Maximize return on invento ted

By Bob Degnan and Clark Colvin CSC Capital Partners, Ltd. Salem, Or.

SY"t"t"i""Jil"

same amount oI money from two different investments over a year's time.

In both cases you would make $ I,000 on your investment. In the first instance, you would have to invest $4,000. In the second you have to invest only $400. Which would you choose?

The answer seems pretty obvious. Yet most people and organizations. particularly at the retail level, choose to invest far more than necessary to achieve the same dollar return.

It seems that many people focus just on the Bang, and not the Bang for the Buck. Why is this? The answer lies in understanding effective inventory management, and the difference between corporate profitability and return on investment.

To carry the illustration further, let's assume that the above example refers to the buying and selling of Product A, chrome-plated widgets, that can be purchased for $400 each. and sold for $500, with a 207o Gross Profit Margin. The demand for these items is l0 sales per year, or $5,000.

In the first instance, knowing we can sell l0 this year, we order l0 to have on hand and support our anticipated sales. Because they cost $400 each. we invest $4.000 in an inventory of 10 chrome widgets to support our anticipated sales.

In the second instance, although we anticipate selling l0 units this year, we are not sure of the sales volume for the chrome widgets in our market. We know we can get them quickly, since the main distribution depot is close by and we can get a delivery every week. We also have other products we would like to buy and stock, and can use the money beneficially elsewhere. We therefore choose to keep one chrome widget in stock. with the commitment to replenish it and buy another one as soon as this one is sold.

In each case we sell 10 chrome

Yer in the first ,nr,unfffn",r$ii%t& profit is a 257o return on an investment of $4,000, and in the second instance the same $1,000 is a 250Vo return on an investment of only $400. Also, in the second case, the remaining $3,600 can be invested in other products, fueling additional sales with additional incremental returns and profits.

Why doesn't everyone exercise the second option? Certainly we would all |rke a 25OVo return on investment rather than 257o. Certainly we all have additional investment opportunities, ones that we would like to pursue "if only" we had the funds. The answer lies in three key areas: knowledge of anticipated sales (How many chrome widgets will we sell?), knowledge of present sales transactions (How quickly do we know we've sold the chrome widget that is in stock and therefore need to buy another one?), and attention to detail and buyer/management commitment (How do we know that our people will be on top of the situation and act as they need to at all times? Do they care that we have too many or too few widgets? Have they been given the tools they need to act, and empowered to use them? Are they being held accountable and rewarded for the results?).

l. Knowledge of anticipated sales

If we do not have any idea how many chrome widgets we will sell, we may be forced to carry a quantity greater than we need so that we "don't run out." A number of retailers still follow the traditional ordering process of "filling the pegs" and "stocking the shelves." They believe that unless all the pegs and shelves are full to overflowing, they are not carrying enough product. (This method may result in us carrying $10,000 or more in chrome widgets inventory to support $5,000 in sales, instead of $4,000).

One step up from this approach, but no less faulty, we may be forced to rely on our memory or inexact sales history, recalling that we think we sold "about so many" chrome widgets this time last year. Since no two months or years are ever the same, this is an equally dangerous approach. How many times have you heard, when asking why so much excess inventory is in stock, "Well, they just didn't sell as many as I thought they would."

The best way to purchase and stock materials, of course, is by an accurate forecast of anticipated sales. This can be done only if we have an information system that allows us to develop accurate forecasting models that are self-educational, and prompt us to get more and more accurate at forecasting future sales as we continue the process over time. The commitment here is needed on the part of all departments, with particularly close coordination between sales, purchasing and accounting/information systems. Companies that have chosen this path and have stayed the course are now reaping the benefits and higher returns on investment. While it is true that you don't benefit by having more of any product than you need, it is also true that "you can't sell what you don't have."

2. Knowledge o;f present sales transactions

Perhaps no one today is better equipped to address this issue, or to track their sales and retail transactions in real-time than Wal-Mart. From their headquarters in Bentonville, Ar., the retailer can track sales and inventory by item for each of their 80,000+ items in each of their 3,500+ stores within24 hours. They have developed relations with their key suppliers whereby this product sales and movement information is shared, and the supplier joins Wal-Mart as a partner in promoting maximum sales and inventory turns at each Wal-Mart location. But, we are not all Wal-Marts. So what are we to do? Most retailers today do have computerized point-ofsale systems that, if not at the WalMart level of sophistication, still can be customized to provide timely sales and inventory stock-status information. This data enables us to track and monitor sales and inventory levels several times per week, if not on a daily and hourly basis. The point here is to design a selective system that enables us to track sales and inventories in a timely manner in order for us to make timely purchase decisions.

