Lumber and building materials dealers are employing a range of strategies, from yard management policies to the latest high-tech gadgetry, to put a lid on inventory losses. Their efforts are especially important today; while the problem of theft is as old as time, dishonest employees, sleazy customers, and hardened criminals are more aggressive than ever.

One dealer slashed inventory shrinkage in part by applying multiple levels of review for every lumber order leaving its yard. Hancock Lumber Co., a $130 million operation in Casco, Maine, lost 0.9% of retail sales to shrinkage and cutbacks in 2006, and cut that figure to 0.47% of sales in 2007, says Glen Albee, CFO at Hancock. Controls in the yard include managing the flow of traffic for vehicles picking up building materials and ensuring both employees and customers have proper documentation as orders are filled.

"In order for an employee to pick up and move or load goods and materials, they need an order to do so, either a customer order or a transfer order from store to store," Albee says, adding the company now requires two signoffs as loads are being built for delivery on Hancock's trucks. "Receiving and warehouse crews are the key to inventory control, and they did a great job for Hancock in 2007."

In the absence of adequate controls, losses can be steep. Ply Mart of Norcross, Ga., found a pair of employees were stealing roughly $170,000 worth of wood over the course of a year, says Bill Hofius, senior vice president at the $280 million, 27-location dealer.

In a typical scenario, a customer may pay for 20 pieces of plywood, give an employee $5 and take 25 sheets instead. Examples like these help explain why dealers are becoming more diligent in controlling the flow of goods on their properties.

Do It Best Corp.'s Signature Design Program includes a lumberyard design with a delivery entrance that's separate from the customer entrance for better security and efficiency. It also includes a security guard check area at the yard entrance and exit.

Vehicles themselves provide an opportunity for dishonest employees. They might take lumber or some other product home or enjoy a leisurely, less-than-productive day at the wheel of their employer's truck. Dealers are on to those employees, too. Increasingly, they're putting Global Positioning Systems (GPS) in trucks to monitor the whereabouts and even the productivity of drivers.

"Customers are telling me fewer products are disappearing because they know where their vehicles are," says Randy Zellis, assistant vice president, technical services at Lumbermens Mutual Insurance Co. "A driver might only be involved in three deliveries a day, but with GPS units on the trucks, they may do five deliveries a day because the drivers know somebody is tracking where they are and what they're doing."

Despite their value, GPS systems aren't pricey. Zellis estimates they cost $600 to $1,000 per vehicle to install, plus a monthly monitoring fee of just $3 to $5 per unit.

Some very aggressive criminals have also inflicted big losses. Ply Mart, for instance, was hit last year by thieves coming into Ply Mart yards, hot-wiring forklifts, using them to load goods into trucks, hot-wiring the trucks, speeding off and quickly unloading the trucks before law enforcement could respond. Since Ply Mart is self-insured, it absorbed all losses related to this activity, which has since stopped.

Ply Mart is trying several approaches to combat theft: more video surveillance and security cameras, motion-sensor alarms, and rotating staff so that opportunities for internal abuse are limited.

There's an emerging class of security products that could prove helpful to dealers. Wireless sensors that can attach directly to valuable merchandise–power tools, lumber, even appliances on home-construction sites–can communicate back to security systems in lumberyards, on construction sites, or in an office. Companies offering such systems include and DeWalt Security.

While these products are used today on construction sites and in other commercial applications, neither company was able to supply the name of an LBM dealer using their systems. Opportunity knocks among those dealers looking to make their businesses more secure.

–Tom Smith