Counting on outside help

Home Channel News, Jan 25, 1999 by Carol Tice

Growing number of companies seek outside services to conduct inventories

Scott Parker remembers what a pain it used to be to take inventory at five-unit Parker Lumber, based in Port Arthur, Texas, where he is vp and general manager. Employees would put in 60-hour weeks, and then count skus through Saturday night until 4 a.m. Sunday.

"We'd give them a break to go to church," Parker recalled, "and then at 12 o'clock it would be time for them to go back to work."

Taking manual inventory, Parker said, was "not only brutal, but probably very inaccurate." So for the past two years, Parker Lumber has turned to outside companies to conduct its inventory counts.

A growing number of retailers feel the same way. A survey conducted last October by Arthur Andersen Business Consulting/Senn-Delaney and Chain Store Age magazine found that all of the 139 companies across all retail sectors polled used outside companies to conduct physical inventories at some point in the year. More than three-quarters of the hardlines dealers surveyed said they had used outside firms.

Outsourcing inventory-taking has advantages for companies regardless of size, according to Randy Kendis, director of marketing and business development for Washington Inventory Service, the San Diego-based firm that is one of few national providers of inventory services. For big retailers like Home Depot, one of Washington Inventory's clients, outsourcing allows the dealer to "improve its focus. Especially with large companies, they have to focus on their core competency, selling products to customers."

Bringing in an outside firm to tally inventory allows a large company with many locations to create a snapshot that's consistent across all locations because it's conducted uniformly with the same technology, Kendis noted. Dealers save the expense of employee training and systems. Washington Inventory's staff members are well-versed in computer use and accounting methods, and they zip through aisles with computers strapped to their waists.

The two-unit Glen Echo Hardware in Bethesda, Md., isn't fully computerized; it used to take employees a month of scribbling counts on notepads to tabulate inventory, said the store's manager Mike Christopher. The data had been entered by key-punching a computer, a process prone to human error.

For the past decade, though, Glen Echo has used a national outside firm, RGIS of Alexandria, Va., to conduct its inventories. "For the $1,500 flat fee they charge, they're in with a crew of 10 to 12 people and out of here in four hours," Christopher said. "They do it systematically. I'm sure there were things we missed when we did it."

With a more accurate count, retailers can save money by fine-tuning inventory based on what's turning. "There are times when a retailer can reduce costs by paying for [an] inventory service," Kendis of Washington Inventory said. But there are other ways to improve the bottom line by outsourcing, such as avoiding lost sales if the store has to be closed while employees concentrate on inventory-taking.

And then there's a disinterested third party doing the counting -- as opposed to department managers who may have a vested interest in making the turn rate in their category merchandise look better than it is.

On the other hand, Scott Parker has concluded that third-party inventory firms may be impartial, but are also less invested in making sure the inventory is right.

"There's been an evolution in technology that will allow us to bring it back in-house," he said.

Parker's company is eventually gearing up to return to handling inventory with its own staff. The key is upgrading Parker Lumber's Triad computer system to the level where it can easily handle inventory tasks, Parker said. The new technology is currently being beta-tested at one of the company's lumberyards.

With new scanner technology, Parker said, "Our computer system can 'freeze' a location and we can scan it and download it, one four-foot section at a time. It'll allow us to do perpetual inventory and give us more accurate numbers."