A vast quantity of data alone does not guarantee useful information. Accurate data, however, combined with proper organization and relevance, does. The key is to develop a system that lets us see what we need to see when we need to see it, so we can make the purchasing decisions that need to be made (reorder items, quantities, etc.) in a timely manner, and with minimum error.

"How often can I order?" "How frequently can I get a delivery?" "How many can I order?" All these are good questions to ask in order to balance over-aggressive turn-growth and just-in-time inventory fixation with the conservative tendency to always keep more in stock than we need so we 'Just don't run out."

3. Attention to detail and buyer/management commitment

While it's true that accurate information systems are essential, it's also true that no amount of system sophistication or programming can replace the dedication of a trained employee who is positively motivated and committed to maximizing corporate performance and "making things work."

From Wal-Mart to your company, the reason things work well is the dedication and commitment of your employees. Successful companies are a mixture of accurate, timely data systems and motivated, committed employees. Employees and managers are given the proper tools, empowered to act, held accountable for their actions and rewarded for the results. They know their positions and their responsibilities (which are clearly defined and delineated throughout the organization). They know to whom they report, exactly what is expected of them and precisely what they are being held accountable for. Most importantly, they are committed to achieving the established goals for themselves, their department and the entire organization, and receive paid incentives and rewards for their attainment. AII engines are on-track, heading in the same direction. The throttles are set for full-stream ahead, and everyone is engaged.

Any organization that is presently not achieving what it is capable of (or what it believes it is capable of) should look first to itself to solve rhe problem. Although you deal with customers and other members of the world "outside," your problems are most often not "outside" but "inside." . Whether you are currently managrng your company to achieve a 257o Return on Investment, a 2507o ROI, or something in between, there is a stepby-step approach that will increase your present and future performance. Your purchasing/inventory control systems, inventory and ROI are excellent places to begin.

Dan Taylor has been promoted to general mgr. of SnavelY Forest Products, Browns Summit, N.C., replacing David Harris. Kevin Gribbon is new to sales in Wilmington, N.C.

Von Simpson is new to sales at Guthrie Lumber Sales, Houston, Tx. Russell Slaughter has joined the sales force in Austin, Tx.

Robert Gragg is now mgr. of The Contractor Yard, Greensboro, N.C. Robert Howard is the new mgr. in Raleigh, N.C.

E.J. Orseske has been Promoted to sales mgr. at Travis Lumber Co., Mansfield, Ar.

Tony Concutelli, Les HenrY and Mary Biggers are new to sales at East Coast Lumber Co., Climax, N,C.

David Wynn, ex-ChamPion Building Products, is new to inside sales at Weyerhaeuser's customer service center in Jacksonville, Fl.

Spegies

Western Red Cedar lncense Cedar

Hem-Fir. Douglas Fir

Jack McClenny is now mgr. of PrimeSource Building Products, Fayetteville, N.C. Brian McKiernan was promoted to rePlace McClenny as mgr. in Greensboro, N.C.

Matt Tackentien is the new mgr. at Wheeler's, Jasper, Ga.

Mike White is now overseeing all roof truss operations for Causeway Lumber Co., Fort Lauderdale, Fl. Carolyn Stoner has been Promoted to benefits coordinator. In Bonita Springs, Fl., Wanda Scoville has been promoted to assistant general mgr. and Nikki Betz has been promoted to assistant office mgr.

David Kornegay, Carolina Builders, has been transferred from Durham to Apex, N.C., as mgr.

Larry B. Sink, ex-A&H Windows, has joined Olde Lexington Products, Lexington, N.C., as v.P.sales and marketing.

Johan van Tilburg has been appointed president of Tindell's Building Supply, Knoxville, Tn., succeeding F. CarlTindell. who remains c.e.o.

Jim Stoddart has been promoted to president of Home DePot SuPPlY, Atlanta, Ga. He replaces LYnn Martineau, who has left the company.

Henry Melikian has joined Texas Door & Trim, Dallas, Tx., as v.p' and cfo/controller.

Shelia Moore is new to counter sales at Builders FirstSource, Kinston, N.C.

Dave Heine has been named v.P.retail development at Do it Best Corp. Quent Ondricek is the new v.p.-lumber & building materials.

Ven Mathis, Mid South Services, Collins, Ms., was named 20O2 Rookie Distributor of the Year bY Do it Best's Incom Distributor Supply.

Anderson, Ca.: (800) 427-8253 '(530) 378'6980

Fax 530-378-6987 ' Fred Duchi' Don Cherovsky

Mike Webster' Darren Duchi ' Dean Duchi

Weed, Ca.: (800) 374-0210' (530)938-2771

Fax 530-938-3227 ' Bill Duchi ' Dennis Duchi

Linnea Johansson has been named executive director of the National Sash & Door Jobbers Association. New Port Richey, Fl. She succeeds Mark Palmer, who has resigned. Rosalie Leone has been promoted to associate director.

