When we take our yearly physical inventory count, our lumber yard merchandise and retail floor merchandise are set up as two separate inventories in our system. I am wondering why? We report both on the same P&L. The answer I get is “that’s how it’s always been.” I do not like that answer. Are your inventories for lumber yard and retail combined or separate? And why? Thanks!
We received 43 responses to this question. No one in this group of dealers said they counted two separate inventories. There were many comments on the question. I’ve listed a sample of those comments:
- Even though they are on the same P&L statement, they may be separated at inventory time because they have different cost/profit margins.
- Our retail floor merchandise and lumber yard merchandise are all managed in the same system. We separate our inventory into groups and sections within our system so we can isolate performance measures for each group because those groups benchmark at different levels. If their system is not set up that way, it might be a good reason for the two separate inventories. I would think however, one consolidated inventory would be easier to manage.
- Not sure of the context or reasons why it would have to be done as two separate inventories. We perform a physical count of all our inventory on the same day at year end. It is set up as one physical count in the system. Our inventory classification system would make it difficult to split up and control the count in smaller chunks. But I would agree; there has to be a better answer than “we’ve always done it that way”.
- Sounds like an internal policy decision and working procedures relating to their specific computer system. Could be that someone at some time was measuring Shrinkage separately by those two departments but there are other ways to do that.
- We even have three separate operations, building supplies, rental, and a truss shop but all inventory is in one batch.
- Our retail floor merchandise and yard inventories are combined into a total inventory figure. The only exception is our consignment inventory.
Additionally, cycle counts were mentioned by a couple of dealers.
“A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specific day.” Their comments are below:
- We combine our inventory but we cycle count all the time. We cycle count during the year many times and have 3 large counts to keep a better tracking of our inventory. Instead of exhausting the employees for a long day or two-day count we do mini-counts during working hours. For the 3 larger counts we close on Saturday and count sections (for 5 hours) that have larger turns: lumber, plywood, block, Simpson, etc. The employees like this better than an all-in count that is sometimes very lengthy and tiring.
- Our inventory is not split between the retail showroom and lumber yard. It is divided up into different categories by location in the store or yard but they are counted into the same overall inventory. Also, up until a few years ago for as many decades as anyone can remember, we did one complete annual inventory towards the end of December, which seemed to shift the focus away from sales for the last few months of the year towards preparation for counting everything, and it necessitated shutting down the store for a couple days, hurting sales all the more. The past several years we have instead moved to a system of cycle counts, where each category of items, is counted at different times throughout the year, with more frequently sold items counted more often than others, but with everything being counted at least once, rather than stopping to count everything all at once. We no longer need to close the store to do it, and instead of the old process which involved all store employees (some of whom weren’t always familiar with what it was they were counting), it is divided up between a couple employees in each store, lending familiarity and efficiency to the process. We have found it to be a better process and it keeps our inventory more accurate throughout the year. The answer of “that’s how it’s always been done” is rarely a very good answer unless there is a compelling “because ……” included to back it up!