Bring order to inventory chaos

You can’t control the weather. You can’t control whether a potential customer will sign on the dotted line. You can’t control the labor pool. But you can control your inventory, and doing so helps maintain a healthy cash flow.

Considering the cost of materials and investment in products, parts and plant stock to run a successful landscape business, inventory management should be part of the company culture. And it starts with the business plan, says Terry Kurth, director of development for Weed Man U.S.A. franchises. “When you see the dollar amount spent on products annually, you realize the importance of tracking inventory,” he says.

Think about it: Every dollar tied up in inventory is money not available for other business development activities, or simply paying the bills.

“In this economy, a $10 bag of product you may not need for a month or two is $10 of cash flow,” says Jerry Schill, co-owner, Schill Landscape Development, Sheffield Village, Ohio. “Dollars turn into huge sums of money, and with pricing pressures and the cost of raw materials fluctuating seasonally, we have a responsibility to our clients to buy smart.”

This month, Lawn & Landscape spoke to three firms to learn how they streamline purchasing and prevent materials, parts and other inventory from sitting in the shop.

Cleaning house
Before seriously purging and organizing inventory, Schill Landscape Development filled a 1,200-square-foot storage space loaded with shelves, bins and drawers with countless equipment parts and other “must haves.”

“The parts room alone was disgusting,” co-owner Jerry Schill says. “We used to have massive shelves full of stuff and trucks full of parts and whatnots – lightbulbs, wire, irrigation fittings, you name it.”

But while “leaning” operations a few years ago, that must-have list was whittled down significantly. Now, parts fit in a 150-square-foot locker room and the company saves hundreds of thousands of dollars that were once tied up in inventory.

“We had brand-new obsolete parts for equipment we don’t even own any more – they were still in their wrappers,” Schill says of the glut.

Part of the reason for the mess of unused parts was a haphazard ordering system – or lack thereof. “If we needed it, we just went and got it,” Schill says. A crew would swing by a supplier’s shop to pick up a needed product rather than driving back to headquarters for the item.

“We had everyone in the company running around buying stuff – there were missing receipts, there weren’t job numbers on items or purchase order numbers recorded,” Schill says.

His office staff was wasting time tracking down receipts. Schill needed to fine-tune ordering processes, but the system needed to extend beyond the storage room and include how trucks are stocked to avoid making unnecessary purchases of parts and equipment.

Before embarking on the massive clean-out, Schill invited key suppliers to participate in a strategic meeting with a goal of finding ways to reduce waste and streamline ordering. Schill asked suppliers how the company could reduce waste and make ordering mutually beneficial. By doing this, the company developed stronger partnerships with vendors so they can work together to implement just-in-time ordering. That way, Schill and vendors don’t have to tie up cash flow on parts that won’t be used.

Now, the parts supplier visits Schill’s headquarters regularly, reviews inventory and replenishes it where needed. Schill’s fleet manager meets with the equipment parts vendor annually to review parts used on a regular basis: belts, oils, filters. Now that equipment is standardized (Schill uses one brand of mower), the company can consolidate its parts purchases. “And at the end of the year, the inventory we don’t use we can give back to the supplier,” he says.

Nursery stock is purchased once or twice weekly. Rather than crews waiting in the yard for plants, the vendor organizes orders by job and delivers them to the Schill property.

The actual clean-out was staged by five leaders who accounted for every item. Some was scrap metal that could be recycled. Other unused parts were returned to vendors. Lots of items were sold in a good, old-fashioned warehouse sale Schill held. Some of the stuff was simply pitched.

The project took about six months, though Schill says that sustaining a lean inventory is the big challenge. “The pursuit of perfection is the trick,” Schill says, recognizing the constant work involved in running a streamlined business in this economy.

But the motivation is a fatter cash flow, which keeps the organization healthy. “Every dollar we take out of unneeded or unused inventory is money that goes back into the cash flow stream,” he says.

Systems and science  
Managing inventory is an art and science that begins with a detailed business plan that outlines exact product costs. Also, every number is tracked: the average lawn size, projected growth, expected number of customers for the coming year. “We know how many millions of square feet we will treat and how much product will cover that, and we do the math,” says Terry Kurth, director of development for Weed Man U.S.A. franchising.

