Techniques for Effective Management of Rental Inventories
In the rental industry, a company’s profitability is dependent on its ability to keep inventory overhead costs low, while ensuring an ever-adequate supply and selection for your customers. Walking this fine line is difficult at best. While you cannot control all the variables affecting what, when, and from where people rent, it makes sense to control what you can. Successfully managing your rental and sale item inventory can help you to walk this tightrope successfully, balancing profitability with customer satisfaction. In this article we will take a closer look at some of the tips, tricks, and techniques that can help you keep your inventory in perfect balance.
When and Where You Need it – Your Reservations System
Even the most loyal customer will call your competition if you cannot deliver what they want, when and where they need it. Even the most conscientiously managed company cannot satisfy the rental demands of every customer, but there are tangible steps you can take to ensure that you are maximizing the exposure and profitability of the equipment you do own.
An accurate reservation system is paramount. Promising what you cannot deliver will cost you customers, and failing to recognize you’ve got product available to rent will cost you money. A concise and clear reservation calendar for each item, showing the quantity on rent, quantity to be returned, and the quantity available for each day will enable you to give accurate responses to customer inquiries. With an up-to-date calendar in front of you, you are able to suggest an alternate day, securing a deal for customers with a flexible schedule. By using such a calendar, you can better predict peak periods of use, allowing plenty time to arrange for additional quantities of overbooked items.
Overbooking is not inherently bad, as long as you can meet the demand in time. Perhaps you will meet that demand through purchases, but for many companies, sub-renting is a viable alternative. Get to know your area competitors personally and work to maintain a professional, friendly relationship. Discuss the willingness to sub-rent equipment subject to availability. To avoid conflict, agree to sub-rental pricing structures in advance. When you put this into practice, take advantage of sublet tracking capabilities available in your software or create a separate virtual warehouse (if your software supports multiple warehouses) for each sub-rental vendor you work with. You can then transfer equipment into and out of this warehouse as needed, using a zero cost to ensure no change to your own inventory value. A separate warehouse reduces confusion and makes tracking of these items much easier.
Separate warehouses also serves to segregate items offered for sale from those available to rent. Such segregation makes accounting tasks such as depreciation schedules and inventory valuations much simpler.
What’s on Hand – Accurate Physical Counts
When physical inventory quantities do not match the on hand quantities reported by your computer system, confusion reigns. Such confusion makes the most basic tasks, such as contract entry, wrought with problems leading to poor customer service and threatening your competitive edge.
When such disparity exists, salespeople promise customers material that cannot be immediately delivered. Customers are disappointed, and your reputation may suffer. If the on-hand quantity in the computer is greater than what is on the shelf, you may not know to reorder the item from the vendor in time to avoid a true out-of-stock situation. If the on-hand quantity in the computer is less than what is actually on the shelf, you may restock the item when there is still plenty in the warehouse. This results in excess inventory and decreased inventory turnover—both conditions affecting bottom line profitability.
Regardless of how effective you are at maintaining an accurate inventory, you will likely continue to perform periodic physical inventory counts. Everyone who takes part in this task knows what a daunting and time-consuming project this is. Because of the time required, some companies perform a full physical count just once a year. However, performing a complete yearly physical inventory does not ensure that counts will remain accurate over the next several months. How many items will still have an accurate available quantity in the computer 11 months after the physical count?
Do not stop performing those yearly comprehensive physical inventories, but add cycle counting, the process of counting a portion of your inventory more frequently. Elect to count one or more product lines at a time, or a portion of the warehouse by counting a range of bin locations. Set up a cycle count system in which popular products are counted more often than slow moving inventory or in which items particularly susceptible to theft are counted every day. Remember that business does not have to stop during cycle counts; your software should allow transactions to continue even when counts are in process.
One method gaining broad acceptance for automating inventory management is RFID, or radio frequency identification. RFID typically consists of a tag affixed to your products, and a reader that communicates with the tag via low-frequency radio waves. RFID is in use in diverse applications as: manufacturing assembly lines, pet tracking, retail theft control, airport baggage screening, and highway toll collection. The technology lends itself especially well to inventory control in the rental industry. RFID automates many laborious steps and processes, like physical counts and returns, and streamlines delivery scheduling and routing. Accurate, automatic data collection means you have real time information about the location and availability of your products, increasing rental turns and decreasing lost and mis-shelved inventory.
Keeping Equipment in Good Repair – Equipment Service Tracking
Depending on the situation, a malfunctioning part can result in inconvenience—or a lawsuit! It’s crucial to keep your equipment in good repair, performing regular preventative maintenance making repairs promptly.
Where appropriate, track the hours of use, meter reading, or mileage of equipment. Make certain warranty information is readily available. Keep detailed records of all maintenance tasks and repairs, including the date of such service, who performed the service, parts replaced, cost of the service, and next scheduled service date.
Electronically flag equipment scheduled for maintenance or repair, or transfer it to a “repair warehouse” to isolate it from your active rental inventory. This helps to eliminate overstated quantities as reservations are being taken. Once the service or repairs are complete, be certain to reassign it back to an active status. If the equipment is damaged beyond repair, it can be scrapped or sold.
Know Your Parts – Organize and Departmentalize
Your customers expect you to be an expert in the equipment you rent and sell. Intimate familiarity with your inventory means you can creatively meet the needs of your clients, increasing sales and increasing customer satisfaction. With hundreds, thousands, or even tens of thousands of rental items, how do you appear the expert during each transaction? An efficiently organized inventory database makes it easy to find the right part, easy to recommend accessories or substitutions when applicable, and easy to train new employees.
Spend some time deciding on a part numbering convention for your parts. Many companies choose to segment their part numbers to denote categories or departments, for example 70-xxxx for linens, 74-xxxx for silverware, and 80-xxxx for portable heaters. Another way to classify part numbers, if supported by your software, is to use product lines or product categories such as LINEN, SILVER, or HEAT.
Store statistics about your part numbers such as weight, color, model year, or horsepower. Many parts in your inventory have supporting documentation that employees or customers will find useful. Use an electronic scanner and scan a photo, instruction manuals, the MSDS, and schematic charts. Many software systems will allow you to “attach” these image files to the item record where they can be instantly viewed or printed. Other examples of documents that you can associate with an item are operation checklists and quick reference cards for fueling, lubrication points, or cleaning instructions.
There is nothing more frustrating for a customer than to bring their equipment home or to the job site and realize they are missing an important accessory. Accessory items are common in the rental industry, with some accessories available as rental items, and others—typically consumables, available for sale. A reliable arrangement for accessing accessory lists during contract entry will increase both sales and customer satisfaction.
Rental Metrics – Mine Your Database
Who, what, when, where, and for how much? The answers to these questions hold the key to your success. Who are your regular customers and are they the same as last year? What items are top sellers? When are you experiencing the highest demand for particular products? Where are your customers located and which location are they renting from? How much revenue did that generator produce last year, last month, last week?
Full-featured rental management software should be able to provide these answers quickly and effectively in the form of on screen queries and printed reports. Armed with this information you are able to analyze the profitability of the items you carry and make decisions about non-profitable items. You can identify rental trends including busy seasons for various product lines enabling you to boost stock in advance to ensure adequate supply. If the sales of once regular customers have tapered off, a phone call or letter inviting them back may be in order. If you rarely rent party supplies from your south of town location, it may make sense to move more of these items to your store up north.
Your inventory of rental and sale items is your most valuable asset. Prudent, well-informed management of this asset maximizes efficiency and streamlines operations, leading to increased profitability and customer satisfaction.