Scott D. Schriefer is new to sales at Bentley Sales & Marketing, Kernersville, N.C. He is responsible for N.C. and S.C.

Eric Sowder has been named senior v.p.-logistics for Lowe's Cos., Wilkesboro, N.C. Keith Brock is the new mgr. in Goldsboro, N.C. Elizabeth Johnson is the new mgr. in Knightdale, N.C., and Lee Hodges is now mgr. of the Winterville. N.C.. location.

John Tyler "J.T." McShan, owner, McShan Lumber Co., McShan, Al.. will receive the Unifying Force for Efficient Forest Products & Building Materials Distribution Award at the North American Wholesale Lumber Association's 11Oth annual meeting this month in Colorado.

Joe Elder, owner. Elder Wood Preserving, Mansura, La., is on the road to recovery after suffering a recent heart attack.

Sonny Akers has joined MungusFungus Forest Products, Climax, Nv., as a real estate consultant, report co-owners Hugh Mungus and Freddy Fungus.

Survey Finds Producers And Distributors At Odds

Both manufacturers and distributors admit that a lack of commitment and trust between them is the greatest barrier to improved sales performance and profitability, reports a new study.

The Industrial Performance Group survey found that 347o of both manufacturers and distributors have "low" expectations for improved relations over the next two years.

Only 20Vo of respondents felt there was a "high" chance of cementing better relationships in the future, whereas 45Vo chose "moderate" to describe the likelihood of improved working relationships.

Survey respondents also cited other concerns: insufficient investment in people and technology; short-term

Landry Set To Helm SFPA

Lionel Landry has been named president-elect of the Southern Forest Products Association, Kenn€r, La,, to succeed retiring Karl Lindberg as president Sept. 17,, Tami Kessler, current director oj administration, succeeds Landry as Expo director. Digges Morgan, v.p.-government affairs, is now corporate secretary-elect, assuming Kessler's administrative and supervisory respon sibilities.

Director of state and environmental affairs Eric Gee has been appointed director of govemment affairs, now representing both federal and state functions.

financial performance pressure, and failure to understand and resnond to changes in the industry.

SlS2E Boards

Bevel Siding

Pecky Paneling

Log Gabin Timbers Shingles

Access Door To Longevity

Vinyl Windows & Doors Corp. has introduced a vinyl crawl space access door that reportedly will last years without the deterioration normally associated with plywood and steel.

Storage Rack Attack

A storage rack system designed to hold heavy loads like lumber and pipe while supporting the covered storage building it is built into is new from SpaceRak.

Cant-I-Beam Cantilever Rack system features arms and columns made of Ibeam construction, with arms fastened to columns by four bolts.

Load capacities range up to 109,000 lbs. per column and to 14,000 lbs. per arm.

Circle No.201

Cladview windows.

LoE2, manufactured by Cardinal Glass Industries. is said to reduce heat gain by 507o compared to regular glass.

Circle N0.204

Safe At Home Base

High impact polymer bases that can be anchored to sublfloor materials to build OSHA-compliant guardrail or stair rail systems are new from Safety Maker lnc.

Model G9-43A features a "backbone" frame offset slightly to the operator cab side, bringing the midmounted engine closer to the center of the machine, reportedly imProving left-right weight distribution.

Circle No. 206

Flesh Out Your Siding

Crane Performance Siding has a new line of trim and mouldings to go with its solid core siding.

Made of 1007o vinyl, the doors are pre-hung, feature welded corners and are available with a builrin deadbolt.

Circle No. 202

Sublime Soffit System

CertainTeed Corp. has introduced a ventilated soffit system to provide moisture protection for attic and roof decks.

WeatherBoards Ventilated Soffit system is said to eliminate ice dams, retain the effectiveness and R-Value of insulation. and extend roof life.

Circle No. 203

Window Sun Glasses

A&H Window Co. is now including "soft-coat" glass as a standard feature on its vinyl-clad Series 70

Safety Boot Guardrails hold stress srade 2x4s to build out toeboards, construct posts, and complete railing systems.

Circle No. 205

Raise That Lumber

High!

A forklift with a 9,000-lb. capacity and a 43-ft. maximum lift height is new from the Gradall Co.

Crane Solid Core Architectural Essentials Accessories include 5" and 3.5" window lineals, window starter strips, corner connectors, crown moulding and finish boards.

Circle No. 207

The Lap Siding of Luxury

Louisiana-Pacific has introduced hardboard siding with a pre-primed finish that reportedly resists moisture. Quicklap comes in five profiles in 12" and 16" widths, with a 30-year limited warranty.