Inventory is tracked each month, every day at every Weed Man location. In particular, systems at the four Wisconsin branches that Andy Kurth operates as general manager involve daily check-in and check-out of product. Before technicians leave the shop, they measure and log how much granular and liquid product they load on to the truck. They record their calibration levels. And when they return at the end of the day, they quickly review the day’s work with a manager and the leftover product is recorded on a spreadsheet.

A truck report is created so managers know exactly how many square feet each technician treated. “We know how much fertilizer is used to the ounce, and we jot that down in our spreadsheet,” Andy says.

“When you have almost 6,000 customers, it doesn’t take long to go over on (product) usage, and you can lose $10,000 to $20,000 real quick if you don’t monitor it,” Andy says.

Product waste from improper calibration or ordering more than a branch needs can cost a branch thousands. If product ordering projections are off by 5 percent, a company that does $2 million in business might spend $300,000 annually on product and lose $15,000 because of that inaccuracy.

“Fifteen thousand dollars buys a lot of time,” Andy says.

Developing “good habits” around tracking and recording inventory eases the ordering process, which is the art of managing inventory. “The biggest challenge with inventory is making sure that managers across our different markets are always looking ahead,” Andy says. “If we have a product that we are going through rapidly, we don’t want to hear tomorrow, ‘I’m running out.’ We make sure we have a two- to three-week window of time before we run out so we never skip a beat.”

Weed Man takes advantage of opportunities to buy product in bulk and secure lower prices. “It’s a commodities game,” Terry says of manufacturers’ early purchasing discounts. “Right now, we are looking at the market and wondering – will prices go up next year?”

These branches generally wage their bets on prices going up and opt to take discounts and store product. They have the warehouse space available, and manufacturers make storing materials worth their while by offering attractive terms for taking product in December or January for the upcoming season.

“We’ve had at least eight semi-trucks of product delivered in December because it made sense for us to do that before prices increased, and we got terms where we didn’t have to pay for 30 days,” Terry says.

Because franchises enjoy Weed Man’s buying power, they can secure lower product prices. Still, the cost of product is significant, and sharing this information with employees helps them realize the importance of accurate application – a key to controlling inventory costs.

“When you’re mixing and loading product on a truck daily, product cost doesn’t seem that important, but when employees see the business plan and the dollar amount spent on an annual basis, it makes a big impact,” Terry says.

The secret to stopping product “leakage” from misuse or inaccurate ordering goes back to developing and implementing solid systems, like those tracking spreadsheets. “Having the proper habits in place is imperative,” Andy says. “As you grow the business, you continue with those good habits.”

Less is more
Mark Pendergast focuses on making sure his company doesn’t carry product during the winter off-season.

“We try to be conservative in our buying,” says the president of Salmon Falls Nursery and Landscaping. “Years ago, we would be more apt to carry inventory over the winter, but now we are trying to avoid that. You don’t want to tie up a lot of money in hard goods.”

Pendergast keeps inventory lean by sticking with this mantra: order less more often. That way, he can maximize cash flow and avoid storing materials that may not get used for months.

“My advice: use up your inventory and don’t order so much,” Pendergast says, simplifying what can be a daunting ordering process.

It helps that Salmon Falls grows much of its own plant material – usually half of what is required for most landscaping projects. The company headquarters includes 160 acres of property where specimens like shade trees and evergreens grow. For some jobs, all plants can be sourced from Salmon Falls’ own stock. For other projects, Salmon Falls brings in additional materials from vendors. It all depends on the design, and Pendergast keeps up with landscape architects’ trends so he can anticipate popular varieties and plant what will sell.

Then twice each year, Pendergast takes inventory of the nursery, counting plants that are growing, and stock that’s “above ground” and ready to be loaded on to trucks and taken to job sites. Salmon Falls works with a broker to sell some of its plant stock to wholesalers. “The nursery not only helps with inventory, it keeps us competitive because it pays for that real estate, which is an asset,” Pendergast says.

Back at the pole barn where Salmon Falls stores materials and parts, Pendergast keeps track of what’s in store with an inventory board. Each day, supervisors track items they remove from inventory and place on trucks. “Supervisors do the reordering based on what (parts) were sold on jobs,” Pendergast says.

If one of Pendergast’s vendors is running a special, say on PVC piping, he might buy extra to take advantage of the cost savings. But he is careful to make wise bulk-buying decisions. For example, the company no longer orders grass seed for the year. He’ll place orders for seed several times during the season instead. “By not tying up inventory,” he says, “you’re freeing up cash.”