of your capital is tied up. You have the security of knowing you’ll never run out of something, but if you find a product you like better or one that costs less, you have to use up the old supply first, and that could take months.

Having a huge inventory might suit your company if business fluctuates a lot, making it difficult to predict how much stock you need and when. It may also make sense if you can store plenty of stock cheaply, and the products you buy are unlikely to change much in price or quality.

KEEP IT UNDER CONTROL

If a company does not pay close attention to purchasing, its cost of doing business can go up, because as operating expenses increase, profit margins shrink. The choice then is to either accept lower profits or raise prices, and neither of these is appealing.

Controlling costs can help a company keep prices at competitive levels and maintain a desirable profit.

To keep costs under control, large businesses often have highly streamlined purchasing systems utilizing specialized computer software for both inventorying product and ordering. Small business may rely on a paper checklist and a clipboard, or simply the memory of the owner, as several PROs revealed in this month’s “Think Tank” column. Is your system as effective as it could be?

WHO’S JOB IS IT ANYWAY?

There is more to purchasing than just placing orders, and large company or small, it helps to have one person delegated to the task. Otherwise, multiple orders could be placed unnecessarily or everyone could assume someone else ordered, when, in fact, no one did. Even if it’s only a small portion of their job duties, appoint one person in the company (or appoint yourself) as “purchasing manager” and let everyone know that any requisitions must go through that person. All inquiries from current or potential vendors should be directed to the purchasing manager.

Your designated purchasing manager should keep track of inventory and be informed of any changes in supply needs. He or she should also regularly take the time to contact a number of suppliers and compare prices and delivery options. This can be done by talking with suppliers at tradeshows like the Pumper & Cleaner Environmental Expo, by contacting suppliers directly, or checking out their Web sites. Trade publications like PRO are good sources of information. Your purchasing manager may want to look into joining a buying group to benefit from the purchasing power of a large group.

A good purchasing manager will ask vendors if they offer discounts for buying in volume or for paying the entire invoice within a specified amount of time. Your company might get a significant discount for buying all supplies from the same vendor. But keep in contact with other vendors too, so if the primary supplier fails to ship your order on time or has to suspend operation because of a natural disaster, there is another vendor waiting in the wings ready to fill the order.

In these turbulent economic times, when every dollar gained or lost is crucial, looking at how your business handles purchasing and inventory can mean the difference between profit and loss. And by taking control of your inventory, you’ll never be caught without a “square to spare” again.



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