10 Inventory Management Tips for Building Material Suppliers

It's more than instinct and experience

The importance of effective inventory management

Building material suppliers must walk a careful path between always having products in stock that their customers want to buy and tying up too much money in raw materials or products that are not in demand.

Striking the right balance can only be achieved with effective inventory management, which means having the optimum level of products and materials for current and predicted sales. Previously, understanding these parameters came down to gut instinct and experience.

For example, a seasoned store manager would know which products to have in stock in greater or lesser quantities at different times of the year in their particular region and order accordingly.

In today’s more complex world, with much broader catalogs of products and materials, unpredictable supply chains, and fluctuating prices, making manual calculations based on guesswork is no longer possible.

The good news is that building material suppliers can now implement industry-specific software that links together inventory, purchasing, deliveries, accounting, and business analytics in one easy-to-use system.

These systems are built for the building material business to update when orders are taken and purchases are made automatically. There’s no need to keep entering data into different record-keeping systems, which can introduce inaccuracies and errors.

To remain competitive, you need to meet customers’ requirements with excellent service while continuing to generate profits. Inventory management is key to achieving those two goals concurrently and building a successful business.

Understanding Inventory Management

Types of Inventory

Different technical methods are involved in inventory management, mainly concerning control and timing. The most popular are economic order quantity (EOQ), ABC analysis, inventory production quantity, and just-in-time inventory.

• EOQ (Economic order quantity) refers to the ideal order quantity that should be purchased to minimize inventory costs and optimize the number of units ordered.
• ABC analysis is an inventory categorization methodology that puts products into three buckets, from A for the most important products that require the tightest controls and most accurate records to C with the simplest controls.
• Inventory production quantity tells you the number of products that should be ordered in a single batch to optimize holding costs.

• JIT (Just-in-time) inventory relies on a strategy that aligns deliveries with customer orders and reduces inventory levels.

10 Inventory Management Tips

1) Categorize your inventory

The place to start with inventory management is by categorizing the items you regularly carry and the current count of products. This will create a base level of stock and an overview of products that can be used to underpin your inventory management program. It could be that the data needed for this stage is held in multiple places, such as paper files and cabinets, but you should only have to do it once.

2) Track product information

Once you’ve categorized your product inventory, you can decide how to track products as they move through the business, from arriving at the warehouse door to being shipped out to customers.

An internal stock-keeping unit (SKU) helps identify each product according to supplier name, product category, color, and universal product codes (UPCs). You will have the base data needed to receive, store, and re-order specific products from here.

3) Organize your warehouse

Every building material supplier will have their priorities regarding the physical layout of their storage space, depending on space and the number and type of products. This is where a detailed understanding of sales made during the year is invaluable, as you can decide when to site product categories closest to the warehouse loading bay, depending on the volumes shipped. It makes sense to keep the most popular products nearest to the door.

4) Introduce a regular audit

Now that you’ve categorized and organized your inventory with an initial audit, you should introduce a regular follow-up check to ensure that physical stock correlates to any systems of record you use. It could be carried out every six months or even each year and provides the opportunity to eliminate any anomalies or stray products that have found their way into the wrong area of the warehouse. Depending on the size of your business, you can break this down further by carrying out cycle counts according to product category or supplier and/or doing simple spot checks.

5) Follow the 80/20 rule

The 80/20 inventory rule states that 80% of your profits will come from 20% of your stock. Understanding your best-performing products, whether by profitability or volume, will help manage those products with the greatest care and ensure you don’t run out.

6) Communicate with suppliers

It’s essential to understand how well or poorly suppliers are performing. Do you have a supplier that is always late with deliveries or regularly sends faulty products? Conversing with a supplier to find solutions is the first step, but you could need to source an alternative vendor. Be aware that there’s a growing tendency for some suppliers to manage reordering for your inventory themselves based on previous sales patterns. It can seem helpful, but not if their predictions are inaccurate and you overstock certain products.

7) Update your software

If you’re a building material supplier still using spreadsheets and/or manual methods to manage your inventory or relying on an outdated, homegrown system, consider updating to a modern, cloud-based application. You can use it to record all of the variable data collected in previous stages of this exercise and connect it with other technologies such as barcode readers and electronic point of sale (POS) systems. An integrated inventory management system includes everything you need to run a frictionless set of processes.

8) Analyze your sales

Whether setting up purchase orders, receiving inventory, setting branch minimum and maximum quantities on hand, building suggested orders, buying for multiple branches, or digging into historical purchasing performance, the right software gives you the sales data you need to understand your business and improve performance.

9) Account for changing demands

Predicting what customers will likely want to buy without insights into sales and profitability is impossible. That could leave you with unwanted stock, a crowded warehouse that’s difficult to work in, and lost opportunities to fulfill customer demands. An end-to-end system provides demand forecasting and sales reports that let you check customer order histories according to seasonal trends, for example, taking the speculation out of which products to stock at different times of the year.

10) Reduce costs

Building material suppliers that follow these steps find significant cost savings in several ways. They include savings in dead inventory through smarter purchasing, paper-cost savings through electronic messaging and invoicing, and time/resource savings in moving information from order to invoice to accounts payable. This applies to all kinds of building material suppliers, from lumber specialists with custom orders to kitchen and bath showrooms, home centers, and more.

Master Your Inventory

An end-to-end software like Spruce is tailored to meet your unique needs. Created by lumber and building material supply experts, it manages everything from purchasing and inventory through delivery, accounting, and business analytics.

Built around core document management functionality, it enables you to quickly access your customers’ quotes, orders, and POs and receive documents and sales invoices in one centralized, easy-to-use system, saving time and money by emailing customers their statements and invoices.

Different branch locations are fully supported, not separate installations but one software and database. This makes it very easy to move inventory, check stock availability across branches, and change branches within the software. It’s also possible to designate different supply and sale branches for orders and consolidate purchasing with or without warehouse location(s).

Inventory management is one of the most critical aspects of supply chain management for building material suppliers. As all aspects of a business's smooth running are affected by it, improving its effectiveness and efficiency through technology can have a marked effect on the bottom line.

Want to take the first step towards efficient and cost-effective inventory control. Let's Talk

You may also be interested in these articles:

• Why Ecommerce is Crucial for LBM Retailers
• What I learned at the CBS Bahamas Ecommerce Website Launch Party
• Where Do I Begin? How to Digitize Your LBM and Hardware Business