Gomputerized inventory control for better asset management

By Anthony H. Yonda Dataline Cornoration

I F THE rolling equipment in the I retail lumber yard followed the same technological computer advances as the back office accountins system, a flat bed truck would cos'i $1,000, weigh about 200 lbs., get 100 m.p.g. of gas and load enough material to build an entire shopping center on one trip.

But, as recently as the early 1970s, building supply people were highly skeptical about whether such things as inventory could be accurately controlled on a computer. That skepticism was shattered when many lumber yards installed inventory control data processing, like the Dataline system, and were pleasantly awakened to the kinds of control that were previously unavailable.

By the mid to late 1970s. computer systems were not only telling management what was out there, but most well-managed companies, were reducing inventories by as much as 20oh and cutting shrinkage by 7o/o or more, thus improving bottom-line profit margrns.

Some companies looking at computer systems as a panacea to cure all their business ills were sadly disappointed. Other companies which used reports in such areas as inventory control. found themselves in a much better position.

Although inventory manageStory at a Glance

How computers have successfully reduced inventories by 2OYo, cut shrinkage and improved bottom line profit margins.

ment is only one of the key points in developing a profit for the retail lumber dealer, it is an important one. And, being primarily responsible for new systems development at Dataline there are some interesting aspects on the horizon.

One area that building material management will be hearing more about is the "ABC Analysis of Inventory Control." An ABC Analysis can be used to tell the retail lumber dealer when his inventory dollars are invested in the wrong product, indicating inventory imbalance.

Inventory imbalance, more specifically, results from :

(a) An excess supply of slow moving items,

(b) Obsolete items. i.e.. items having inventory value, but not contributing to sales;

(c) An inadequate supply of fast moving items causing stock outs and customer dissatisfaction.

An ABC Inventory Analysis uses the axiom of the 80-20 theory. The theory states that 80oh of a company's sales are made from 20oh of the items in inventory. The percentages may change from yard to yard, but it is generally assumed that a large percentage of sales comes from a small percentage of inventory.

The system takes the hot sellers and puts them in group "A". This is followed by average sellers in group "8" and the "dogs" in group rrctt.

In many cases, it is the "C" group that needs the watching because it can contain as much as 50-600h of the inventory, but only contribute 2-5oh of the company's sales.

Another advantage is that it makes the inventory manager's job easier. In a yard with 3,600 items, it is much easier to tightly control 646 items and maintain a lesser deeree of control over the rest. ThesJare items most in demand and where the highest percentage ofstock outs are likely to occur.

Some of the other information can provide a shocking experience. In one yard we decided to divide the turnover into twelve to arrive at the average number of month's supply for each group. The Dataline ABC Analysis told the owner that the $128,000 worth of inventory in the "C" classification would take nearly three years to sell.

This is only a small example of how it can be used to determine target inventory levels. Once set, other procedures must be established for eliminating excess inventory. The computer can also help to forecast future sales trends based on historical data. Purchasing directors may then use this as one of

(Continued on next page)

Computer Controls

! ( r'ntirtuctl .frr-: rn i:rt'r!r:tt:, y:ugc,)

Ihrrr :trt nriln\ r)1har rr,'rs rrl ln\cntorV nrlrnlrgenrcnt on ll conlputcr. but t\\o ke! itcnrs arc stock outs and pr0litabilitv. If'u conrpany's goal. lbr exanrplc. is to reducc thc value of \our ",{" rnventory and ) ou notice thut irs a resull turnover lncreASes. along with stock outs. )'ou should recValuate purchasing strategy.

Renrenrber. thc goal of'any conrputer lnventory nranagement progranr is to provide good customcr service at thc lowest possibJe pricc.

Also. turnover and goocl customer service speak wcll of inlentory contr0l, but say'nothing of profitabiliry.

In an1,analysis. a "product effectiveness factor" should be built in. Thc PEF is equal to thc tLlrnover tinres the gross profit percentage to obtain a nreasure ofthe gross return on invcntory investnrcnt. Oncc an item falls below a precleternrined level. it should be purgecl tronr inventorl,. There is no rcason why Iow turnover items nrust ulso be low profit items if the PE Factor is used effectively.

A\ \tittecl arrrlrcr. thrs wrll bc rt llltl()r c()ntputct ttccrl ol tttrcntotr ,rr,tlr'i. irr llrc I980. IIorl :uolr il rrrii .iitrrr' $iii \lLl)rllrl !l ilr\r'l

Wood Dust Study Urged

A scicntiflc investigation ol lhe relationship of nasal clutcL-r to occupaliolral exposurc hus bcctr reconrmencicd to the litrcst products ancl lurnitLrre indr-rstncs br the Inter-[nclr.rstrr Woocl Dr-rst Tlsk Force.

