Electrical contractors install a variety of parts, material and equipment on every job, which represents almost half of the total project cost. Providing the correct materials at the right time is critical to keeping projects on schedule; delays can waste valuable labor hours and money. Managing materials inventory is essential to ensuring project profitability. The right software allows contractors to monitor their inventory and to have accurate information about the types and quantities on hand.
“Having a system that tracks all the materials for each stage of a project allows the contractor to more effectively manage the job and to ensure that it is adhering to product forecasts,” said Russ Mellott, senior director of product development for Activant Solutions Inc., Yardley, Pa.
How does inventory management software assist electrical contractors in their everyday operations? Inventory management software, according to Brad Mathews, vice president of sales and marketing for Dexter + Chaney, Seattle, tracks materials and helps contractors efficiently manage inventory investment and allows them to use inventory more effectively.
“The right software makes it possible to check available inventory, create a requisition for the necessary materials, expense those materials to a specific job, and to print a list of the items that are to be picked from the warehouse in one single step,” he said.
Inventory management software also helps contractors to determine safety stock levels and reorder quantities, avoiding the problem of having either too little or too much of an item.
“The goal is to keep inventory levels and inventory usage in balance. With the right software, the contractors can avoid stock-outs and back-orders as well as overstocks,” Mathews said.
In addition, an effective inventory management system allows a contractor to track and respond quickly to changes on the job and to better track what other related products are needed for a project, beside basic ones.
“A good inventory management system will also help the contractor by providing a history of purchases that will allow it to more accurately forecast what products and materials will be necessary for similar jobs and to work more effectively with its distributors to ensure the flow of products,” Mellott said.
Other ways that an inventory management system can assist contractors in keeping operations running efficiently and profitably include being able to segregate inventory costs on a job-to-job basis and integrating with the company’s accounts payable system to reduce redundant computer entry tasks.
“Inventory management software that works in conjunction with bar code scanners affords the contractor a clear view of ongoing operations,” said Boris Hadshi, principal of Core Partners Inc., Frederick, Md. “With this sort of system, the contractor will know exactly what’s available in the central storage facility and at each job site, who has been issued what equipment, and which costs to charge to particular jobs.”
Features to look for
To be truly useful, inventory management software should be an integrated element of the contractor’s overall business system, according to Mathews.
“This way, inventory management can be tied directly to job-cost programs as well as purchasing, work order and general ledger programs,” he said.
In addition, the software should be able to record a list of items taken from inventory and used on a job; should support the major inventory costing models—such as last in, first out (LIFO) and first in, first out (FIFO); maintain a record of each purchase and the price paid; support the use of multiple warehouses and an unlimited number of inventory items; and provide detailed inventory transaction histories and reports.
“There should also be an option that includes an order processing system as part of the overall package,” he said.
In addition to purchase history tracking reports, Mellott advises contractors to look for a program that will update inventory levels by location, track the demand and usage of different types of products by project or customer type, track lead times from suppliers, track supplier service levels (how well suppliers deliver on their promises), and generate replenishment requirements efficiently and accurately.
“The program that provides the contractor with the greatest gross return on its investment through the information generated is the one that will fulfill the contractor’s requirements to management inventory costs effectively,” he said.
Valerie Arneson, product director at Sage Timberline, Beaverton, Ore., advises contractors to look for software that allows users to enter or import requisitions, process necessary return authorizations, generate invoices automatically, enter change orders and track them, and generate new purchase orders.
“The right system will allow contractors to eliminate paperwork and will ensure better tracking of commitments as well as avoid material delivery delays by creating purchase orders from the job site,” she said.
Bar code scanning capability is the primary feature that Hadshi advises contractors to look for when choosing an inventory management system.
“Bar code scanning improves both accuracy and the speed of the receipt, movement and shipment of products, and provides real-time reporting concerning outstanding orders and inventory location,” he said.
In addition, bar codes record all operations and who was responsible for each, providing the contractor with a better chance to recognize and eliminate unexplained inventory losses.
One of the major benefits gained from using inventory management software is time savings. Software makes it easier to record transactions, check inventory levels, and produce reorder reports, said Mathews. It helps make jobs progress more efficiently by making it easier to requisition materials for jobs and to ensure that material is available when needed.
From the standpoint of inventory levels, contractors can use the information generated to choose the most cost-effective supplier with the best history of performance and the highest levels of service.
“In running an operation that is as lean as possible, inventory management software allows the contractor to minimize its inventory investment while allowing efficient project completion,” Mellott said.
According to Arneson, inventory management software ensures that there is a three-way match between the purchase order, the stock receipt and the invoice. Other benefits, she added, include eliminating unnecessary double entries, removing the burden from the accounting department to provide reports and real-time information concerning procurement issues and inventory, and avoiding material delays.
“A good inventory management software system benefits the contractor by performing functions such as more tightly controlling receiving operations, verifying stock quantities in multiple locations, creating sales orders, and providing detailed, real-time reports,” Hadshi said.
All of which improves the bottom line by improving efficiency, accuracy and timeliness. Inventory management software is a wise investment for contractors who want to run projects efficiently and save money by monitoring inventory and balancing supply with demand. EC
BREMER, a freelance writer based in Solomons, Md., contributes frequently to ELECTRICAL CONTRACTOR. She can be reached at 410.394.6966 or firstname.lastname@example.org