As professional property managers we are directing the spending of significant dollars every day. Products we use in property management daily are common to have on hand. Be it a disposal, air filters or cleaning supplies; these are usually just a few steps away on property when needed. However, there is a carry-cost with having too much inventory.
Sam’s Club is a great place to buy in bulk. But let’s face it; most of us do not need three mega-jars of Ragu sauce at one time. The same is true for supplies inventory at the property level. Whereas cleaning supplies are a necessity, procurement of 55 gallon drums of Simple Green is over the top.
Just enough, good. Too much, bad
Its important to have inventory on hand, but not so extensive that shrinkage (stealing), spoilage (loss of use) or functional obsolescense becomes an expense category. Eliminating all three can increase NOI without raising rents or reducing service levels.
Example: every property needs 9 volt batteries for smoke detectors. they can be purchased in cases of 144. Staff knows there is only X smoke dectectors on site and that the batteries last, on average two years. There is no savings here buying bulk (for a single site). Most of this stock ends up walking off the property. Best to inventory properly as there is no savings in buying cheap batteries either as they will require more replacement labor. Small example, but it ad’s up.
Example: a unit sustains water damage. The low-man in maintenance is in charge and order’s drywall- enough to do a small house. In a miracle of engineering, it takes 55 sheets of drywall to repair two walls. And “low-man” trucks off just enough to finish his garage or basement at home. Thus, while “low-man” is in charge of the job, YOU are in charge of the property… this one’s on you.
Divide and Conquer!
At the property level, from a bookkeeping perspective, in your minds eye separate Cap ex from regular maintenance from turnover expenditures. Although we order material and supplies for each of these categories, where can we find savings? The line gets gray sometimes if supplies for all three categories are ordered from the same suppliers. Divide and conquer(!) these categories.
The American industrial revolution produced more goods in less time than any other period in history. Part of the evolution of production included delivery of raw materials “Just in Time” for production literally eliminating the need for inventory.
Now we are at a point in time, recognizing the supply chain is not perfect, realizing that some inventory is a good thing in case the trucks, trains and planes are late or stopped altogether for whatever reason. Thus, while I am pushing here for your business to be “mean and lean” on supplies, don’t shoot yourself in the foot by being too light.
The last time I was “allowed” to order supplies at the property level I bought ten boxes of 30 gallon trash bags. Legend has it three years later that original stock has five boxes to go. So much for “just in time” inventory.
The best we can do is learn from our mistakes. Protecting the property, delivering revenue and costs containment is a focal point our responsibilities.