Circle No. 208

Dry Under Deck

A deck drainage system designed to keep the area under a deck clean and dry is new from Crane Products Ltd.

DrySpace Deck

Drainage System comes in 16" and 24" on-center joint spaces with all components available in 12- or l6-ft. lengths.

Circle No. 209

Flamespread-Free Sid ing

Solid vinyl siding thar reporredly does not add to flamespread and meets building codes is-new from Kaycan.

Group.

High Density Single Ply Board is made of expanded perlite with reinforced cellulose fibers and a patented binder formulation. They are available in 4'x8' boards l/2" thict<.

Circle No. 212

Hold On To The Hand Rail

A round, aluminum-reinforced PVC hand rail system that meets hand rail building code specifications is new from L.B. Plastics.

up to two years. It comes in a natural clear finish and can be applied to dry or damp wood.

Circle No. 2'14

Mighty Moulder Tales

Weinig Group has introduced a moulder they claim is the simplest and fastest to operate in the industry.

Fishscale comes in 4-ft. sections with individual scales measuring approximately 6" across.

Circle No. 210

Termite Terminator

Ground stakes desisned to kill termites near house fo-undations and decks are new from Terminate's Doit-Yourself Bait Stakes.

Spectracide Terminate stakes are placed 8' to l0' apart in the soil around the entire house. Termites take treated materials from the stakes back to the nest for the colony to feed on.

Circle No. 211

Insulation Density Matters

A low thermal insulation board that allows for the direct application of single-ply membranes is new from Johns Manville Roofing Systems

Sheerline Hand Rail System comes with 2" outside diameter, 8' long rail that can be cut to length. in add-ition to elbow and P-Loop returns, radius elbows, molded elbow returns, end caps and others.

The rails attach to cement, wood. concrete or other surfaces.

Circle N0.213

Let's Protect Our Wood

A wood waterproofer that performs like oil-based products but with the fast dry time of water-based finishes is new from Behr Process Corp. Behr No. 300 WaterProofins

Wood Protector is said to protec'i fences. siding and patio furniture for

Unimat 1000 Star features a memory capacity that stores setting values which can be called up by pressing a re-dial button.

Circle No. 215

A Builder's Flagship Company flags to mark fence perimeters, utilities and sprinkler head placement are available from Blackburn Flags & Marking Products.

The flags are made of weather resistant, 4mil plastic and come in staff lengths that range from 15" to 36" in wire, plastic or fiberglass.

Circle No. 216 is ovoiloble by circling the corresponding Reoder Service number opposite the inside bock cover ond sending the form to New Products Editor FAX to 949-852-0231, by E-moil io rfoy@ioc.net, by moil to 4500 Compus Dr., Suite 480, Newport Beoch, C0.92660, or by colling (e4e) 852-l eeO.

Aluminum Deck Balusters

Capital Lumber Co. has begun distributing aluminum balusters that are said to resemble wood composite products.

DecKorators deck and fence components are made of lo0%o rust-free aluminum and are available in seven baked-on finishes.

Circle N0.217

Look What's In The Gutter

Log home spikes and gutter nails made from heavy-duty galvanized steel are new from ITC Manufacturing & Power Coating.

Gutter nails are produced in Plain shank in 3116" and ll4" and are used as an anchor for aluminum or galvanized rain sutters.

Log hoire spikes are designed for securing and anchoring landscape ties, timbers, log cabin structures and other applications that require heavyduty steel nails.

Both spikes and nails come in 50# boxes, 48 boxes per pallet load.

Circle No. 218

The Silent Door Treatment

Broco Doors has introduced two new doors that reportedly reduce noise transmission compared to regular hollow core doors.

Accent and Elegant feature true raised mouldings and panels and solid core MDF construction with hardwood stiles and rails.

They come inl-3l8" and 1-3/4" thicknesses.

Circle No. 219

A Little Ceramic TLC

TEC Specialty Products has introduced new ceramic tile and stone cleaners for interior flooring, countertop and walls.

Tile & Stone Care System features more than 20 sealants, cleaners and colorants chemically engineered to work together.

The cleaners reportedly clean oils, mustards, coffee and greases.

Circle No. 220

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AS GOOD AS THE BEST BETTER THAN THE REST

Selects x #2 Common *. Pecky x Dimension * Rough + Resawn * S4S * S1S2E * Siding * T&G & V-Joint * Bevel Siding * Fencing x Paneling * Moulding x Decking

Custom orders in quantities, sizes & pattems to your specifications

Mixed orders of CYPRESS & HARDWOODS Surfaced, Rough or Straighrline ripped

If you want to order by the job, Fax us your specifications over 700,000' orl,ono Inventory

If you want to get what you pay for, THEN IT IS TIME TO TRY US!