Inventory management is a vital component of any company that deals with large amounts of inventory because it can make or break your business depending on how organized your plan is and how well you stick to it.
Likewise, having a plan to manage your chemical inventory is a key component of a successful car wash because this ongoing expense is critical to controlling cost, delivering consistent profitability each month and standardizing your car wash operation.
Here’s a look at seven key elements your chemical inventory management program should focus on.
Expense Item Plan
Chemical inventory should be managed according to plan just like any other variable expense including labor and utilities for example. Create a plan and manage without deviating from it because sticking with it will give you better control over all expenses, not just chemical. Make it a point to partner with suppliers that are willing to work with you and accommodate your plan.
Leveling Out Cost of Goods Sold (COGS) Throughout the Month
Manage chemical cost to a specific percentage of monthly revenue—generally 4 to 8percent depending on your wash type. Don’t load up on chemicals one month and try to recover during the next month. Controlling COGS consistently means you need to determine how much chemical you want to keep on hand.
For example, is it based on the number of days you want to wash before taking another order or do you want to base it on the number of washes? Utilize your chemical supplier for help in properly forecasting the chemical needed for that time interval. They should be able to properly forecast your needs based on your volume, take rates, usage rates, and also build in some safety stock.
If your supplier cannot do this, then consider finding a supplier that can. Don’t be afraid to challenge minimum order quantities (MOQ’s) and price quantity breaks because they can lead to surplus inventory. Your P&L will thank you.
Chemical inventory turns should predictable from month to month. Product moves at different rates depending on package build, take rates and usage rate so don’t make the mistake of bringing in two drums of everything. Soon your detergents will be gone and the more expensive finishing products will remain in excess. Know how long your containers should last and how much of an investment you are making when you agree to accept another chemical order.
Conservation of Space
Equipment room and storage space are in high demand. Don’t have excess chemical on the floor getting in the way. Are your packaging sizes appropriate for your volume? Do you have 30 gallon or 55 gallon drums that sit for months because consumption of that particular product is much slower than the others? Consider freeing up your hard-earned money by using smaller drum sizes in those situations.
Excess product stored in equipment rooms can cause tripping hazards, obscure important components like electrical panels and is generally unsafe.
This can potentially lead to costly injuries or fines. If you must have excess product at your wash, make sure that it is stored out of the way so it does not affect day-to-day operations negatively in the form of employee injures, etc.
Cost Per Car Analysis
None of the recommendations made above will work without regular, accurate cost-per-car analysis and reporting. Whether your supplier delivers this data, or it’s done internally, you need to know the numbers.
How many gallons of inventory is sitting in your equipment room right now, and how much is it worth? How much raw product do you consume per application and how many applications do you have remaining and when will you need your next order and how big will it be?
Having useful data analytics readily available to you will enable you to streamline your operating expenses to a relatively predictable level each month.
Plan for Supplier Problems
What happens to your inventory and ability to generate revenue when something happens to one of your key suppliers? Make a preventative, proactive plan for dealing with supplier risk.
Highlight a worst-case scenario and identify five to ten risks not included in your financial statements. Then commit to your contingency plan by having a ‘plan B’ in writing and follow it when necessary
Ask yourself the important questions.
How much inventory you are willing to keep on hand and setting minimum and maximum levels are perhaps the two most important best practices when it comes to managing costs and inventory at your wash.
Once you have these answers and determine your desired parameters, you can begin to put real numbers to paper and formulate a plan to control costs through proper inventory management.