The Financial Implications of Effective Inventory Control for Construction Companies

The fast-paced, high-risk environment of construction makes this industry notoriously difficult to thrive within. Financial considerations can include expensive equipment, insurance, payroll, inventory, and utilities. Managing inventory, in particular, is crucial for construction companies to stay afloat. If you’re looking to save money and reduce delays, practicing proper inventory control is a must. 

Risks and Costs Associated With Poor Inventory Control

Ineffective inventory control in construction can include any combination of the following risk factors: 

  • Inaccurate demand forecasting
  • Unstable supplier relationships
  • Improper stock monitoring, including shelf-life
  • Unsafe conditions
  • Inadequate security protocol
  • Human error

If your inventory management is floundering, there are several adverse outcomes that are more likely to occur, including: 

  • Material waste
  • Theft
  • Injury
  • Damaged goods
  • Overstocking
  • Delays

Your bottom line depends on your ability to predict and meet demand. If your methods of controlling inventory are flawed, either through failed tracking methods or inattentive work practices, it could cost you financially. For example, employees could become injured if they are cutting corners with safety and workflow optimization. You could potentially incur damages to items that are stored incorrectly or run past their shelf life. Most commonly, though, your construction company could under- or overstock inventory, causing either a delay in projects for customers or wasted materials. In any case, it’s best to optimize your inventory control to avoid these risks in the first place.

How To Optimize Inventory Control for Maximum Profitability

Efficient construction inventory management doesn’t have to be difficult. In fact, there are many tools available to help you along the way. Here are some tips to maximize your profits through better inventory control.

Conduct Inventory Audits

You won’t know where to start without first assessing your current state of inventory affairs. Conduct inventory audits periodically. This includes keeping track of all inventory and making sure it lines up with business records. The process may require manual counting and assessment of stock, inventory counting tools, and the use of various data analysis processes, including freight cost and overhead calculations. You can even opt to hire third-party services to audit your inventory if necessary. 

In fact, it’s best to go beyond just counting stock in order to predict reorder times accurately. Your construction inventory should be organized with a system of SKUs, barcodes, and detailed information for each product — like supplier, project due date, etc. Once you have a clearer picture of your warehouse stock, you can then more accurately predict profits, budget, and plan reorder points (ROPs). You can also take steps to mitigate any losses or inefficiencies before they cause irreparable damage to your business.

Use Space Effectively

When you estimate how much construction inventory you need at all times, you can better utilize your warehouse space. This will look different for every company. Smaller businesses can use storage units for lower utility costs and easy management of inventory that would normally sit on shelves season after season. Typically, construction materials don’t expire, so keeping them somewhere temperate and dry is of utmost importance. 

Medium- to large-sized construction operations will likely have larger warehouses to manage. In this case, make use of vertical space safely. Don’t stack materials on top of each other in ways staff cannot reach them or they are at risk of toppling over. Make sure to keep fire exits clear and map out an optimized warehouse route for employees, including high-traffic areas and shipping and receiving entrances. This will not only give you an idea of where you need to downsize or upgrade, but it will avoid injury and optimize efficiency. 

Automate Processes

Luckily, a ton of construction business processes can be automated — and that includes inventory control. Consider implementing tech to speed up inventory management and save money in the long run. Examples include RFID scanners, inventory management software, and smart tech for controls like temperature and security systems. 

The way you optimize your construction inventory will be unique to your situation, but the financial benefits will be clear. Take stock of your stock today and enjoy a safer, more profitable future.

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