How to Spend Less Money on Materials for Trades Businesses
Materials and personnel are the two biggest expenses in any trades business, however making improvements to your material efficiency can reduce your costs in both areas. We’ll cover everything from the usage of the materials themselves, to sourcing of materials, storage, recycling, and delivery so you can reduce what you spend on materials for your trades business. We are going to use a fictional example of everything we would do to reduce material costs.
Our fictional business is a plumbing business with enough warehouse space to store enough materials to cover for 1 week of jobs. Which means we’ll need weekly deliveries which can make it quite a challenge. So let’s get started.
Firstly we’ll go into material use. In plumbing most jobs are either replacements or have to fit an exact size so optimizing the size of each instalation in order to make minimal cuts in the materials is not possible on most jobs. So how do we make it efficient? We look at data. More specifically we look at the sizing of each pipe that’s purchased and the size we have to cut it into on most jobs. This way we can get a really good idea if there are any scraps left that are too small to use on other jobs. If you are going to have any excess, it has to be usable on another job, not pieces that are too small to use on others. However, in other industries that the design can be changed, design around the sizing you can get your materials in. But when you cannot change the design, take a look at the data and tend to go bigger. This ratio is something we’d calculate and we’d collect data across every job in order to give each job the right sized scraps. If you can change the design then look to do so as much as possible.
Next is sourcing, this step affects everything; the amount you spend on the material itself, delivery methods, delivery timing, offloading timing, quality, amount spent on picking up materials, and more. This is really important to get right.
The first thing we look at is pricing. We look at all the options for each material and compare the price across all of them. We will not look at options that are lower quality since that directly lowers the quality of your service, so it’s really important that all pricing comparisons are on materials with the same quality standards. We then compare shipping prices or time spent picking up these materials. We do that by taking into account the amount of revenue generated per hour for the employee having to pick up the materials and fuel costs of each route. Since in this example we have a warehouse, no need to worry about offloading times as materials are not delivered to the jobsites. We also pay attention to any bulk discounts offered.
Now that we have a list of prices from each supplier and we know the cost of getting each one of them to the warehouse, we can make a choice. We have all the numbers converted into dollar amounts and since we only looked at options of the same quality, the cheapest total between product price and delivery price will be your most efficient option.
Now that we know where to get each material from, how much of each do we buy and how do we split storage in the warehouse? This is quite simple, change the ratios as you need but generally this is how we’ll set it up: 50% of space for the most common materials, 30% for any materials with rapidly increasing prices, and 10% for specialty parts not used on most jobs. If we know the price of certain parts is always going up, we want to buy at the lowest price possible. This is something that we’d evaluate which materials fall into that category and what portion of warehouse needs to go there. Usually this split works for most businesses but we do change the recommended amouts quite often. Since this warehouse is quite small we would probably allocate more space for most common materials to make sure we can buy in bigger amounts to reduce the amount of shipments or pickups. It is really important to make adjustments as well for bulk discounts on any essential materials.
Recycling. For a plumbing business that is super easy. You get a ton of highly recycleable copper pipes. Process it and sell it to the recyclers. Whether you take the profit from it or use it as a bonus for your employees, make sure you recycle that copper as it is easy money. For other industries, try to find any recycleable materials that either bring you back money or don’t lose you any. Know that some customers may want a more sustainable option so make it clear that you recycle (if you do) so that you can get that extra advantage over your competitors.
We covered delivery in the pricing section but it is really important that you take into account pickup costs. Having an employee or you yourself pick up materials costs money in time. Be sure to compare that to the price of delivery.
Well that is how we’d reduce this plumbing companies material costs. We would expect in this case to see anywhere from a 10-20% reduction within the first year without any major investments needed. Upgrading the warehouse space would be something on our radar and we’d give the business owner the exact metrics of their business at which getting a bigger warehouse would be worth the cost to bring additional savings.
If you want to see a big drop in what you spend on materials for your business and want someone else to do all the numbers and implementation for you, we’ve got you covered. We only charge a part of what we save you so you can see immediate savings with no upfront costs. You can find more information on our Material Efficiency Improvement Plans following the button below.
Material Efficiency Improvement Plans
Reduces what you spend on materials by improving your supply chain and reducing your usage of materials. Areas covered include:
Material cost, shipping, shipping time, delivery options, unloading times, incentives, supply chain efficiency improvements.
Price: 40% of savings during first 36 months.
