Monday, September 01, 2014

Home Magazine Perfect time to buy

Perfect time to buy

Features - Formulas for Success, Industry News

Take these purchasing pointers from landscape firms with smooth systems in place, and you won’t be flushing your revenue down the toilet.

Kristen Hampshire | July 25, 2012

Purchasing is a timing game. Early-season materials requirements can really stress your budget – you need to order mulch and annuals before clients start paying the bills. Plus, there are tricky logistics with timing deliveries: How just-in-time can you get? And will your vendor drop off materials at a jobsite to save your yard some storage space?

For larger capital purchases like zero-turn mowers and vehicles, there’s the decision to push the time limits on a machine or retire it and buy new. Will your maintenance expenses skyrocket if you keep an old-timer working in the fleet?

Timing is everything.

This month, Lawn & Landscape spoke with three landscape firms about how they manage purchasing and what systems they have in place to make the process go smoothly.

 

Value Driven



Spending more money upfront on equipment and customized vehicles actually costs Stano Landscaping less in the long run. Take the Milwaukee-based company’s landscaping trucks. For years, crews were loading heavy equipment on to smaller vehicles. And come winter, those trucks couldn’t work double-duty in snow removal.

So a few years ago, Matthew Stano, president, decided to switch to a heavier-duty landscape truck. “That vehicle is the basis for running our landscape construction business because it converts very easily to our snow operations in the winter and we have to use those trucks 12 months out of the year,” he says.

The Ford 550s fill every service need for Stano Landscaping. “They give us the weight capacity we need, the turning radius we need for snowplowing and the capacity in terms of bed length for handling more materials,” he says.

Not only are these trucks outfitted to suit Stano’s needs, he chipped in more for industrial Imron paint jobs on each vehicle. “It doesn’t wear off in two years – it lasts four or five,” he says. “Those things we do upfront to avoid costs in the future.”

Already, the company has cut down on vehicle maintenance costs. “We were repairing brakes and running up more maintenance bills than we should have been,” Stano says, attributing the excess weight on smaller trucks to the premature wear-and-tear.

Stano says the company has been spending more on trucks and equipment in the past several years, mainly because of the vehicle switch-out. “We liquidated some of our units and standardized them,” he says.

Stano usually expects to get 10-12 years out of a dump truck and five to seven years out of a pickup truck. “If you use it for 10-12 years, it has no resale value,” he says.

He tends to push back mower purchases to every five to seven years, as well. But there’s a fine line between making due with a piece of equipment and flat out doing it in. “If you’re putting 400-500 hours on a mower, that’s a lot of hours – at 2,000 to 2,500 hours you want that mower gone,” he says. “Things start to break when they get old.”

Materials purchasing is a little trickier. It’s a timing game, Stano says – submitting purchase orders for large commercial installation jobs in advance, but getting just-in-time delivery straight from the nursery to the jobsite. “We don’t want a lot of plant material in our yard,” Stano says, adding that his vendors accommodate this request. Stano has two delivery trucks with drivers whose sole job is to pick up materials from vendors and deliver them to jobsites. “It’s much more efficient this way because it keeps the crews on the jobs and the delivery guys on the trucks.”

Stano Landscaping’s yard is reserved for storing basic bulk materials like mulch, stone products, crushed granite and plant starter. He places larger orders toward the beginning of the season – a mulch truck generally makes deliveries twice each week – and tapers ordering as the season progresses. “You want to draw down your inventory so you’re more careful about purchasing in October and November,” Stano says. “You want to have just enough on hand to use until the season ends.”

Ordering materials for design/build jobs is organized at Stano Landscaping through weekly production meetings, where each job on the books is discussed in terms of materials needs. One employee gathers all plant material requirements. Project managers handle their own hardscape materials.

Communication is the key to orchestrating orders, batching them to vendors and ensuring just-in-time arrival of plant materials, especially to those larger job sites, Stano says.
 



Two-way street

A supplier is just as important to your business as a customer, says Bruce Moore, Sr., president of Eastern Land Management in Stamford, Conn. “If they make a mistake, it’s hard for you to convey a good service to your customers,” Moore says. That’s why Eastern Land Management nurtures those vendor relationships by giving its key plant supplier a tour of commercial sites where the grower’s annuals are installed. “He’ll see how we are using them and what they look like,” Moore relates.

But most of all, Moore works hard to give his suppliers orders well in advance so they can plan for the season. Aside from budgeting purchases, timing is the most challenging aspect of materials ordering. This year, Eastern Land Management is trying something new that will hopefully help with pre-ordering annuals in the future. Production managers are taking photos of the beds and creating notebooks that detail the annual flowering program for each property.

“They will document by photo where the beds are, what the dimensions are, and how many pots are required for each bed,” Moore says. “That way, we’ll have an annual history of what the displays look like so we can use that for ordering purposes and managing production crews.”

