By now a number of suppliers are beginning their annual “Spring Buy” routine. Their job is to lock up customers and move a large amount of inventory to please their corporate masters. Typically offering some extra discount and extended payment terms, they seek to serve themselves; not their customers. Bulk order programs are bad news for contractors. Here’s why:
Contractors are Not Inventory Managers
Contractors are masters at marshaling men, machines, and materials to sell and install jobs. Inventory management shouldn’t be a part of their job. It’s just one more thing to worry about. Most contractors do not maintain an inventory management system. They rely instead on observation. When the pile of stuff has disappeared it’s time to order more.
Generally, contractors will “lose” about 15% to 20% due to shrinkage, mismanagement, and obsolescence. So that extra discount better be at least that to break even. And why take all this risk just to break even?
Inventory Management is Our World
We have over $600,000 invested into our ERP system to manage inventory. And on top of that we have a whole lot of procedures to predict, order, move, and bill our stock investment.
By purchasing bulk orders of product, contractors assume the role and duties of a distributor. Now they accept the risk of stock prediction, inventory shrinkage, and obsolescence. In other words, you invest a certain amount of money into stock. But, you only get to invoice your customers for part of it.
Why Invest Cash Into Stock?
Managing a contracting business involves guiding a stream of cash in and out. A very fluid situation. We all know customers, especially commercial, will be a serious drag on cash flow. But the bills never stop.
Tying up cash into bulk stock means it’s not available to make payroll, pay your vendors, or add equipment and people. Why do this? Especially when you don’t have to. The bottom line is, stock orders usually cost money.
“But we get terms,” some might say. This still leaves a large chunk added to liabilities. That lowers the balance sheet ratios. Bankers don’t like that. If the need arises for a loan, lines of credit, or surety bonds, balance sheet strength is crucial. And one day the debt will come due. The contractor will have to pay the bill for that bulk stock. That means a plan to have the cash ready so the checks clear.
The Simple Solution
There are better ways! Consider one called “Vendor Managed Inventory” or VMI. Much of what contractors need for service and installations can be handled with a VMI. In short, Wolf Creek stock is stored at the contractor’s location and managed by us. This removes the contractor from the inventory management business. And, it helps guarantee instant access to what techs and installers need when they need it. The contractor only pays for what they use after they’ve used it.
We have other tools to help reduce your investment of time and money into inventory. These include our eStore and delivery service.
Let’s talk before you invest in the inventory business. Even if you have “plenty of cash” I’d rather see you invest it into more equipment and people to grow your business! Or, maybe even the stock market. Both will give you a better return on investment than any “spring buy” program would. Inventory in advance is a guaranteed loser.
-Scott Knowles, President
