Inventory the Asset that Keeps on Giving

Several years ago I had the privilege to meet a wholesaler who taught me more about being a business man and how to control inventory than anyone before or since. In my thinking he is the Grand Master of Inventory.  As the president of a 5 branch HVAC distributorship in Southern California he understood inventory that was in both the main warehouse and the branch locations.

I had an appointment to talk with him about our Distribution Software.  When I went into his office I found him signing a stack of Accounts Payable checks.  He asked me to be seated as he had to get these checks signed so accounting could get them sent to his vendors.  I watched as he was merrily signing what I assume was $1000’s of dollars worth of checks.  He finished the stack and after accounting had retrieved the signed checks, he gave me his full attention.

I told him that I had never seen anyone so happy to sign checks. He smiled and said, “Mel, those checks paid for the inventory that gives me the money to pay my bills, payroll, overhead, and to have some left over at the end of the day.” then he went on to say that, “Inventory when it is properly managed is a money machine.” 

Then he gave me the best one liner in the distribution industry.

“Inventory is the only Asset that produces Revenue”

I had just been given an AHAH moment in my business life. 

I realized that not only was this man a distributor, but a distributor who was passionate about his profession and his inventory.  He studied inventory on a daily basis.  When he started out he was installing Goodman units and each unit was consigned.  He had a 3 x 5 card for each unit with its cost and the date it arrived. When it sold he noted the check number and the amount paid for that unit.  That was back in 60’s and his business grew and prospered because of his ability to control inventory costs.

My meeting took place in the early 90’s and today that company has grown to 14 branches.  You could say it was good luck that gave them their success.  I know that is was because of the passion that one man had for inventory and its control that formed the basis for their success.

The reason that I was making the call was because their old IBM System 36 and their software was no longer serving their needs.  He knew that trying to control inventory with antiquated software was very expensive in relationship with the time and dollars spent. 

He also knew they if they did not concentrate on finding a replacement for their old software, that both him and his managers would start to accept the liability and the lost profitability that was caused by the old system.  He told me, “Just because we are not sending out an AP check to cover the cost of our old system, does not mean that it is not costing us a lot of money.” 

Over time – a system’s inadequacies will take too heavy of a toll on the owner’s passion for the process of buying and selling.

His lessons are still a part of whom I am and why I continue to talk with wholesalers across the country.  What I really want to do is awaken the passion that the wholesaler had for the business when they first went into business.  When that happens, upgrading to a modern wholesale software package that controls both inventory and costs is just another step in the right direction.

What causes a Distributor to have too much Inventory?

Click on this link, to a copy of a White Paper that covers this topic

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