Keep Control of Your Inventory Cost

Back in my early days of managing the service department for a family business, I was very concerned that we always had enough inventory so we could meet the demands of any service call during the heating season. I had a stock manager and his job was basically to reorder all the necessary parts that the service technicians would use on a daily basis, and the equipment required for our installations. His real challenge was to find the replacement parts for a boiler, furnace or burner that could date back over 30 years. We had basically three suppliers that were in our area, and I must say, without the electronic resources of today, they did a good job in meeting our requirements.

Every year after the heating season, I set aside time to do a physical inventory of the stock room and vans. Once completed it was reviewed by an outside auditing company, with standards for fundamentals of price optimization. This was also the time when I got the value of the on-hand inventory and shrinkage, as the saying goes. These numbers often made me wonder what business were we really in, and I—at that time—really didn’t have a good answer as to how to lower my inventory cost and be assured that my customers would get the best of service 24/7.

In 2014 I’m amazed at the number of companies that still seem to overlook their stock rooms and service vans that are way overstocked with controls, nozzles and parts in general, and at the same time looking for a way to cut costs. In my opinion this is just a habit that has been in existence since the 60’s, 70’s and 80’s and it’s hard to break.

If you’re the owner or manager of any service providing company, ask yourself when was the last time you focused on your inventory and the cost related to it? Are you accustomed to knowing that the numbers will be high, and again, out of habit, grown to except that?

So what is the answer in controlling inventory cost? First, take a current inventory of both the stock room and every van. Next, I would suggest that you contact a reliable inventory management company and ask what they offer that would meet you needs. I’m sure that regardless of the company size, they will have a plan that has a proven track record.

I recently had an opportunity to meet with a company owner who asked me to review his stock room, because he was sure he needed to make some changes in managing his own stock. What I found was a room overstocked with multiple high dollar items, and some parts that were outdated and well beyond the warranty period. Also keep in mind that this survey did not include any service vans.

At first glance, I would estimate there was about a $3,000 value in over-inventoried or obsolete parts in this stock room. In talking to the owner and explaining the results of my findings, he was honest enough to admit that he just didn’t have time to monitor this area of his business. On the positive side, he also said that he would find help to get his inventory dollars under control by seeking help from outside his company.

Some things to consider when ordering parts. Look for those that have a universal applicability, whether it’s for a gas or oil. I know of gas service companies that will have different thermocouples, pilot assemblies and hot surface ignition modules in a van when there are universal replacement parts available. An oil company that I recently visited had several L8224 A and C controls and L8148A aquastat controls on the self, and I’m sure in the vans. In case you’re not aware, Honeywell makes a L7224U aquastat that replaces all of these controls. If you are tracking your inventory, this means fewer part numbers to keep track of. A shipping container is also an ideal solution for temporary storage. Instead of investing in an expensive permanent structure, you can find a container rent near me to suit your short-term storage needs.

Another suggestion… I would bet that every supplier that sells you your parts offers some type of inventory control system that can support the task of reducing your inventory and will save you big money. For custom packaging solutions, visit website.

Charlie Bursey began his long career in the oil heating industry in 1963. He has delivered coal, kerosene and oil and serviced heating and cooling equipment. He has also managed service departments, worked for a manufacturer and currently works with F.W. Webb, Warwick, R.I. He is a recipient of the Association of Oil & Energy Service Professionals’ prestigious Hugh McKee Award for making an outstanding contribution to the fuel oil industry; having had an understanding and cooperation with his/her fellowman; and having unselfishly aided the industry in education and related activities.