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Controlling Inventory Shrinkage

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Controlling inventory shrinkage on HVACR vehicles is essential to maintaining acceptable profit margins, and not just to prevent loss. Before we developed our inventory management system, I discovered that our trucks were sometimes going to job sites unprepared because technicians were not being held accountable for the content of their trucks. That’s unacceptable.

At the same time, we didn’t want our crew to feel like they were being spied on. No one wants to be kept under a magnifying glass. We also want them to focus on what they do best, which is installation and duct system cleaning.

Our solution was to develop an inventory management system that matches individual pieces of equipment to specific trucks. Our company uses the forms from the system as data collection, as well as holding technicians accountable without making them feel like they’re being accused. Trust but verify; that’s our approach. The moment they know that inventory is being controlled, accountability follows.

Controlling Shrinkage

I have a strong background in retail, and that industry sets acceptable shrinkage at 12.9 percent to account for administrative errors. HVACR has much less inventory than retail, so I’ve adjusted the acceptable shrinkage level for my company accordingly, to 10 percent or less.

Our inventory management system allows us to target potential shrinkage problems before they get out of hand. For instance, the system may disclose that the company is spending a lot of money on refrigerant, which to the HVACR industry is like air. First, you check the logs for how much refrigerant each truck is carrying. You can weigh the tanks with a travel scale like the ones used to weigh luggage. That makes it easy to pinpoint which trucks seem to be using an excessive amount of refrigerant. We then determine whether the discrepancy falls within an acceptable level or whether we need to approach the technicians assigned to those trucks.

Of course, you have to approach potential shrinkage problems carefully. A lot of technicians get offended when you ask them about refrigerant shortages. They may have jobs on the side, and they think they’re being accused of stealing. We try to frame the issue as maintaining a fluid flow of inventory between the warehouse and the truck rather than trying to catch thieves.

We also make sure our technicians know that they are appreciated, and that we realize how vital they are. People who care about the business are more careful and more accountable.

How the System Works

We averaged three months of truck contents and warehouse inventory to set a baseline before we began developing our system. The inventory control manager used those figures to create an internal five part form for each truck that runs from Monday to Friday, with one part of the form for each day. One copy of the form goes out on the each truck’s clipboard at the beginning of the week. Once a week, we scan the paper forms into a cloud-based record system.

The logistics of our inventory management system are actually pretty simple. We focused on inventory counts, because truck contents and inventory go hand in hand. Each technician has his or her own numbered truck, along with a clipboard of contents. Parts and equipment are assigned an inventory code, so we can ensure that we know what’s in each truck.

Our inventory control manager oversees the total warehouse inventory. He is the only person who distributes equipment. He’s also responsible for keeping track of how much of each item is in our warehouse and on each truck. Each morning, he compares the truck contents against the clipboard, and makes a note to request replacements for missing items.

We also keep a copy of each truck’s clipboard forms. That way, if a truck is out on a job and discovers a critical missing part, our inventory manager can arrange for the crew to borrow that part from another truck in the area that has one. It saves a lot of needless trips back to the shop.

Replenishing Inventory

I keep a close eye on distributors and vendors and cultivate relationships with them. They’re a good source of what’s new and how to get the best possible price. I figured out that each vendor would have sales or a discount every Thursday or Friday, so we require all orders to be submitted to the office by Wednesday. That way we can pick up needed supplies by Friday and have them ready to go by Monday.

The system helps the inventory control manager determine what needs to be ordered even if it’s not listed on the form. For instance, if a truck needs a capacitor they probably also need a tank of 410a refrigerant. On the other hand, the system also highlights little used items that we can order less often and save money.

I’ll be candid; setting up an inventory management system is tedious. It generally takes from 14 days to 3 weeks for a newly implemented system to flow with minimal supervision. And of course, even after an inventory manager or operations manager takes over, as the owner you’re still accountable for ultimate oversight. Nonetheless, it’s worth the effort.

Andrea Hughes

Posted In: ACCA Now, Management, Money

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