Specifically, Moore says the photo history will help clients see what their beds looked like the previous year and hopefully make faster decisions on what to install the following year. “We need (to place annual orders) in February and March because the plants have to be grown,” Moore says, noting that his supplier does a lot of contract growing for Eastern Land Management. “We can’t just run to the local garden center to buy material for those large jobs, so we need to get a jump on it. That allows the grower to plant and it hopefully helps us in the pricing of the materials.”

Contract growing has helped bring down the cost of materials, Moore says. The company has been working with a supplier this way for about 10 years. “But the key is to make sure they get that order on time,” Moore says.

About 20 percent of the company’s revenues come from enhancements that are smaller, $2,000-$3,000 jobs. Coordinating plant material for these sites requires a different system involving weekly trips out to nurseries to get product. Moore assigns one person to make these deliveries, and materials orders are organized using the company’s purchase order system.

When an estimate is prepared, the software system calculates materials needed. When the job is sold, the “sending to production” process begins and a materials list is created. All materials for jobs that week can be sorted by vendor, material type or job. Then, a purchase order is created for each vendor. The delivery person brings materials back to the yard where crews can access what they need as they prepare for each job. As each job is completed, those purchase orders are rolled up into the job costing system.

“Because these jobs are smaller, there are a lot more moving parts and a wider variety of materials – a lot of onesies and twosies,” Moore says. This purchase order system ensures that no materials orders slip through the cracks.

As for the maintenance side of the business, Moore made a decision this year to go with a fleet management company, which provides reports on what repairs are necessary and any warranty issues that should be addressed. “We have 27 vehicles in our fleet now, so it was getting a little too much for us to manage,” Moore says.

Eastern Land Management purchases all of its mowers and aims to replace them every three years. Though lately, the company is stretching this time frame. Again, the vendor relationship here is key. “When a machine is down or we are having problems, they are right there to support us,” he says.
 



Just-in-time order

The two commodities Jack Robertson deals with in his business are fertilizer and gasoline. Both costs are unpredictable. Both costs are rising. Both are costs his business, Jack Robertson Lawn Care in Springfield, Ill., must wisely absorb because there’s no going back to customers who pre-pay to ask for a “raise.”

The positive about having a client base where half of them pre-pay for the season is the cash flow infusion that gives the company in winter and early spring when the business is ramping up for first applications. The down side is that those customer prices are fixed – and commodity prices are not.

“We have to charge enough to the customer that we can absorb that,” Robertson says. “If you are working on such a tight balance sheet that you can’t do that, you’ll be in trouble. Then, what has to give is service or quality or products. We are still using the same high-quality products that we always have and our pricing structure has decreased somewhat because of that, but that’s part of doing business.”

And the way Robertson prefers to do business with vendors is just-in-time. He doesn’t want to fill his warehouse with a season’s worth of lawn care product. He isn’t interested in carrying the insurance or shouldering the liability associated with keeping inventory on hand.

“If you have $100,000 worth of product in your warehouse, you then have to pay insurance on that,” he says.

And consider the worst-case scenarios: A tornado hits the warehouse and blows off the roof (this really happened to Robertson). The product is fine, but a creek nearby poses a threat. Imagine if those bags had ripped open, and torrential downpours (typical after a tornado) washed that product right into the water stream. Now you’ve got an environmental risk. That’s more responsibility, more risk.

“If you don’t have the product in your building, you’re not responsible for it,” Robertson says.

So Robertson’s service managers order product from their vendor every few days. Product is delivered directly to Robertson’s place of business, which is conveniently located around the corner from this vendor. Since Robertson has done business with this supplier for many years, the rep knows how much Robertson will likely order each year – and they mix special product blends just for Jack Robertson Lawn Care.

As for pricing, it doesn’t cost more for Robertson to manage his product supply this way. He doesn’t lose by not ordering in bulk at the beginning of the season, he says. Though, this year he did place a bulk order of summer product since he knew that prices were going to increase in June.

It’s all about flexibility. “We are constantly in touch with our vendor about the pricing structure of the product,” Robertson says. If it is advantageous to buy more than five or so pallets at a time, he’ll act on that. Otherwise, he doesn’t want to fill his warehouse with product.

The key to ordering just-in-time is to manage the orders, maintain a strong vendor relationship and ensure in-house accountability of product. Robertson does this by relying on service managers to take stock of the product in the warehouse, what is required for jobs that week and how much product has moved out of the company’s door each day, week and so far that season.

“If we get to the end of a run on a certain product, we figure out how many bags or tonnage we need and let (the vendor) know,” Robertson says, adding that the service managers actually place orders with the vendor. Robertson’s wife manages vendor invoices and tracks year-to-year comparisons. At any time, Robertson knows how much product the company is using in the current season and how that compares to past years.

“There are question marks with the products we use today because of pricing – if corn prices stay where they are, we know nitrogen prices will be higher,” he says.

But what Robertson can control is the efficiency of purchasing to ensure that his company is getting the most value for its dollars. And, he positions his business to manage the increasing costs so his customers can remain satisfied with the value of their service. Robertson says, “I don’t ever want to nickel and dime customers.”


 

The author is a frequent contributor to Lawn & Landscape.

x