In the openings distributor’s world, it’s an everyday occurrence to buy special ordered non-standard material for contracts and sales orders. It’s also a common occurrence that, on occasion, that special ordered material doesn’t end up with the customer, and winds up as part of your inventory.
In the case of many distributors, this material winds up in a pile in the warehouse with very little documentation or visibility into what is actually there. In our work with distributors, we have come across organizations that have tens of thousands of dollars in “bone pile” inventory. We call this inventory, “unassociated inventory.”
This inventory originates from many sources including incorrect orders, changes, customer service issues, repeat orders and more. The result of this material is thousands of dollars in lost profitability.
Further, most distributors do not have a system in place to manage this inventory and give visibility of this material to the team. So instead of fulfilling material requirements for future jobs with this material, it simply sits collecting dust.
This material since it was special ordered and not for stock, needs to be individually handled. Handled might mean re-assigning it to another job, returning it to a vendor (if possible), acknowledging it as SHELVED (reviewed, but still undefined about what will happen to it), converted to a stock item or possibly written off.
As a good practice, your company should assign the responsibility to review the accumulating unassociated inventory periodically (at a minimum monthly, but more frequently would give you better control). Remember that unassociated inventory IS STILL INVENTORY and lands on your balance sheet. It’s not expensed to the job until that decision has been made.
We have seen companies who aren’t reviewing this often enough end up with a higher inventory value than they were expecting, which causes their profitability to be off on jobs and more importantly, negatively effects their bottom-line.
So as a best practice, set up an internal procedure for whom and how often unassociated inventory is reviewed and more importantly, handled. Getting control of this type of inventory situation could save your business significant dollars as well as giving you better inventory management all around.
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Filed under: best practices, contracterp Tagged: | bone pile, bonepile, Door and Hardware, inventory control, openings distributor, unassociated inventory
