Thrifty Thursday: Is Your Cost Cutting Actually Cutting Into Your Profits?

To paraphrase the old Dragnet series: “The story you are about to read is true. The names and details have been changed to protect the innocent.”

Creative Commons license on image.

A few weeks back Kelly talked about inventory in her Kelly's Korner article. She made some solid points about the importance of keeping track of what you have in your stock. I was having a conversation with another W.L. May Account Manager this morning and that person shared a frustration that they had in serving their customer and it illustrates fairly well the point Kelly was making about knowing what you have in inventory, whether it be in your your truck or on your shop shelves.

A little background here. As a wholesale parts distributor, we want our customers to succeed and prosper in the long term. It's good for our industry and it's just good business for us. Our focus is, therefore, on the long-term and not on any given sale for one part.

Which gets me back to my story. I was commenting to the rep about what a great job this customer was doing in utilizing social media tools and that I thought they were doing a great job at bringing their service to market. All evidence points to an online presence as being essential for a successful 21st century business, and they get that. The response from my fellow rep was that the marketing efforts being made were great, but the frustration was that the customer had decided that there was little value in keeping anything more than a bare boned inventory of parts on hand. They have a a few well stocked parts houses nearby and can almost always find things available for next day delivery.

At first glance, that looks like a great idea. Less initial outlay for supplies and less to keep track of. The frustrating aspect of the situation is NOT that they weren't buying parts, they have been buying parts and and continue to do so. Where the concern lies is that this policy is costing them in a couple of ways. The first and biggest loss would be the service calls lost to other companies that keep stock on hand a complete call on the day the call was received.. That would be bad enough, but also in their zeal to keep a lean streamlined inventory, they tend to return parts as not needed. Then they reorder the same parts a short while later. This is costing them labor in processing the order and returns, not to mention the cost of shipping parts back. It is understandable that sometimes a part return makes sense, but there are also times when it just don't seem to add up.

A wise veteran of our industry, now retired, who specialized in helping struggling operations turn things around, once told me once that many companies make the mistake of trying to reduce costs by reducing inventory. This leaves them short of the very thing thing they need to generate revenue. Lately, I have been discussing with many of our customers how they keep track of their inventory. The most successful ones have systems in place to keep track of their parts. Usually it is a computer based program, and the best of those show trends of raising or lowering demand for a given part. If you rely on memory and the "I.C Method" (If I See It-I Have It) of inventory management, I urge you to consider if this approach is truly serving you well, or could you be a more efficient and profitable using a more advanced method. Do you utilize any software to "keep track of your stuff"? If so, we would love to hear about your experiences in the comment section.