Over the past rainy weekend, Lynn and I started cleaning out our basement storage area. My goodness, what a collection of stuff we haven't used in years. There was an aquarium which I cannot remember the last time we had tropical fish. There was a box of golf balls that have to be at least 5 to 10 years old. I'm sure they have lost their elasticity. Perhaps I'll pass them on to opponents in our weekly golf outing. We found a lot more stuff like this that needs another home other than the Bergstrom's.
Just about every shop I have been in has a corner, a shelf, an area with stuff that has not been used in 5 or more years. Hubbed cast iron fittings, DWV copper fittings, galvanized reducing tees, street els, and much more hiding in the backroom. HVAC contractors with old circuit boards that have been replaced with updated versions, odd motors, OEM parts that are not used any longer. Electricians with outdated switches, panels and light fixtures that are not used any longer. In all of these shops, I see parts not used on a job, but not returned to the suppliers even if they were not special ordered. It is like throwing money away.
Prompt return of unused parts that cannot be turned over in less than 60 days would reduce payables and help cash flow without a substantial change in the business. It would just require a few minutes a week by someone in your company to process these parts and send them back. Even with a stiff restocking fee it is far better to return these parts than to keep them in stock.
Those parts that have sat in your inventory for years and not used need to be sold off, scraped, or just thrown out. You may find space in your warehouse that could be used for parking a truck inside, or better yet perhaps you could rent some of that gained space and get income. A good rule of thumb is you should not stock parts that you can't turnover in 60 days or less. Some suppliers will give you a discount for a large order but if it is more than 60 days of stock I would recommend you not buy. Work with that supplier to provide the stock you need when you need it and set discounts on the inventory you buy from them on a long term basis. Every item in your warehouse should have a min-max quantity set based on 60 days or less stock.
There is a trend in the industry of suppliers providing next day restocking for trucks and warehouses reducing the 60 day inventory down to a week inventory quantity. Having cash available and not tied up in "stuff" will make you money and allow you to take advantage of opportunities when they come available. I believe many contractors could work out of a smaller warehouse area thus reducing rent, utilities, taxes, and maintenance.
Monday, August 24, 2009
Tuesday, August 18, 2009
As I have had contact with various HVAC contractors in the last two weeks, I have have two completely different reations to the business climate in the metro Detroit area. Some are very busy selling replacement air conditioning units and furnaces in the middle of August. They are selling high efficiency equipment and are not selling it at cost. They are selling it for a profit! The suppliers are telling them they are the only ones selling high efficiency equipment. They are getting the maximum support the supplier can give them to help them to continue to sell. Others are telling me that there is no business out there and sure enough for them there is no business out there. They are telling me the prices are too low, no one is buying, things are so tough! They owe their suppliers and other vendors because they have zero cash flow. So I asked myself what the difference is between those selling, saying yes, and those not selling, saying no. Looking onto the reasons I find two main points that differentiate these contractors. Those who are selling have said, "There is business out there and we are going to find it." They are marketing and putting the energy into their businesses. They are not waiting for the phones to ring, they are using the Internet to market, they are selling maintenance agreements, they are training their techs to look for add on sales and opportunities for replacements. The others are waiting for the phone to ring, they have cut back on marketing, they are not selling maintenance agreements, they are not using the Internet effectively, they are looking back on how it used to be. Change is hard but tough times require that we evaluate our businesses and make the big step of change.