Lesson 5 - Establish a visible approved stock list.

     The first part of your goal of effective inventory control is to meet or exceed your customer’s expectations of product availability. Establishing and communicating an approved listing of the items you are committing to have available in stock is critical.

     When you stock a product you are making a commitment to have that item available in reasonable quantities. But we have found that most shops not only have material intentionally stocked but also quite a bit of what we call FISH inventory (meaning First In, Still Here) which is stuff accumulated over time that has become stuck in your inventory. Often you are not sure who ordered it (or as we often hear, it was an ex-employee’s decision to bring it in) or why it’s there. Establish a definitive list of the products you will stock in your shop and in your trucks. By placing an item on the list, you are committing to stock the product. The commitment does not necessarily mean that some of the item is always on the shelf. For example, seasonal products may be in stock for only part of the year. But stocked items should normally be in your truck or shop when your customers want them.

     A management-approved stock list controls the introduction of new items into your inventory. Consider this situation: A customer has an uncommon fixture that needs to be repaired. The service tech needs four of a certain repair part but the supplier only sells them in lots of 12. The part costs $25 a piece and the tech charges the customer $32.50 (a 30% mark-up) for the four pieces needed. After the job the 8 pieces are “stashed” somewhere on his truck or back at the shop.

     Yes, there is a possibility that those 8 pieces will sell at a later date (assuming they can be found) but there is a better chance that those 8 pieces will be around when you take your physical inventory and the next inventory and so on. The tech earned money on the sale that produced a gross profit of $30 ($7.50 times the 4 pieces) but in making the sale has added $200 ($25 times the 8 remaining pieces) of dead stock to the inventory. What’s wrong with this picture? Well, the tech had the ability to add the item to the stocked inventory. You might argue that this was a non-stock or special order item but some of the product remained on the truck or in the shop after the sale to the customer was completed. A few ways we’ve seen companies solve this dilemma is to either charge the customer for all 12 of the products, charge the tech for the unused quantity by the customer or consider the cost of the remaining special-order product as a cost of doing business.