The Best Inventory is No Inventory

Sup everyone!

The best way to manage inventory is not to have inventory!

It’s complicated to track, incurs carrying costs related to payroll and square footage, ties up cash, and usually becomes a distraction. But fear not, as we unwrap some gift-worthy insights today.

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But before we dive into the good stuff, a quick shoutout to our new partner: Home Service Engine. We're picky about who we team up with, only aiming to bring you the cream of the crop recommendations that’ll seriously level up your business.

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Now, Let's sleigh this topic!

I have never met a home service company that handles inventory well because the reality is - we are not in the inventory business. We are in the sales and marketing business, and inventory is a facet of that.

When I was reflecting on this problem a few months ago, I kept coming back to the framework: If I ran the literal best Plumbing, HVAC, and Electrical warehouse in the US, it would barely move the needle for my business. It would reduce some costs but it wouldn’t grow my business.

I'm a big believer in outsourcing the important but non-needle moving aspects of our business while fully insourcing and controlling the needle moving. Insourcing marketing, recruitment, and sales is the only way to move the needle, and delegating these to outside firms is a huge mistake.

Outsourcing the warehouse is a great example. It's important and needs to be done right, but at this point in our business, it is not important enough to make a core competency.

As we moved our businesses into one singular location, we began searching for a Vendor Managed Inventory solution.

There are three types:

1. VMI - stocked

2. Consignment

3. VMI - staffed

1. VMI - stocked

This entry-level VMI involves a vendor assisting in creating a stock list, printing barcodes, setting minimum and maximum levels, and restocking shelves weekly or more frequently. However, once the inventory is on your shelves, you own it, thus incurring carrying costs.

👍Pros:

• Assisted inventory management

• Regular restocking

• Improved organization

• Feasible for small setups with minimal risk for the vendor

👎Cons:

• You're still required to purchase the inventory

• Possibility of overstocking by the vendor due to their interests

2. Consignment

Here, the vendor places goods on your property while retaining ownership, usually ideal for serialized products. This method works well for high-value products like furnaces, water heaters, generators, and boilers, providing immediate access without direct purchases.

👍Pros:

• Constant availability without upfront purchases

• Effective for expensive products

👎Cons:

• Typically limited to large, expensive products

• Requires careful space management as it's the vendor's property

3. VMI - staffed

Considered the high-end version of inventory control, this involves the vendor opening a branch in your warehouse, stocking it with their inventory, and staffing it with their team members. It's a comprehensive partnership where logistics experts join your facility.

👍Pros:

• Staffed warehouse without adding to your team

• Fully stocked inventory managed by external staff

• Strong vendor supply chain support

👎Cons:

• Vendor holds pricing control, requiring careful navigation

• Monthly minimum requirements, which can be demanding

• Requires protection of the vendor's inventory and assets

These are the three approaches we've experimented with over the years to delegate our inventory management to external parties! Presently, we utilize a mix of consignment inventory for our HVAC and Plumbing departments and a Staffed VMI for our parts across all three trades.

We are 3 weeks into VMI implementation at Wilson…

It’s been a huge learning opportunity on tightening up our purchasing, truck inventory and returns processes. It’ll likely be 5-6 months before we are best in class because it is such a huge change to our business but the momentum is incredible.

Stay tuned for more updates as we strive to set new benchmarks in our inventory management.

Happy Holidays! 🧑‍🎄 

Cya!

John Wilson
Owned and Operated Weekly Insights

PS—As always, find me on X!

Thanks for sticking around! Here's what's coming up:

🌟 Breaking 5 Million Workshop: Join me March 19th-21st to level up your home service business. Limited seats available!

🌟 HoldCoConf: The ultimate gathering for holding companies. Save the date for September 16-18, 2024. Watch past sessions on our YouTube channel!

🌟 Currently, I'm ramping up my leads with Service Scalers—it's mind-blowing! If you're geared up to elevate your growth, schedule a call and take your business to the next level.