Most rollforming businesses have a significant amount of money invested in inventory. Like any other investment, carefully monitoring and managing this investment will help you get the best return. An effective rollforming inventory tracking software and good inventory management practices are necessary to manage inventory well and maximize this investment.
Tracking and Managing Inventory in your Metal Roll forming business
Simply put, inventory management and tracking for your business means keeping a precise record of the total cost and quantity of inventory on hand at any given time. This involves having efficient systems and processes in place to add more to your inventory’s quantity and value when new stock arrives and reduce quantity and value when inventory is sold.
For a roll-forming business, this means knowing the feet or weight of steel coil (raw material) that you have in stock and a system to reduce coil inventory when it’s used to produce finished products such as metal panels and purlins. It also means tracking the cost and quantity of the finished goods (metal panels, purlins, etc.) along with other accessories, such as fasteners and lumber, that may be bought in bulk and sold as components of a building package.
Benefits of inventory software for your rollforming business
1. Purchasing and Order Fulfillment
One of the most immediate and obvious benefits is having real-time information to determine which items are low on stock and must be purchased or produced. It also provides visibility when receiving orders to ensure there is enough quantity on hand to fulfill the orders.
2. Gross Profit
Tracking your on-hand inventory’s exact quantity and cost enables tracking the gross profit dollars generated when sold. It also allows you to answer questions such as which profiles, colors, and categories generate the most or the least profit for the business. Gross profit generated by sales of finished goods is generally the main revenue stream for a roll-forming business and needs to be continually monitored. An accurate gross profit cannot be calculated without an accurate inventory valuation!
3. Inventory Turn Days and Ratio
Tracking Inventory turns can be a key metric to help prevent a business from becoming overstocked on inventory. Inventory turns, by definition, is the amount of time it takes to sell all inventory on hand. For example, if a Barn Red coil is purchased and it takes 120 days from the time of purchase until that coil is depleted, the turn days for that coil are 120 days. The Turn Over ratio is calculated as the Cost of Goods Sold / Average Value of Inventory On Hand.
Using the Barn Red Coil as an example, if the purchase cost of the coil was $6,000, the length of the coil was 2000 feet, and 500 feet were sold (or used in production) in a given month, our turn over ratio for that month would be .25. Stated another way, at that rate of sales or production, it would take four months to deplete the coil and have a complete inventory turn. If a business notices its turn ratio is decreasing, it can indicate they are overstocking inventory.
The inventory ratio is often calculated at a summary level, based on overall inventory value and total cost of goods sold for a period. However, with accurate per-item inventory tracking in place, it can also be calculated at a per-item and category level. Looking at the turn data on a per-item level can reveal specific products that may be overstocked.
For example, an inventory manager may find that the overall turns for coil inventory are within acceptable ranges, but certain colors may have very low turns. If these colors are overstocked or not in demand, efforts can be made to liquidate or discontinue those products.
4. Finished Good Inventory for Trims and Panels
Tracking inventory and costs for items that are simply bought and sold does not have a lot of complications. When manufacturing or production is involved, there are more variables to consider. Using a stock trim item as an example, not only is there a cost for the material, but there is also a labor cost to produce the item and the overhead cost of a trim folder machine. To ensure accurate valuation and gross profit for a manufactured item, it is important to include labor and machine costs in addition to raw material costs.
A rollforming inventory management software that includes manufacturing and production capabilities will automate this process and have a method to allocate labor and overhead costs to the value of the finished product.
The overall success of your rollforming business hinges on the business’s ability to efficiently deliver accurate orders to the customer at a profitable competitive price. With a good inventory management system in place for both raw material and finished goods tracking, it becomes possible to track the true profitability of your roll-forming business while accurately fulfilling customer orders. In addition to overall profitability, it also reveals which products are making the largest profit contributions and allows monitoring of the overall return on the inventory investment. If you’re interested in KPIs for rollforming companies, take a look at our article.