Mastering Inventory and Parts Management

June 18, 2024

CI operators often excuse high inventory levels with supply chain issues, but not all inventory is the same. There are two key subsets to monitor closely:

 

  1. Project Inventory (Assigned): Pre-paid by clients, this inventory is less risky.
  2. Stock Inventory (Unassigned): Speculative, often used to guard against delays or shortages.

 

It’s crucial to understand the level and purpose of your inventory. High-turn items are less risky, but many businesses don’t track usage rates or last-used data, which they should. Check how many months of inventory you have and which items haven’t been used in 60 days.

 

Parts Inventory: Often expensed and not included in inventory assets, these bulk items are on vans and in warehouses. Monitor your purchasing and usage to avoid overspending. CI firms typically buy 3% of their revenue in these parts but should charge 7-8% on proposals to cover costs. Inconsistent purchasing and abundant use can lead to overspending without adequate charge to customers, especially with recent price increases.

 

Conclusion: The main concern isn’t the total inventory but managing unassigned inventory and parts buying. Companies can tie up 5-7% of their revenue in these stockpiles, risking financial loss as inventory degrades over time. Be diligent in managing these aspects.

Tailored Metrics for Your Business

Ever tried comparing your success metrics with a friend’s, only to end up confused? The VITAL Method sets standard industry practices in accounting, productivity, project management, leadership, bid management, and warranty support.

In our view, business excellence involves systematic approaches, accountability, and keeping a close eye on the numbers. Wondering how to weave these practices into your business? We’ve got you covered.

Embark on Your Data-Driven Journey

Ready to make informed decisions for your custom integration business? Schedule a free 15-minute call with a VITAL Guide – your first step towards a future where your business decisions are rooted in practical data and strategic insights. Dive into the VITAL Method and transform your business today.

Stay VITAL,

Matt & the team

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