Understanding Service Inventory ePL for Residential

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Understanding Service Inventory ePL for Residential Powered By Docstoc
					       Service INVENTORY MANAGEMENT
                              You’re Known by Your Trucks

If you inspected each of your service technicians’ trucks or vans, what would you generally

Dirty vehicles crammed full of trash, left over parts and materials, stepladders thrown in on
top of everything, vacuum pump oil spilled everywhere, unsecured refrigerant drums, and
possibly the skeleton of that tech you thought walked off the job a year ago buried under it
all! Or would you find clean vehicles with everything in its place, ladders properly stored
refrigerant drums secured, and all parts compartments properly stocked?

Well, which ever it is, just remember; the vehicles are a reflection of your leadership

We always blamed the tech. “It’s his truck and his responsibility”, we say. But who’s the
one that establishes the ON-GOING standard, which has become “the way it’s done here”.
I’m not talking about the rules, I’m talking about the way it is, day in and day out. Whatever
the “day in and day out” is, it is a reflection of you and how effectively you lead your team!
This reflection of you is broadcast to everyone every day; your customers, your boss, the
staff, and to each of your technicians.

  The bottom line…. are you proud of the statement your department makes about you?

Well, if you’re proud right now, you are the kind of leader who is always looking for ways to
do things better, and this section on managing parts inventory will give you some good
insights on how to improve your department. However, if you’re a bit red faced right now,
you obviously need to make some changes, and this section will help you find ways to
dramatically improve!

The Big Picture
The first step in getting your trucks organized is to see the big picture. In this case, we are
going to be looking specifically at the parts system. That is, the processes through which
parts move from the vendor to your customer’s HVAC system by way of the service
department. The proper implementation and control of this process will not only impact the
way your vehicles look, but will significantly impact customer satisfaction and the bottom
line. It takes significant effort and pre-planning to have the right parts at the right time to
keep your customers happy.

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Parts System Overview
The control and documentation of parts as they are transferred from one location to another is
critical to maintaining accurate costs, to preventing out of stock conditions (and unhappy
customers), and reducing inventory shrinkage (a nice way of saying theft/loss).

Since minimizing costs, maximizing customer satisfaction, and eliminating the
disappearance of parts is critical, it behooves every Service Manager to become well versed
in parts management.

There are a variety of inventory systems, most use “Expense at Time of Purchase” or the
“Hybrid” system.

Expense at Time of Purchase (Parts & Pieces Only) - Preferred
This system utilizes a base parts inventory from which vehicles are restocked. These parts are
considered “Inventory” in the accounting sense, and their value is recorded on the Balance
Sheet – Parts.

When a part is used from this stock to say, replenish a service vehicle, a new part is
purchased to replace the used part but it is charged directly to the cost of sales account of the
appropriate department. As a result, the costing of tickets is not necessary since everything
purchased each month goes directly to cost of sales.

Companies utilizing “Expense at Time of Purchase” inventory system, in cases where several
months supply of a product are purchased (i.e. refrigerant), the cost of the purchase is placed
in the Prepaid Other Account of the Balance Sheet and is expensed a portion each month (i.e.
3 months supply – expense 1/3 each month). Be careful when purchasing multiple months of
supplies, because the cost of the additional tracking and accounting involved could eat away
any price savings from the bulk purchase. Each month the Prepaid account must be to ensure
the costs are allocated properly.

The “Expense at Time of Purchase” inventory system is the easier of the two systems,
because it results in fewer inventory adjustments and insures all parts are costed.

The drawback is that some system must be devised to spread purchases between departments.

Hybrid Parts Inventory System
With this system, when a part is purchased its value is placed into the inventory account
Parts. When a part is used, it will be expensed to the service ticket directly or a standard cost
will be expensed through your Flat Rate system depending on how the ticket is coded. When
a part is replenished, it is brought into inventory and is not expensed.

Example Parts Management System
Parts Management System has three subsystems, namely:

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Service and Maintenance Process
Special Parts and Equipment Ordering Process
Restocking Process

           1                                        2
                                                                     Client

               Tickets

               Inventory              Service                      Verbal
                 Transfer              Vehicle                     Purchase
                  Form                Inventory         Special   Requisition
                                                        Order

          3    Process

               Request

               Parts and Materials Warehouse
                        Inventory


Recording Parts Used
It is during the Service and/or Maintenance of customers’ accounts when technicians should
record all parts on the Service Ticket Form. This is the first step in maintaining a good parts
management system. The “parts used” record must include the official part number along
with a readable description. Later, we will discuss establishing standard truck inventories to
make this step and others very easy to accomplish.

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Special Order Parts Process
At times it is necessary to order parts for service work requiring parts not stocked on the
service vehicles. In such cases, the Service Technician should first, locate the required part
by contacting the appropriate vendor (the part IS NOT to be ordered at this time).

Next, the Service Technician should contact the dispatcher to coordinate the issuance of a
purchase order and part delivery. This may mean the technician is sent on to the next call,
and a part-runner is sent to acquire the part and deliver it to the technician. Or, it might mean
the technician is sent to get the part. In either case, the actual purchase order is issued only
when the individual picking up the part is at the vendor’s location, has an accurate price, and
has the appropriate ticket number.

If a part is purchased directly for a service call (not standard truck stock), then the purchase
order number needs to be listed in the “Description of Work Performed” section of the
Service Ticket.

It is important for the purchase order to be “assigned” to the service ticket when the purchase
order is issued.

