4 Tips To Keep Supply Expense Below 2.5%
Outside of labor, janitorial supplies are the greatest job cost expense contractors have to control. For years, my company struggled to keep our supply expenses in line. We were typically above 4% (as a percent of revenue) and sometimes flirted with the 5% number. However, over the last few years, we implemented several changes that have kept our supply expense below 2.5% month after month. For a company the size of mine (approx.. $9M), this is an annual savings of $135,000. Here are the four specific things we did to make this happen.
#1 - Streamline Products
A prime cause of supply overspend is buying too many products, specifically ones you don’t really need. When you don’t have parameters on what you intend to use on every job, everything becomes an option – supply creep sets in. As I look back to our supply list 10 years ago, we had special dusting rags, stainless steel cleaner, magic eraser pads, upright vacuums, detail vacuums, and on and on. Now our supplies list is much shorter, saving valuable money on each job without sacrificing quality. The simple fact is that more supply options don’t necessarily improve cleaning quality (at least in the eyes of the customer).
#2 - Dispensing Systems
This is a big money saver. Ready to use chemicals are MUCH MORE expensive (per bottle) than chemicals dispensed using a chemical concentrate dispensing system. The savings per bottle can range from 50% to 90%. For those unfamiliar, dispensing stations are simply wall-mounted units that mix water and chemical concentrates to give you ready to use chemical. The station automatically handles the dilution ratio so you get the same concentration each time. This cuts down on inventory space, bottle waste (as you can reuse bottles), and most importantly, expenses. For those accounts that don’t have room for a chemical dispensing station, just install one at the home office and refill bottles as needed.
If you want to save money fast, switch to a dispensing station NOW. Nearly every major chemical manufacturer has one to offer.
#3 - Supplier Delivery
Several years ago, we had supply “cages” at each of our office locations. This was basically a room or caged-off area where we kept supplies. Managers would check out products from this supply cage, take it to the jobsite, then admin would record the expense to the appropriate job. When inventory ran low, admin would place an order to replenish. For those versed in LEAN manufacturing principles, let’s just say “we had some waste in the system.”
After looking at our process, and becoming frustrated with the amount of supply delivery our managers were doing, we decided to push all supply delivery onto our distributors. Since we were already placing orders with our distributor, we decided to schedule a weekly order and arrange for them to drop ship the items to the appropriate job site. The biggest savings here was keeping our managers focused on managing jobs instead of distributing supplies.
#4 - Buying Group Member
Our final push to save money on supplies was joining an industry buying group, the National Service Alliance (NSA). The NSA accepts members who have at least $2M in revenue, giving them access to the purchasing power of national contractors. Now if you aren’t quite at the $2M mark, don’t worry. Programs like BSCAI’s Purchase Advantage Program give contractors access to good pricing and discounts. While they may not be quite as good as the NSA discounts, the pricing is still better than what you can do on your own.
In an industry where margins are already tight, increasing profits by 1% of revenue is significant – a 20% increase for a company with a 5% net margin. Supply savings are low hanging fruit to be added to your bottom line. All the suggestions mentioned above are easy to implement and a byproduct will be increased time spent managing accounts. Don’t miss out!