The Best Inventory Is No Inventory

Is Your Warehouse Working For You?
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The best way to manage inventory is not to have inventory!

It’s complicated to track, incurs carrying costs related to payroll and square footage, ties up cash, and usually becomes a distraction. But fear not, as we unwrap the details on why the best home service workshop inventory is having none at all.

I have never met a home service company that handles inventory well. The reality is: we are not in the inventory business. We are in the sales and marketing business, and inventory is a facet of that.

When I was reflecting on this problem a few months ago, I kept coming back to the framework: If I ran the literal best Plumbing, HVAC, and Electrical warehouse in the US, it would barely move the needle for my business.

It would reduce some costs but it wouldn’t grow my business.

I'm a big believer in outsourcing the important, but non-needle moving aspects of our business while fully insourcing and controlling the needle moving.

Insourcing marketing, recruitment, and sales is the only way to move the needle, and delegating these to outside firms is a huge mistake.

Outsourcing the warehouse is a great example. It's important and needs to be done right, but at this point in our business, it is not important enough to make a core competency.

As we moved our businesses into one singular location, we began searching for a Vendor Managed Inventory solution.

There are three types of solutions:

  1. VMI - stocked
  2. Consignment
  3. VMI - staffed

1. VMI - stocked

This entry-level VMI involves a vendor assisting in creating a stock list, printing barcodes, setting minimum and maximum levels, and restocking shelves weekly or more frequently. However, once the inventory is on your shelves, you own it, thus incurring carrying costs.

Pros:

  • Assisted inventory management
  • Regular restocking
  • Improved organization
  • Feasible for small setups with minimal risk for the vendor

Cons:

  • You're still required to purchase the inventory
  • Possibility of overstocking by the vendor due to their interests

2. Consignment

Here, the vendor places goods on your property while retaining ownership, usually ideal for serialized products. This method works well for high-value products like furnaces, water heaters, generators, and boilers, providing immediate access without direct purchases.

Pros:

  • Constant availability without upfront purchases
  • Effective for expensive products

Cons:

  • Typically limited to large, expensive products
  • Requires careful space management as it's the vendor's property

3. VMI - staffed

Considered the high-end version of inventory control, this involves the vendor opening a branch in your warehouse, stocking it with their inventory, and staffing it with their team members. It's a comprehensive partnership where logistics experts join your facility.

Pros:

  • Staffed warehouse without adding to your team
  • Fully stocked inventory managed by external staff
  • Strong vendor supply chain support

Cons:

  • Vendor holds pricing control, requiring careful navigation
  • Monthly minimum requirements, which can be demanding
  • Requires protection of the vendor's inventory and assets

These are the three approaches we've experimented with over the years to delegate our inventory management to external parties! Presently, we utilize a mix of consignment inventory for our HVAC and Plumbing departments and a Staffed VMI for our parts across all three trades.

We are eight months into VMI implementation at Wilson. The verdict?

It’s been a huge learning opportunity on tightening up our purchasing, truck inventory and returns processes. It’ll likely be five to six months before we are best-in-class because it is such a huge change to our business but the momentum is incredible.

Stay tuned for more updates as we strive to set new benchmarks in our inventory management.

John Wilson, CEO of Wilson Companies
https://www.wilsonplumbingandheating.com

The Owned and Operated newsletter and podcast by John Wilson brings the best HVAC, plumbing, and electrical growth podcast information to business owners looking to grow, scale, and win big. Visit us at www.ownedandoperated.com.

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