The accounts receivable department cannot close Service tickets with purchase orders
attached until the purchase order is received from the technician.

Therefore, it is very important for the person who acquired the part(s) to get the “pick ticket”
to the appropriate individual so it can be received. Special Order Parts should be received
into as soon as possible after the parts have been picked up.

Truck Restocking Process
At the end of each day, the technician should complete an Inventory Transfer Form for all
parts used and attach a copy of each ticket on which the parts were used.

Inventory Transfer Form and copies of tickets are to be submitted to the Warehouse Person
or individual responsible for inventory in exchange for parts to restock the service vehicle.
To insure accountability, the Inventory Transfer Form should be signed by the technician and
the Warehouse Person at the time of parts transfer.

Warranty Parts
If a replacement part is under warranty, the same purchasing procedure as outlined in
“Special Order Parts Process” is to be used. When the purchase order is issued, the word
“WARRANTY” is to be keyed into the “Payment Terms” field on the purchase order. This is
to flag Accounts Payable to NOT pay this invoice until all vendor parts warranty processes
have been completed and the vendor has issued a credit.

The Service Technician is responsible 1) to indicate the part as warranty on the service ticket,
2) to indicate the part as warranty on the Inventory Transfer Form and 3) to complete any

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manufacturer required forms for part and/or labor reimbursement. These forms along with
the replaced parts replaced parts (if required by manufacturer) are to be submitted with the
Inventory Transfer Form when refurbishing truck stock.

The Warehouse Person is responsible for submitting all manufacturer warranty forms within
two days of receipt from the technician. Documentation of processing should be maintained.

If an ordered warranty part has a future delivery date, the ticket should be placed on hold
until the part arrives, at which time the ticket may be assigned to the original technician. It is
the Warehouse Person’s or individual responsible for inventory’s responsibility to notify the
Dispatcher of the parts arrival upon receipt from the vendor.

Standard Truck Stock System
Tracking the flow of parts from the warehouse to service vehicles and then to customers can
become very labor intensive with little to show for it. However, parts management is
essential to control the amount of inventory, which can accumulate on service vehicles, to
insure that parts are available from truck stock to accomplish timely repairs, and to guard
against inventory shrinkage.

The answer lies with a standard truck stock system.

A standard truck stock system is based on each type of service vehicle (i.e. residential
service, maintenance, commercial service, etc) having predetermined inventory items for
each type truck. Warehouse inventory should also be standardized, reflecting the defined
standard truck items.

 Each Service Technician is responsible for keeping the service vehicle fully stocked to the
                                      defined levels.

The key is the use of the Inventory Transfer Forms described earlier to frequently restock the
truck. Since it is necessary for service tickets to be either radioed in or turned in every day, if
the technicians deliver the tickets; the trucks can be restocked at that time. However, some
companies do not bring their technicians in except on a weekly basis by having the tickets
picked up by courier. If this is the case, you may want to try some of the following ideas:
restocking system set up through vendors, remote restocking facilities, or even traveling
restocking vehicles.

One person should be designated with primary accountability and responsibility for
inventory. Typically this is the Warehouse Person. Responsibility for truck inventory control
should be assigned to each driver.

Inventory should be in a locked and secured area. Only designated personnel should be able
to access inventory. Service Technicians, Maintenance Technicians, and Installation Crews

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should not have access to inventory areas. For this to be practical, inventory areas must be
segregated from staging areas.

The Warehouse Person or Person Responsible for Inventory must be available for inventory
transfers to insure the integrity of the inventory system.

Purchase orders must be used for all purchases to ensure proper tracking and documentation.

All materials should be verified with the receiving ticket upon receipt from supplier.

Receiving Tickets are to be turned in each day if possible.

Only designated personnel should be able to issue purchase orders.

Any individual with responsibility for receiving inventory should not issue purchase orders.

Typically the warehouse person or person responsible for inventory will issue purchase
orders for the field. If the Warehouse Person is not available, then staff trained as backup
should be contacted.

Counting Physical Inventory

The Accounting function is usually responsible for coordinating the physical inventory
process. The accurate counting of inventory is essential for accurate cost of sales numbers at
month end.

The counting of service and maintenance vehicles does not have to be burdensome, if a
company uses standard truck stocking and all vehicles are clean and orderly for the count.
With technicians counting one another’s trucks (not their own), all service vehicles should be
able to be counted in under 1 to 2 hours.

Count Sheets
All physical inventory counts of service and maintenance vehicles should be counted
without reference to perpetual inventory records.

The initials of each person counting and date should be signed on each completed count

Upon completion of the physical inventory count, all count sheets are to be returned to the

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Count Methods
All serialized equipment, parts inventory, and truck stock should be individually counted
during the physical inventory process, with the following exclusion. Parts inventory
comprised of small and/or numerous components that would involve tedious counting and
also have a very low dollar value (i.e. screws, nuts, fasteners, etc.) may be estimated as to
volume/quantity in round numbers (i.e. 250, 500, etc.).

The estimated quantity is to be recorded on the count sheet noted by the symbol “Est.” before
the number to indicate that the value was not obtained by a true physical count.

Damaged, obsolete, or defective inventory items, which are counted during the physical
inventory process, should be noted as such per the completed count sheets.

When significant differences are noted by the Accountant between the quantity of items
counted and the quantity on hand per the perpetual inventory listing (if such records exist),
recounts should be performed by persons other than those making the original counts.

Such recounts should be made without reference to quantities noted in the original count or
per the perpetual inventory listing.

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