Should AEC Firms Carry Inventory?
Today we want to help you think through some possible solutions to the current supply chain crisis, as well as rising inflation. The one word that sticks out is planning. Many of us get busy and postpone planning for something until it is an actual crisis. We then pull out all the stops, call in the favors and get things done. That was doing business circa 2019. Today, in the current economic environment, you cannot count on expedited shipping as there are many shortages with containers stuck in ports, raw material shortages, etc. One must look no further than the car industry to see how real this issue is.
Warren Buffet often says something to the tune of “Never waste a crisis”. This means there are opportunities for your business to maneuver within the current environment. Your decisions today will likely strengthen or weaken your business in the future. We’ve compiled a few ideas for your reading/watching pleasure. Not everything would work for everyone, but we hope to spark a conversation.
How to Navigate Shortages
Is there an opportunity to purchase inventory in anticipation of projects over the next six months? Typically AEC companies don’t carry inventory, right? Well, these are not typical times by any measure. We feel construction is going to be strong, and architecture projects are picking up. If you are unable to deliver based on significant delays, that would put people out of work. This may erase your profitability. You can still get the project done, but without making money––the lifeblood of any business. If you don’t make money, you can’t reinvest it back into the business or hire people.
How ArchIT is Planning Ahead to Meet Client Needs
We are trying to get our hands on specific laptops that our customers typically purchase. We are also checking with our distributors a couple of times a day to see if those models are available so we can quickly order them and have them in our inventory. We are a service business and have not been concerned with keeping inventory in the past. However, times are such that we need to have something on hand to make sure that if our customers bring someone new, they can get a laptop for a new person who starts in two weeks. We have that computer on-site, and we are not trying to scramble for it.
Investing in Inventory
You may have noticed a trend by traditionally noninventory businesses (such as service businesses) to serve their customers better by investing in inventory. It is true that businesses need to have two to six months of cash on hand for operating expenses. We suggest that instead of savings accounts, any overflow money is invested in inventory. As a business owner, I understand the impact of inflation. Inventory is a great investment because you can modulate the price of your inventory based on demand. If you add a margin on top of your inventory and resell it to customers who need it now, that is a win-win scenario.
We are not looking to overcharge customers, but to have a small percentage added on top of the price to cover the expenses such as storage. I recommend others to consider doing something similar. Reputation is the biggest asset you have. Having inventory when it is needed will help you build that reputation and reduce the cash erosion due to inflation.
Planning for Holiday Gifting
At ArchIT, we enjoy gifting to say thank you to our clients and as a way to create new relationships. Gifting is a way to build good relationships by showing your customers they are important. Last year ArchIT provided gifts for our existing customers and new people we wanted to get to know and build relationships with. We provided a quality video camera to assist in conducting zoom and video calls. I have had feedback that it was very useful. It is the same one we use as well to look our best on the video calls.
Last year while sourcing this, we found it difficult due to the pandemic. We had to figure out how to get them shipped and make sure they were of good quality because the gift was associated with our company. It was challenging but worked out well.
This year we are gifting our customers a 20-ounce Yeti cup that is amazing. The design is great as it holds hot or cold beverages for a very long time. I think it is a cool gift for any business owner who drinks three cups of coffee in the morning. We are placing the orders through my other company because we are a direct dealer with Yeti. We are ordering this gift in September. Even as a dealer, it is virtually impossible to know when you are getting something. Yeti and other manufacturers will allocate what they have when they have it. Ordering early is key. You owe it to yourself to begin planning for your holiday product and how to procure and deliver it. Think about your own inventory. Order things in quantity. Now is the time to build those orders.
I know some may be thinking that you may skip gifting this year. Remember it is like an NFL player. They must put in the workout through the week to be able to perform on Sundays. If gifting is not a part of your overall growth strategy, then it should be. If you miss it, it will cost you. Do it now before it is too late.
Outlook for Technology Infrastructure Availability
We are not looking at good news for the near future. Whereas before the shortage was only laptops and certain monitor models, now it is in network equipment. For example, one of our biggest partners, Cisco Meraki now has a 90-day delay on any new orders. If we have a project now, we cannot do it for three months if it includes the Cisco Meraki product. This is also true for a lot of other products, such as switches or network gear.
If we can’t order it, we can’t do anything with it. Our advice is to plan. For example, if you have an office move, you want to start planning earlier than three to four months in advance so that you can order the product right away. Planning is the universal advice here. If we need to get something done, let’s start thinking about it way before we need to do it.
In summary, we have discussed
- Planning and execution of plan earlier than typically necessary.
- Consider becoming an inventory stocking business. I think we should not be afraid to invest in inventory right now. It will be a prudent thing to do and businesses that do will come out as heroes at the end of this by serving their clients better than others.