There Are Really Three Inventory Strategies

Most siding contractors fall somewhere between three approaches:

1. Buy everything by the job. Order the complete material package after the project is sold.
2. Stock your own inventory. Maintain siding, accessories and other materials at your shop or warehouse.
3. Use a hybrid system. Keep high-use materials yourself while relying on your distributor for deeper inventory and project-specific orders.

For many small and midsize siding contractors, the third option deserves serious consideration.

The Advantage of Buying Materials by the Job

Buying materials specifically for each project has one major financial advantage:

Your money is tied to a sold project instead of sitting on a warehouse shelf.

If a homeowner purchases a particular siding color and profile, you order what that project requires.

That can help reduce:

• Excess inventory
• Obsolete colors
• Discontinued products
• Damaged material
• Warehouse requirements
• Inventory counting
• Cash tied up in unsold material

For contractors with limited warehouse space or working capital, buying by the job can keep the operation considerably simpler.

But Buying Everything by the Job Has Weaknesses

The other extreme can create inefficiency.

Imagine your crew needs one additional piece of J-channel, utility trim or starter strip.

If absolutely nothing is kept at your shop or on your trucks, a relatively inexpensive accessory can create an expensive material run.

That is why "zero inventory" is not necessarily the same thing as efficient inventory.

Why Contractors Start Keeping Their Own Inventory

As project volume increases, contractors often begin stocking materials because they repeatedly need the same items.

Common examples may include:

• Starter strip
• Common J-channel
• Utility trim
• Common soffit accessories
• Fasteners
• Flashing products
• Sealants
• Housewrap accessories
• Common trim coil colors
• Frequently used installation supplies

Having frequently used items available can prevent a crew from losing productive installation time over a small missing component.

Inventory Has a Carrying Cost

Contractors sometimes think about inventory only at its purchase price.

But inventory creates additional costs.

Depending on the business, those can include:

• Warehouse rent or building cost
• Racking
• Forklift or material-handling equipment
• Insurance
• Inventory management
• Employee handling time
• Damage
• Shrinkage or loss
• Obsolescence
• Capital tied up in inventory

A $10,000 pile of siding is still $10,000 of company money—even if it is sitting neatly inside your warehouse.

Cash Flow May Be the Biggest Issue

Growing contractors need cash.

You may need it for payroll, trucks, equipment, insurance, marketing, fuel and deposits on upcoming projects.

Every dollar committed to speculative inventory is a dollar that cannot be used somewhere else in the company until that material is sold.

Inventory should have a purpose—not simply make your warehouse look full.

The Dead Inventory Problem

Ask an established contractor to walk through the back corner of their warehouse.

There is a good chance you will find material from old projects.

Maybe it is:

• Two cartons of an unpopular color
• A discontinued profile
• Old accessories
• Partial cartons
• Special-order material
• Damaged pieces someone intended to sort later

Every piece originally represented money.

Without an inventory-management process, leftover project material can slowly become a collection of products the company may never use again.

Don't Turn Leftovers Into Inventory Without a Plan

There is a difference between intentionally stocking inventory and simply keeping everything left over from every project.

If leftover material comes back to the shop, identify it.

Record:

• Manufacturer
• Product line
• Profile
• Color
• Quantity
• Original project
• Date received

If nobody knows what is on the rack, it is difficult to use that material on another appropriate project.

What Should a Siding Contractor Consider Stocking?

Instead of asking, "What can we stock?" ask:

"What repeatedly causes our crews to stop working?"

That question can help identify the best candidates for contractor inventory.

Consider materials that are:

• Used frequently
• Relatively inexpensive
• Compatible with many projects
• Easy to store
• Unlikely to become obsolete quickly
• Expensive to run out of during installation

That is a much stronger inventory strategy than buying material simply because you received a good price.

Let Your Distributor Carry the Deep Inventory

This is where a good local building material distributor can become part of your inventory strategy.

Your company does not necessarily need to own every carton sitting on a warehouse rack.

If your distributor maintains strong local inventory, you can access material when projects require it without purchasing every possible color and profile in advance.

At Suburban Wholesale & Supply, we stock 29 colors of .046 vinyl siding for contractors.

Instead of every contractor trying to warehouse 29 colors themselves, let your distributor do what a distributor is supposed to do: stock material.

Local Inventory Plus Jobsite Delivery Changes the Equation

A distributor with inventory is valuable.

A distributor with inventory and delivery can become even more useful.

Consider the workflow:

Sell Project → Order Material → Distributor Stages Order → Material Goes to Jobsite → Crew Installs

Compare that with:

Buy Inventory → Store It → Handle It → Load It → Drive It to Jobsite → Unload It → Install

Every additional handling step consumes employee time and creates another opportunity for material to be damaged or misplaced.

Don't Pay Installers to Manage a Warehouse

There is another hidden inventory cost.

Who receives the material?

Who puts it away?

Who counts it?

Who loads it onto tomorrow's truck?

Who reorganizes the racks?

If the answer is your highest-paid installers, inventory may be consuming more production labor than you realize.

Skilled installers create value when they are installing.

When Keeping More Inventory Can Make Sense

There are contractors for whom larger inventories make financial and operational sense.

That may be true when:

• You install very high project volume.
• You repeatedly use a limited number of products or colors.
• You have appropriate warehouse space.
• You have employees responsible for inventory.
• You have reliable inventory controls.
• You can purchase material without creating cash-flow pressure.
• Immediate material availability creates measurable production savings.

At sufficient volume, maintaining selected inventory can become part of an efficient production system.

When Buying by the Job Usually Makes More Sense

Project-specific ordering deserves consideration when:

• Customers select many different colors.
• You sell several siding materials and profiles.
• Your project volume fluctuates.
• Warehouse space is limited.
• Working capital is more valuable elsewhere.
• Your distributor maintains good local inventory.
• Your distributor can deliver directly to the project.
• Products or colors change regularly.

The more variety you sell, the harder it becomes to justify owning deep inventory in every possible option.

Calculate Inventory Turns

If you maintain inventory, track whether it actually moves.

A simple question is:

How long has this material been sitting here?

Material that turns regularly may justify its warehouse space and working capital.

Material that has not moved for a year deserves scrutiny.

Your warehouse should support production—not become a museum of siding colors you used five years ago.

Perform an Inventory Cleanup

Walk your warehouse and classify everything.

Ask:

• Do we still sell this product?
• Is this color still available?
• Do we know exactly what this material is?
• Could it realistically be used on an upcoming project?
• Is it damaged?
• How long has it been here?
• Would we buy this material again today?

If the answer to the last question is no, ask why your company is still paying to store it.

Your Supplier Should Be Part of the Inventory Conversation

Ask your building material distributor:

• What products do you regularly stock?
• Which colors are readily available?
• What accessories should we consider keeping ourselves?
• Which products should we order by the job?
• What are typical lead times?
• Can you deliver directly to our jobsites?
• Can you help us plan larger upcoming projects?

A good distributor should help you reduce inventory headaches—not encourage you to fill your warehouse with material you do not need.