The nrovc \\'rrs prontpted bv iniidequatcll sr.rpported allcgutions of-a link bctween wooclworkinq antl an infrequenlll' cncounterecl tttrnt ot' nasal canccr. I'hc relationship was refercncccl irr u Natiorrul Institute of Occuputional Safetl lncl Iicalth (NIOStl ) critcria clocunrent uhich has been *ithhelcl pending adclrtional inr.cstigittion. l'hc

NIOSI I prenrise was basccl on tl'hat thc industry considcrs to be outdatecl str-rclies of cottage riorkcrs in Englar.rtl.

Thc Inter-lndustrl Woocl Dusl Task Force consists o1'NFPA nrcmber rc;rresentatives and rcprcscntatives of'thc Southcrn Furrriturc

Now, Nizich Hardwoods can serve your hardwood needs even better.

\l()\li nr()l)()\r'(l rcgtillrtrons rcclt-tctttg the Ircrttttsslblc lcrcl ot *ootl tlttsl ttl rlork1'rluccs trr u ligure rrcll hclori e LlrrL-rll st lt n rl li ril s. ln tliseLrssitins riith \lOStl otllcials. in(j ustr) has opposctl itn)' nr()\'L- to estahlish lintits birsccl on doubtlLrlll vulid clata thlt cor.rltl not be achicvccl. Thc rccttt'tltlre-trclctl invcstigirtiort uould bc pcrlortttctl by Tabcrshuu OccLrpittiorlel Me dicinc Associutcs of Rockr illc. \,td Still penrling bclirre thc J'irsk Force is a rccontntcndatlon olt proccccling with rr stLl(ly to clcternrinc u hcther wooclrvorkcrs har c ritrr grcater susccptibilin to pLtlttrotrart cliscasc than \\'orkL-rs in othcr occr.ll)iltions -l-hc lctlcrltl go\ crrlr.nc-rrt is also planning, to conduct il rlutlr ol-lrultlt()tl.rl\ lttttttiott ilnlullg noocluorkers. At'tcr a ntccting wilh NIOSII officials clr.rring thc ncxt fcu wccks, the Woocl I)r"rst Tlsk Forcc will nrect to ciecidc u hcthc-r industry shoLrlcl proccccl u tth tts on n pLrlnronrrrl' stLtd! or rclr ttn go\ crnnrcnt rrr.urlrsis of thc issLrc. rI I rI I

Ii. I I' t

'79 Lumber Output Off

Final 1979 figures show that rhe western lumber industry operated at 91.1(il, of its practical operating capacity during the year, conrpared to 93.89,{, in 1978, according to the Western Wood Products Association.

But the December pace ol' onlv 78.8'l' (the lowest monthlv rate for the year) reflecled the October move by the Federal Reserve Board to raise interest rates as an effort to control inflation. In November the industry operated al 92.901t of capaci ty.

For the same month a vear ago the industry operatecl ar 90.6'l . -

"The reason the Fed's action took two nronths to catch up with the Western lumber industry is the healthy order file nraintained at the mill early in October and low inventories existing fronr the nrill to the honre builder." noted Fred Reseburg. director of econonric services for the associaticln.

"lnventories in the pipeline were cleared long before October in anticipation of a slowdown in home construction." he said.

"But there was srill buildins in progress and there were still c6ntmitnrents for money made earlier in the year for building projects.

Even now inventories are at low levels. "

"ln looking at the enrire year (1979). this industry rnaintained a solid procluction rate. In spite of the predictions of' recession that we constantly heard, it contpares firvorably with the strong 1978 we experienced. "

The western lunrber industry's practical cupncity for any given month is based on the highest actual production reached in that nronth during the last five calendar years, including the current month.

Buying Night a Hit

The large turnout and brisk buy- ing at the recent Globe International promotional dinner was, anlong other things, an interesting economic indicator that clealers in a wide area of the West are still buving strongly lor inventory.

Ileld at the company's Redondo Beach (Los Angeles), Ca., warehouse. the 8th annual had a record turnout of nrore than 300. Buyers came fronr as far away as Northern California, Nevada and Arizona.

The company had "one night only" prices on all products, according to Jim Cononrikes, v.p. "ln addition," he added, "buyers get prize drawing tickets in relation to the anrounts they buy."

The prizes were an elaborate array of computerized radios, pens, calculators and the like, plus stereos and even a set of silver eoblets. The grancl prize of a big c-olor tv. was won by Andy Leon of AllAnrerican I'lonre Center in Downey, Ca.

Well set tables, good food and cocktails were other inducenrents that drew the big turnout.

New Wholesale Firm

North Bay Forest Products was recently opened in Healdsburg, Ca., by Dave Damon, Dave LeBeck and Ron Lewman.

Dealing in wholesale forest products, the company is providing mixed truck and trailer and mixed car requirements. They handle a large selection of redwood, Douglas fir. hem-fir. cedar and hardwood products.

They also are capable of renranufacturing to association standards and can also satisfy special architectural specifications, package thin paneling, treated stock, fencing, laminated beams, special packaging, and export needs.

Redwood, yes - Cattle, no