How suppliers can help contractors reduce their warehouses.



[Editor’s note: An edited version of this column originally ran in the March 2012 issue of Plumbing & Mechanical (Supply House Times’ sister publication), which has an audience of plumbing, piping and hydronic heating contractors.]

For years, I’ve traveled around this country working with contractors. One common mistake I see is they think they can manage their in-house warehouse and save money. Worse yet, many of these shops look more like they’re in the supply house business rather than the contracting business.

By far, all those who have listened and taken the proper steps to get out of the warehouse business have found they can save money and time by minimizing things such as shrinkage (a fancy word for theft). The key was to exit the warehouse business by letting professional suppliers run their warehouse for them.

I don’t get any commission from suppliers for making this recommendation nor do I recommend any one vendor. But I do recommend contractors find a primary vendor and test these 13 steps themselves.

1. Place an orange sticker on a box or item. Observe how long the item takes to sell by coming back every three months and putting another orange sticker on it. If it keeps accumulating stickers, it’s time to reduce the quantity or get rid of it all together. This first step is very telling and a key to knowing what is and isn’t moving.

2. Ask suppliers to provide a list of items bought for the year. Typically, supply houses have computerized records that will make this very doable.

3. Create a basic truck stocking list. A warehouse can’t stay properly stocked - not overstocked or understocked - if guys are constantly riding around without sufficient parts on their trucks. The list works best when contractors provide minimums and maximums for each item in the truck. If they don’t, their techs are forced to waste time and money either taking stock from your inventory or heading to supply houses.

The goal for a good truck stock list is to have each truck carry about 80% of what techs need 80% of the time. This can be adjusted seasonally with a heating and cooling business.

4. Put up a fence or gate with access limited to only one or two key managers. It’s impossible to keep the right stocking levels if every tech can pull what he wants from the shelves.

5. Build a Power Tool Center within the confines of the now-smaller warehouse. Have employees sign them in and out. Better yet, test the tool going out and when it comes back to spot issues. It’s no fun to drive an hour and find out the chopping hammer has no bits in the case!

6. Review materials lists. Once contractors find the rhythm of purchasing materials, they need to review what they are buying from all their suppliers. They can look for ways to combine purchases to have greater buying power.

7. Set up interviews with two or three suppliers who will compete to become the “primary supplier.” The right supplier has the ability to partner with contractors when it comes to maximizing their warehouse shelving and bins. The supplier also can help move out old stock and set the minimum and maximum stocking levels based on buying habits.

8. Place anything, such as wire nuts into small baggies that can be sealed and hang them on a peg board. It’s much easier for contractors to see what they have and don’t have this way.

9. Set up a “model” truck inside the warehouse. The model truck’s shelving should be an exact duplicate of the shelving in the warehouse. Contractors should pull the inventory from these shelves and restock them to the minimum and maximum levels. Apprentices quickly learn where the material is on the trucks if they help in parts distribution. Also, contractors can pull the stock quickly from these shelves and outfit a new truck.

When contractors engage in the “exit the warehouse” strategy, their warehouse is more for emergency restocking than day-to-day restocking.

10. Create a shelving area where all materials coming back from a jobsite are placed daily, if possible. They are then returned to the primary supplier instead of constantly piling materials into existing warehouse inventory, which throws maximums and minimums out of whack.

11. End verbal orders with vendors whenever possible. Instead, email or fax orders to reduce errors.

12. Work with your vendors to make sure all material pickups are to company employees in uniform and with a purchase order that is generated and tracked in the company’s back-office computer system.

13. After meeting and selecting a primary supplier - two primary suppliers if it’s not doable with just one - contractors should send a letter confirming what they want and what they promise to do. A sample is below:

[Company letterhead]
[Date]
Dear [Supplier contact name]:

I want to thank-you for taking the time to meet with me about our new approach to both our in-house and truck stock needs. Our approach will be to partner with [pick “one” or “two” here] key suppliers. Each will help us exit the “warehouse business” and allow us to focus our energy on the plumbing business.

I’m sure you’ll agree this decision is beneficial to both you and me. To ensure that you know what I’m expecting from you and what you can expect from me, I’ve written a guideline of how this will work. This isn’t meant to be a legally binding agreement but rather the framework for helping each of us understand what to expect from one another. You or I may cancel this arrangement at any time and for any reason with no further obligations.

What we want from you:

  • We want to reduce the current overstock and turn it into [credit? cash?] that we’ll use toward future material purchases.

  • We want to work with you to set both a minimum and a maximum stocking level for each item we’ll continue to keep in our in-house inventory.

  • We want to agree on a quick and reliable method that uses a purchase order to restock the trucks based on what was used the previous day. You will box those materials individually so the tech can easily pick up his materials the next day at our shop and replenish his truck stock quickly.

  • We want your help in applying the technology you are using in your own warehouse, such as bar-code scanning, to ensure that we’re accurately tracking our in-house inventory levels.

  • We want you to agree that to get your invoices paid, you will require and obtain a purchase order from us for all deliveries and pickup orders. And when a tech picks up parts, he must be in uniform and show his current ID tag.

  • We may possibly require weekend and after-hours access. Could we possibly arrange access codes and a key arrangement for this purpose? Or can we contact someone from your company who will come in and open up for us after-hours?

  • We want to leverage our buying potential to gain economies of scale that will lower our current pricing matrix.


  • What we promise you:

  • We will limit the purchases of our material orders to two key suppliers.

  • We will fax restocking requests to you by 4 p.m.

  • We will pay our monthly invoices by the [10th of the month as an example or some other agreed-upon terms] of each month.

    Warm regards,
    __________________
    Date_________________

    [Your name]
    [Company name]

    Please date and sign below to assure you understand what we expect:

    _______________________ 
    Date_________________

    [Supplier name]

    Contractors should get back to the business of contracting and leave the warehouse business to the pros.


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