With anywhere from $5,000 to upward of $10,000 in materials, work trucks can all too easily turn into black holes where thousands of dollars disappear.

“Inventory is the bane of many midlevel shops,” says Dan Hartsough, co-owner of Harts Services in Tacoma, Washington. “There’s a loss of congruency and a lot of overspending when you don’t monitor really well. And that’s where profits go. Where are profits spent? They’re tied up in inventory for many companies.”

Contractors with established practices have said that inventory management is one of the most difficult processes their companies have undertaken. But with a methodical approach and the right preparation, you can avoid many of those headaches.

“The most difficult part of starting an inventory system is knowing how, where or when to begin,” says Kelli Frank, co-owner of Four Star Plumbing in San Clemente, California. “It’s overwhelming, for sure.”

Levels of Inventory

There are unlimited ways to customize your inventory management, but all fall into one of a few categories.

Many operations can get away with buying job by job, as needed from the nearest supply house. That method becomes problematic in a drastic way when a company starts to grow. Inventory issues are compounded with every truck added to the fleet. 

“When you start getting five, six, 10-plus trucks, that becomes a major issue,” Hartsough says. “You just end up accumulating inventory. And it’s not consistent, so you’re putting different products into different people’s houses, rather than deciding as a company what we’re going to use.”

Once a company has decided to implement a real strategy, there are a few directions to go:

• “Just-in-time” inventory. This is purely truck replenishment in the shop, ordering parts as needed with no standing inventory or warehouse.

The next step up is a warehouse inventory, and there are essentially two versions: 

• Self-stocked, where you’re buying parts and materials and stocking it yourself.
• Consignment, where the vendor owns the materials in the warehouse.

Hartsough operates a consignment shop, which means that his company doesn’t own the stock in their warehouse and doesn’t pay for any materials until they are put onto one of its 14 trucks.

There is a natural progression to inventory, often ramping up to consignment shops or even the next step up — vendor-managed inventory. In these systems, often reserved for $20 million-plus operations, a supplier will actually build their own warehouse in or near the contractor’s shop. An employee of the vendor company, not the contractor, operates the warehouse.

“When we hit four or five trucks out in the field, we realized we needed to do something else,” Hartsough says. “We stripped down all the trucks and realized we had up to $5,000 worth of random parts on every single truck.”

After they decided to make the leap to a managed inventory, they spoke with other area companies and even got in touch with some best-practice groups to explore their options.

Today they have a consigned inventory through Barnett and a local vendor, with ServiceTitan software for parts tracking.

“We have all our parts in ServiceTitan, so when a guy does a job, we basically have a website where they go through the different categories — like you would on Amazon or something like that — and they add parts to their job,” Hartsough says.

They also have a full-time inventory manager and restock trucks daily, with a full inventory evaluation quarterly.

Getting Started

“It’s such a large task for any new contractor,” Frank says. “We were in the business for 15 years before we started operating multiple vehicles. That is when we realized we needed to have more control over our truck stock and material costs.”

Instead of diving whole-hog into the rough terrain of inventory management, there are things you can do to get your shop, trucks and technicians ready for a transition, without committing to an overhaul.

“It’s easy to keep good inventory when you have one truck and or when you are the only one touching the materials,” Frank says. “Adding trucks and employees is where things become more complicated.”

Focusing on getting your trucks organized before even trying to catalog the parts will make everything easier when the time does come to make the jump.

“Being neat and organized doesn’t mean you have good inventory control, but it’s a great place to start,” Frank says. “My tip is this: Have a well-organized shop and truck to optimize your work time and understand the most-needed materials — what you need to stock, what you can purchase in bulk — all while keeping the trucks lean.”

Another cost saving with inventory management is that once you start developing a standardized stock, you can buy parts in bulk, saving money compared to buying piecemeal.

Once you have a handle on keeping your materials and products organized, it might be worth creating your ideal inventory system from scratch. Organize materials and vendors, categorize them, take photos and keep track of purchase date, price and quantity. 

“In the beginning, we did a lot of manual inventory — pieces of paper and handwritten notes. It didn’t give us much accuracy, much inventory control, but it did at least allow us to see the flow of what materials we used more than others — what we needed to reorder,” Frank says. “It was archaic, but it was a step in the right direction. This type of system does not require you to purchase an expensive software or cloud-based application. It will lead the way for when you are ready to begin shopping for the right inventory program for you and your business.”

Most important is deciding exactly what you want to get out of your inventory management.

“Be able to identify what your No. 1 goal is: Are you just trying to figure out how much money you have on the truck? Are you trying to figure out what the easiest way is to have parts added to jobs? Are you trying to keep control over all the inventory and ensure that the trucks aren’t being pilfered by employees, or customers for that matter?” Frank says. “Find out what your No. 1 agenda is, what your goal is, and then start with one vehicle.” 

After you’ve determined your goals, you can start making basic, ground-level decisions about the direction of your shop.

“Once you get to a certain size, the first step would be: Do you stock your trucks, or do you not stock your trucks?” Hartsough says. “The disadvantages of not stocking your truck are (a.) you end up with a bunch of random inventory in those trucks and (b.) techs end up having to go to the supply house for every single job.”

In It For The Long Haul

Whatever system you choose, know that you’re committing you and your team to a long and often arduous process.

“It took us the better part of 10 years to actually get to where we are right now with inventory,” Frank says. “There’s no system out there that tells you how to integrate your business practices and your application with that system.”

But if you can brave the journey, a strong inventory can be a catalyst for growth.

“Inventory management is critical to the bottom line of a business,” Frank says. “After all, you lose money every time you need to leave a job site to pick up something that you thought you had or forgot to order or, for that matter, when you can’t find something because your truck is unorganized.”