Construction Today

Taking Inventory

Inventory management is a difficult balancing act that contractors must master if they don’t want to waste money or fall behind on projects.

By Wolffe Bagby

Inventory is a major expense for construction companies, which is why a sound inventory control plan is essential. It sounds easy enough, but it isn’t always. On the one hand, the goal is to keep onsite inventory as low as possible without running out of any items. Too much inventory translates into wasted dollars from damage, pilfering and theft. On the other hand, when there is too little inventory, often there is not enough to keep workers busy. Or worse yet, without the right materials on the job site, the project can fall behind. This is why a thorough knowledge and understanding of the specific requirements for every job represent a balancing act for the individuals involved with and responsible for inventory management.

Not Enough Inventory
Determining inventory needs requires daily communication between job site staff and inventory management staff. When the onsite superintendent schedules project tasks for the construction crew to work on, he or she assumes that needed inventory will be available. If the individuals responsible for inventory order the incorrect merchandise for a job, order late or the merchandise is delayed, the project stalls. This can have a significant impact on more than just the construction crew.

Furthermore, additional bottlenecks can occur if needed inventory is not available onsite. For example, if the electrical staff cannot work without the proper electrical equipment, this will result in a scheduling delay for the HVAC staff. And, it’s not cost-effective to arrange for the plumbing staff to work a job when only half of the plumbing fixtures have been delivered. To reduce or eliminate this problem, confirm the project and inventory staffs are discussing project inventory needs on an ongoing basis.

Working with Vendors
Due to the complexity of construction, inventory management staff works and negotiates with a variety of vendors to provide the needed supplies for each specific project. Yet, there are many aspects to balancing these relationships.

The first is the number of vendors needed for each item based on availability. For example, one vendor normally provides the wood for the projects, but a client requests a specific wood not carried by the usual vendor, causing the contractor to contact another vendor. Or, there may be product shortages with vendors resulting in using more than one vendor to fulfill project demands.

A second issue involves working with out-of-state vendors with different delivery or shipment policies than local ve n d o rs, possibly resulting in project delays. To complicate matters, when there are multiple vendors involved, there are varying delivery schedules to coordinate. It may take numerous phone calls and contacts to ensure on-time delivery of the correct materials.

Quality vs. Price
A major concern with inventory management is weighing the quality of the products vs. the price of the products. Purchasing inventory purely based on price may end up costing a company more money in the long run due to using an inferior product. Consider these questions:

• How does the quality of the item relate to the cost of the item?
• Has an alternative, less-expensive product been used reliably in the past?
• What is the goal of this construction project? Is it an office building with stringent specifications or a residential building with flexibility? Is the project in an earthquake or other natural disaster area?
• Can this inventory be delivered in a timely basis? A less-expensive product may in fact be more expensive if it takes too long to arrive or has high shipping costs associated with it.

There is no right answer to the price vs. quality question. Researching both the products and vendors assists companies in making informed decisions.

On-Time Delivery
Typically after products are ordered, inventory personnel wait until just before the delivery date to contact the vendor to see whether the expected delivery will arrive on time. That’s when they find out whether there is a problem the vendor failed to disclose.

Avoid this scenario by becoming proactive. Follow up with vendors frequently to verify inventory items will be delivered as scheduled. Additionally, if the vendor continuously fails to meet delivery obligations, then it’s time to interview alternate vendors who can deliver the products within the established timeframes. Construction companies cannot afford to miss deadlines.

Inventory Control
Controlling inventory reduces losses from theft, scrap and jobsite damage. This cost savings is vital to profitability. Here’s where project-scheduling software can be a real asset for inventory management staff. Any good program will help automate and manage inventory, coordinate delivery schedules and set reminders for vendor follow-up calls.

Gantt charts also assist with inventory control. These charts graphically display tasks to be completed on specific dates and are useful for planning and scheduling project inventory needs and timelines. Just as delayed inventory impacts construction schedules, inventory delivered before it is needed on the job site costs companies money. Organize delivery schedules so the inventory is delivered on a just-in-time basis.

Many companies just don’t keep track of their inventory. Without an inventory management plan, inventory might be delivered and then promptly forgotten. When this happens, excess inventory is likely to build up. Then, in addition to products becoming obsolete, the resulting over-stock can mean much higher costs to the company.

Additionally, damaged or unusable inventory is discarded, another source of increased costs. Determine whether the damage was due to lack of adequate storage space, being stored improperly or arriving damaged from the vendor. Then the organization will know where to make changes by working with the vendor to provide damage-free merchandise or to train employees to handle inventory cautiously.

The key to controlling inventory is balancing the onsite project needs with the vendor delivery particulars. Clear communication channels among inventory personnel, project supervisors and vendors allow the workflow to proceed on schedule.

Hold inventory management employees accountable by setting high expectations. Software programs alone won’t solve all problems. Recognizing the challenges and inaccuracies associated with managing inventory allows companies to more effectively control costs both in-house and on the job site.

Wolffe Bagby is a project manager with IPA. IPA and its combined family of consulting firms provide comprehensive business consulting, tax planning and business valuation services to companies in the United States and Canada. For more information, call 847-495-6786 or visit www.ipa-iba.com.