Like generations of Yankee tinkerers before him, Steve Johnson of Mahoney's Building Supply experiments constantly. "I am in favor of doing things differently, sometimes just for the sake of seeing what will happen," the COO of the Mattapoisett, Mass.? based company says. Lately, those experiments have focused on something that Johnson believes dealers don't know anywhere near as well as they should–namely, the state of their inventories.
"Inventory purchases equate to 75% of a dealer's sales volume," he says. "If there's going to be a loss, I want to know where it came from. ... It should come as no surprise that you can't be an expert on something that you check just once a year."
Thus the tinkering. One of his first moves in this area was to order staff to count every stick of every load of framing lumber that arrived at the yard. He discovered that, on average, each delivery was missing two sticks.
Another experiment took place at the yard's exit gate, where Johnson stationed a person to scrutinize what was being taken out–particularly on pickup truck?sized loads where the customer helped find the goods–and compare it with the buyer's invoice. In a disturbing number of cases, Johnson's inspectors found that customers were leaving with a few more sticks or millwork pieces than they actually had purchased.
Financially, the losses aren't huge, totaling only about $500 a month for the short stacks of lumber and $1,000 a month for the extra pieces being taken out of the yard. But to Johnson, the experiments' greater value is that they helped him better understand how his inventory ebbs and flows as well as helped identify areas in the yard where operations could be improved. In a low-margin business like LBM, every little achievement in efficiency can boost the bottom line, he points out.
At many other lumberyards across the nation, it's still common to close down once a year to do an inventory, even though the process can cost up to a week's worth of business and studies indicate workers get into trouble hand-counting stuff when the pile tops 30 items. There's also the surprise of uncovering materials purchased long ago that never were sold. That was the case at Eberhard Lumber in New Braunfels, Texas, where employees discovered molding that took up space for as long as five years. One independent yard in Florida turned up a special exterior front door that had been hidden for 10 years.
Business inventory experts typically will argue that it's important to track inventory closely because doing so makes it easier to avoid overbuying. "Informed data analysis makes for a better business," says Marilyn M. Helms, a professor of management at Dalton State College in Georgia. "I'll bet Home Depot and Lowe's know how many 2x4s they have in stock." But LBM executives and the vendors who serve them stress that being able to count, control, and manage inventory also helps a dealer learn how to manage operations more efficiently and, ultimately, at lower cost. Jerry Ritz, general manager of Westwood, N.J.?based Auto-Stak, argues that if handling and storage in a manufacturing operation account for 50% of the product's final cost, a yard that can cut 10% off its inventory management costs will drop half of that amount directly to the bottom line.
Here, then, are some ideas you should consider for organizing and managing your inventory.
