August 6, 2019
You can save up to $2 per yard of concrete just by controlling your inventory. When you multiply those savings by the volume you produce over the course of the year, it adds up fast. Those savings could go directly to your bottom line, but instead excess inventory is eating away at your profitability and creating tension within your organization.
Ready Mix Concrete (RMC) companies often fear that they will miss out on orders so they keep excess materials on hand to avoid FORO, the fear of running out. Companies understand the cost of missing out on a sales order, however, they might not understand that the cost of carrying too much inventory is higher.
A company with 140 plants produces 8.68 million yards of ready mix concrete per year; the cost of materials for production is approximately $29k per week or $1.5 million annually. Companies often keep an extra week or two of materials on hand because of the fear that they will not have enough to meet demand (that pesky FORO again).
If this same company keeps just two extra weeks of materials on hand at any given time, they are looking at a cost of $57k per year per plant. Multiply that by 140 plants, and you have nearly $8.2 million dollars of employed capital tied up in excess inventory for the year.
When a company is carrying excess inventory, employed capital is tied up by materials sitting on the ground. These dollars could be allocated to new equipment purchases, maintenance and repairs on existing equipment, plant and equipment upgrades, etc. Freeing up employed capital allows you to invest money back into your business to improve production processes and lower your operation costs.
These materials also cost a significant amount to store and manage. Carrying excess inventory above and beyond what is needed to fulfill sales orders incurs administrative costs, takes up storage space, and hinders profit margins.
Companies must be flexible in order to meet unexpected sales orders, efficient in their production, and consistent in quality and delivery to meet the growing demand for concrete. Eliminating excess inventory allows RMC companies to run leaner, giving them a competitive advantage over other companies. Striking a balance between sales and inventory can be difficult, but it is critical for profitability and efficiency.
Companies utilize Stockpile Reports for inventory and logistics solutions to save millions of dollars per year by reducing the need for excess inventory. Stockpile Reports achieves this by tracking your inventory in near-real-time, auto-triggering stockpile replenishment orders. You’ll have just the right amount of inventory on hand to fulfill your orders, running at peak efficiency, without the fear of running out or coming up short.
If a company with 140 plants, producing 8.68 million yards of concrete per year, could save $2/yard, they would save $17.36 million dollars per year. Those funds could positively impact the bottom line by increasing profit margins, and in turn, profitability for the year. These funds could also be reallocated to higher priority initiatives within the organization, such as investing in new equipment or maintenance and repairs, and so on.
If you are ready to save up to $2/yard and add millions of dollars to your bottom line, we will set you up with a team member that will show you how easy it is to save. We’ll handle the inventory, while you get back to what’s important – running your business.Schedule a Consultation
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