Service Companies and Inventory Management: It's More Important Than You May Think.
I once consulted for a medium-sized service company that did not have an inventory management program in place. When asked how they tracked supplies from supplier to customer, the answer I received was one that I have heard many times. They stated that each vehicle was to maintain a certain amount of stock; the proverbial warehouse on wheels. When an item is used, it is charged to the project and the vehicle was restocked weekly. When questioned how they managed excess inventory or broken or "misplaced" items, the company felt that the mark-up on each item was sufficient to offset these costs. So to recap, this company was satisfied with lowering their profit ratio to atone for overstock or supplies that ended up in the trash. This company had fourteen service vehicles and eight installation vehicles. Let's do the math. We will use this company's historical figures for stocking each vehicle, calculate an average (mean) and round those numbers by nearest hundred. We can then estimate that each service vehicle holds about $2,700 in stocked items and company tools and each installation vehicle houses about $4,200 in stocked supplies and tools. That would be $71,400 in total vehicle inventory. This is not a significant amount of money for a company that generates millions per year in revenues, but this figure does not include unused, overstocked or warehoused supplies. This also does not include loss (broken or misplaced supplies). You may be thinking that if each vehicle maintains a certain amount of inventory, where does the overstock notion come from? The concept of a stock/restock program is not an exact science. The same holds true when it comes to each employee managing the supplies for their vehicle. Each technician and mechanic in a service company has their own ideas in what supplies they need to complete a project. This comes from previous work experiences. Even if the company provides a strict list of what supplies that need to be on each vehicle, the overstock of certain items seems to find their way on each individual vehicle. When I was a manager, I once inventoried a service vehicle with over three hundred, 3/4 inch, PVC fittings. That tech was determined not to run out of fittings! Back to this company. After a manual inventory was performed on their vehicles and warehouse, and a cost analysis was calculated, they had $47,800 in overstocked supplies and tools. Add this to the base vehicle inventory costs of $71,400, they were managing $119,200 in total inventory. With a customized inventory management program, they reduced their inventory by 38% in the first year and kept it at a manageable and cost-effective rate. Their program also assisted with "bulk" buying and distribution of more commonly used items which was an added savings. This is just an example. Each company is structured differently. Inventory management programs are not just for inventory control. It can be used for forecasting the buying of supplies, price and supplier comparisons, controlling volume assets (i.e. tools and accessories) and so much more. I will say if your organization does not have an inventory management program in place, you won't realize what you could be saving. There are many software programs structured for businesses of all types and sizes. To those who say their manual program does the job, I say, "If it works...". For those who are growing (or want to), I would suggest getting on board now before your bottom-line forces you to do so.