As the Yard Turns

With annual inventories having just concluded for most retail lumberyards across the country, many executives and owners probably are waiting breathlessly for the numbers and figures to be reconciled. It is likely that some are hoping simply for the damage to their annual net income to be minimal, or at least less than last year, while a rare few are nervously confident their efforts throughout the past 12 months will produce an inventory figure that will at least be a non-factor to the bottom line.

Especially during relatively lean years like 2006, end-of-year inventory shrinkage becomes a looming P&L killer, capable of crushing an already meager sales figure into negative numbers and generating a loss in net income. Yet the annual inventory preparation at virtually any lumberyard probably does not begin until around October or November. Once preparations do finally begin, there is usually a maelstrom of activity: pre-counting, moving inventory around, pricing, tagging, labeling, listing, selling off old or damaged material, scheduling, creating lists of special orders that haven’t been sold yet, and generating additional lists of things to be done. Someone watching all of this seemingly sudden activity take place might just ask why preparation hadn’t begun long before or why inventory wasn’t kept better track of throughout the entire year.

The year-end inventory figure is, in its simplest form, the comparison between the dollar value paid for incoming material, the dollar value of that which was sold, and the dollar value of the material still left on the shelves. That’s it. No rocket science. While it is not much more than an elementary concept, it could be suggested that inventory is no less an important factor in our businesses than our employees and our customers. The cost of goods sold represents between 70% and 80% of our annual sales, and yet is only usually fully accounted for once or twice a year.

Steve Johnson COO Mahoney’s Building Supply Mattapoisett, Mass. This, coupled with the fact that the accuracy of our deliveries is absolutely paramount to our success as retailers each year, brings us to what might be considered an extraordinary suggestion: Why not take a full inventory of our yards every week? If we did, would that not be an effective indicator of our delivery accuracy? I remember a previous manager having me, as part of our daily routine, count the top 10 moving items once every morning and again at night. Though the task was seemingly pointless to me then, I realize now that it allowed us to measure the accuracy of our deliveries, our invoicing, our loading for walk-in customers, and our receiving processes each and every day. More importantly, it was imperative that the reasons for any discrepancies be found and corrected on the spot, and as a result, our year-end inventory resulted in a figure that we already knew was coming. No surprises.

OK, I’ll admit that conducting a full inventory at a retail lumberyard every week is probably not practical or efficient for most of us; however, with the cost of goods as high as it is for most of us, I suggest that once per year is not nearly enough. My initial suggestion would be to conduct four inventories over the course of a year. Conducting even a partial inventory each quarter, at least of the fastest turning items, would allow a yard to identify weaknesses and address them as the year progressed, instead of at the end.

Employees place importance on the things that are obviously important to their managers, and without a regular, consistent, and passionate emphasis on inventory movement, we can only hope to continue to expect the unexpected from our annual turns. Perhaps by making the movement of product in and out of our yards more important, more often, inventory would become paramount to all of our employees from the front office to the front lines.