Vendor-managed truck replenishment
Controlling inventory on your service vehicles will save money and increase technician productivity.
Your service plumber is out on a job, perhaps on a residential water heater repair. He looks through this truck for a part but can’t find it. So he tells the homeowner he has to run to the supply house to get what he needs to repair the water heater and he’ll be right back.
Once your plumber gets to the supply house, he gets talking to the counter staff, sees someone he knows and walks over to get coffee. It could be 30 to 45 minutes later before he returns to the job. By then, the homeowner may have decided not to have the work done - at least not by a company that doesn’t value her time.
Does this sound familiar? A truck that is not organized and stocked properly can cost your company wasted time, lost productivity and perhaps a customer.
In a vendor-managed inventory program, a distributor such as Barnett sets up an onsite warehouse within the contractor’s facility and staffed by a Barnett employee. Photo credit: Barnett
“What a truck replenishment program provides to contractors is better control over their inventory,” says Brian Leahy, director of supply chain for plumbing and heating distributor Barnett. “They’re better organized, knowing what’s coming and going on the truck. And it keeps the technician out of the local supply house. Closure rates are a lot higher when everything needed is on the truck.”
He adds that loss of material from shrinkage is reduced - from an average 10% to 15% of cost of goods down to about 3% to 5% after a replenishment program is set up.
But the biggest driver is reduced inventory costs, which allows contractors to invest that money into their businesses.
“We would buy from local supply houses and had about $300,000 to $400,000 worth of inventory I had to pay cash for,” recalls Dan Weltman, president of Weltman Home Services, Berkeley Heights, N.J. “We were not very good at tracking inventory. We threw out thousands of dollars worth of inventory that was outdated, expired or obsolete.”
Three generations of Weltmans work at the company: Dan; his father, Bob Weltman; and his son Kyle Weltman. Bob Weltman oversees the company’s cardboard and scrap metal recycling program while Kyle works in the service department.
Dan Weltman began working for the residential services and repair company, which his grandfather started in the 1930s, between semesters of college. He finally decided a plumber career would be more lucrative than a liberal arts degree.
During the late 1980s, he began reading Frank Blau’s columns in http://www.pmmag.com/ Plumbing & Mechanical about flat-rate pricing, charging the right price and knowing your overhead. At the time, he didn’t believe it was the right approach for his company. Then the Gulf War recession hit in the early 1990s.
“It was really tough - we had to borrow money at Christmas to make payroll,” Weltman says.
A New Jersey course by Blau led Weltman to Nexstar (then Contractors 2000), which eventually led him to Barnett through Nexstar’s industry partner program. Barnett also is an industry partner of Quality Service Contractors.
After reviewing the different options Barnett offered, Weltman went with a vendor-managed inventory approach that includes truck stock replenishment for its Ford and Chevrolet 10-ft. box vans. Barnett has 25,000 sq. ft. in Weltman’s warehouse, which Barnett stocks with inventory based on 90% of Weltman Home Services’ Barnett purchases.
“Now we have about $300,000 to $350,000 worth of inventory in our warehouse, yet I haven’t laid out one penny for it,” Weltman states. “It has dramatically improved cash flow. It’s in my warehouse, but I don’t pay for it until it is used in the field.”
Brothers technicians electronically report material used on a job. (L-R): Ray Shirley, Marc Roegner, Tammy Robertson, Dusty Bell and Joe Padgett. Photo credit: Pippin Brothers
Customizable solutions
Barnett has several types of inventory management systems, Leahy notes - vendor-managed inventory, consignment and truck replenishment.
“What we’re offering to the contractor are inventory solutions that are customizable,” he says. “A customer may have truck replenishment on its trucks, but then we’re consigning big-ticket items such as water heaters and toilets. Each solution is based on what fits best for the contractor.”
Through a VMI system, the distributor is set up at the customer’s facility, Leahy explains, staffed with a full-time Barnett employee. Depending on the size of the operation, a plumbing and mechanical contractor could have six Barnett employees managing the company’s inventory. All the material on the shelf is owned by Barnett until purchased by the customer.
In the truck stocking segment of the inventory solutions program, a Barnett sales rep will discuss options with the contractor and focus on soft-cost savings.
“We show the value in product standardization, making sure that, within each customer’s fleet, plumbing trucks carry the same parts and pieces on each truck, and HVAC service trucks carry the same parts and materials,” Leahy explains.
The sales rep discusses with the contractor what the company needs to carry on a plumbing or HVAC service truck, as well as the quantity of each item. In a VMI situation, contractors are invoiced after each job.
