Stock What You Need to Succeed

Smart inventory control will help you save money and boost profits.

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If you think of your plumbing business more as providing a service than selling products to customers, you might not think about inventory very much. After all, that’s really an issue for retail stores — isn’t it?

Think again. Whatever service you provide — plumbing system installation, emergency service, cleaning out clogged drains — you still have inventory to consider. A lot of your business will involve repairs of some kind, which means you have to stock spare parts. And then there are the tools of your trade — another sort of inventory you need to manage properly.

Too little inventory can hurt you, too. Suppose you’re unclogging a drain and discover a previously undetected leak demanding new fittings. Do you really want your customer to have to wait an extra day until you get those fittings? Not if you want to get called the next time.

Staying on top of inventory is critical to keeping your business healthy and your profits up. And it’s the same kind of problem Goldilocks had when she visited the empty home of those three bears. You want to avoid the extremes — not too much, not too little — and figure out what is just right.
 

The basics

Ted Angelo is the executive vice president at Grunau Co., a large mechanical contractor based in the Milwaukee suburb of Oak Creek, that does business across the country.

“We’re unconventional when it comes to inventory,” Angelo says. 

Remember the 80-20 rule. That old formula fits your inventory supply just as it does so many other aspects of your business: Roughly 80 percent of what you do probably entails a pretty small selection of components. Angelo calls those the “bread-and-butter items” for the business, and Grunau maintains a master list of those. They are about 80 percent of what the company keeps in stock.

Keep a 30-day supply. For those bread-and-butter components, like 3/4-inch copper couplings and elbows, count how many you’ve used in the last year, then keep enough to last you 30 days. Set a trigger point for stocking up; don’t wait until you’re all out before you reorder.

But also, be sure that whoever is responsible for maintaining your supply isn’t replenishing it two or three times a month, which means wasted time.

And if your employees have specialized tasks — one plumber focuses on repair work while another installs new water heaters and furnaces — you may find that those regular items are quite different. Make sure you take those kinds of differences into account.

Don’t use it all up at once. When a big job comes along that will demand all, or even a significant portion, of your 30-day inventory of your 3/4-inch fittings, don’t take them out of your regular inventory. “On that particular occasion, we’ll get a whole box to use on that job,” Angelo says. “We don’t want to use up our inventory on one job.” That way workers don’t run short on one of those high-demand items when they respond to routine customer needs.
 

The lean difference

Those are some pretty straightforward principles for managing inventory, however large or small your business. But what about the products you only use 20 percent of the time?

That can be where the biggest problem arises. Do you keep 20 water heaters around, taking up space in your warehouse when you only install one or two per month?  

Grunau doesn’t do that anymore, says Angelo. And that’s where the company’s unconventional approach comes in.

The company has been pioneering the use of “lean” techniques in construction for several years. Lean is all about getting waste and inefficiency out of the system. It’s been the byword for manufacturing for more than a decade now, but it’s still a new concept in industries like plumbing. 

Part of thinking lean is rethinking inventory.

How do you do that? Here are some of the ideas that Grunau has put in place.

No warehouse. The bread-and-butter components are stocked right on the company’s service trucks, Angelo says. Those other products used only 20 percent of the time aren’t stocked. For the most part, they remain with Grunau’s suppliers. Instead of wasting space storing them, cash buying them in advance and gas hauling them around, the company waits until it needs those components to buy them.

To make that work, suppliers must be able to meet your needs at a moment’s notice. Grunau has made sure every supplier can fulfill that expectation and has lined up a diverse pool of suppliers to minimize the risk of lost time when a component is needed.

Another important factor is to make sure that the stock on the truck is easy to find. “I stress to our people over and over again, if the technician or his helper can’t go into his van and find something in 30 seconds, he hasn’t labeled it properly,” Angelo says. Regular audits check to make sure the techs keep that standard.

Grunau also decided to eliminate the annual count because taking days and days to count up every valve and fitting was a waste of time and money.

Along with that, the company instituted another practice: Push responsibility down. Every service technician is assigned a truck and is responsible for keeping it adequately supplied with those bread-and-butter items. At the beginning of the year, drivers stock up, and they restock as needed, going directly to the supplier — remember, there’s no inventory in the shop. That way, there’s no time, energy or manpower spent double handling materials, Angelo says.

Sure, that means trusting the employees. It means being flexible — allowing the employee to exercise some freedom in exactly how much of an item will be kept on hand. But along with trusting, the company also verifies, conducting periodic audits to make sure technicians are using up stock at an appropriate rate.
 

Be brave

You can learn more about Grunau’s lean strategies — which, although focused on construction, can be applied in a variety of similar contracting businesses — by visiting the company’s website devoted to the topic: www.grunau.com/lean-construction.php.

Some of these ideas may scare you. You should know that the company didn’t get to where it is today overnight; instead it took things step by step, with a lot of trial and error.

But if inventory problems are costing you money — or costing you customers — it is almost certainly time to do something about it.

Getting inventory management wrong will cost you. Getting it right is money in the bank, and in your pocket.



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