In a truck replenishment only program, the contractor can decide how often to send in a truck stock order. Service techs record what materials they’ve used on each job. The order is sent to a Barnett sales rep, who will key in the order and have it shipped to the customer. When the material is received, it is separated by truck so the right material gets on the right truck.
If a contractor decides on the consignment option, Barnett stocks the contractor’s warehouse and returns every four to six weeks to restock inventory.
Lawton, Okla.-based Pippin Brothers - which offers light commercial and residential plumbing and HVAC service and replacement - also chose the VMI with truck stock replenishment option.
“We let our techs go to any supply house and buy what they wanted. Sometimes they’d go to a supply house, spend 50 cents and stay 30 to 45 minutes, so we were paying a lot more for that 50-cent part,” explains Shannon Pippin, sales and installation manager at Pippin Brothers. “We didn’t keep any stock at the shop, so it was all done through supply houses. We didn’t know what was on the trucks, there was no way of tracking it.”
Pippin Brothers opened in 1978 by brothers Mark (Shannon’s father) and Jerry Pippin as a construction company. In the early ’90s, the company added a service department to take care of current construction customers as well as their owners and other builders’ homes. However, the brothers didn’t have experience in running a service department, so the company joined Nexstar in 1994.
“Since 2003, we’ve seen huge growth in the service department; right now we have more plumbers and HVAC technicians and installers than we ever have before,” Shannon Pippin notes.
With the VMI system, Pippin Brothers knows what material it’s using. And its service techs now have to ask permission to go to another supply house.
Most of Weltman Home Services’ techs take their trucks home. Pictured in back: David Nowicki and Patrick Pampanin. In front: Christopher Egner, Gary Nowicki, Kyle Weltman, Jason Weber and Richard Haberle. Photo credit: Weltman Home Services
Increased efficiency, profitability
Most of Weltman Home Services’ technicians take their trucks home. When they are on a job, techs use handheld computers to key in the materials they use - as well as tasks sold, time period of the job and payments. This information is immediately transferred to Weltman’s inventory manager, who reviews the materials used and decides if it will be restocked by Barnett or another vendor.
If the material is to be pulled from Barnett, which provides about 85% of Weltman’s inventory, a verified list is sent to the Weltman inventory control specialist (the Barnett VMI employee). Inventory is placed in individual truck bins.
Weltman has two drivers who start out the next morning traveling to service techs’ homes or jobsites, dropping off replacement materials and paperwork. They have keys to the trucks, so they remove scrap and garbage, and retrieve completed paperwork and payments.
“We have increased the efficiency of our techs by having the material to them in a timely fashion. We’ve increased our cash flow by having a minimum amount of money in inventory,” Weltman notes. “And we’ve increased the efficiency of our operation by returning warranty pieces almost immediately.”
Pippin Brothers technicians get paid bonuses on their efficiency rates, and they’ve noticed much improvement in their efficiencies because they’re not going to the supply house or waiting for a runner, Shannon Pippin says.
“We put together pull kits for installation so our guys would have more than enough material out of those kits,” she explains. “Our trucks have extra supplies they might need on service and install.”
Techs log the items they use on each call and record it as truck inventory or warehouse inventory. When invoices are turned in at the end of the day, a report is generated and given to the Pippin VMI manager. She pulls all the materials and puts them in technicians’ bins, which go into the trucks - Hackney box trucks for plumbers, Ford vans for HVAC techs.
“It’s a one-day turnaround,” she says. “It’s worked out really well, especially for installation crews - no wasted material. Barnett can pull reports on what we’re moving, so if something is sitting on the truck because our guys say they use it all the time but they really don’t, we can change our stock. Productivity has gone up in all areas, plumbing especially.”
Work in progress
“It doesn’t work perfect from day one,” Weltman notes. “It took us about a year to get the bugs worked out of it. We still tweak things as the market changes, our demands change or products change. And what we don’t use, if it sits on a shelf for six or 12 months, Barnett returns it at no charge to me.”
Because Weltman Home Services is in the Northeast, there are some regional items that Barnett didn’t have in its national catalog - mainly steam-heating systems, Weltman explains. “Now they’ve come up with regional items for us that they include in their catalog. Otherwise, if it’s not in their catalog, they buy from the same national wholesaler that I would buy from and tag on a markup.”
For Pippin Brothers, the plumbers and HVAC techs experienced an adjustment period.
“It was hard for them to not go to the supply house, to trust us that we’d put what they needed on their trucks,” Pippin says. “We had quite a few meetings in the beginning to find out what was working, what we needed to take off, what we needed to add. Just recently we adjusted what we needed in our install pull kits, so it’s taken about a year from start to finish.”
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