Inventory Management: Add 1-3+% to Your Bottom Line with Jon Polizzi of Home Service Heroes in Tampa, FL

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Welcome to The Successful Contractor powered by CertainPath, formerly Success Group International, a show for residential contractors about residential contractors. We chronicle business journeys, share insights, and celebrate successes in this wonderful industry. I'm your host, Bob Houchin. As a reminder, all episodes of The Successful Contractor are available on YouTube as well as your podcast player of choice. And for more information on how CertainPath can put your contracting company on a certain path to success, visit our website, www.mycertainpath.com. I'm excited to bring to you an interview with John Polizzi of Home Service Heroes in Tampa, Florida. John's been a great member for many, many years. Home Service Heroes offers electrical, HVAC, and plumbing residential services. And in 2022, this last year, The company generated over $6.5 million at a strong, strong profit margin. A big part of ensuring you're highly profitable is managing inventory. And that's today's topic. John and I dig deep into inventory management. John offers a bounty of information. His managers inspect trucks weekly, including reviewing inventory. He pays his vendors daily, and he does an exceptional job of keeping Keeping his techs out of the big box stores. John really refined this process over the last couple of years. The last straw was when someone purchased a $250 pair of sunglasses on the company credit card, and he could never find out who the culprit was. That doesn't happen anymore. So here's my conversation with John Polizzi of Home Service Heroes on inventory management. I hope you enjoy our conversation and take away another or two. John, really appreciate you being on today's show. Instead of talking about all parts of your business, really wanted to kind of talk about one particular area I hear you've got pretty, pretty down pretty well, inventory management. It's obviously not a glamorous topic, but it's one that can make all the difference in the bottom line. And you were recommended to talk about this topic because it's something you've worked hard on at your company, Home Service Heroes. And considering you've got electrical, HVAC, and plumbing, I thought, boy, you're a perfect guest to have on. So if you're ready, I'd like to dig in. Is that all right?

Let's do it.

All right. Awesome, John. Appreciate it. First of all, who negotiates materials and equipment for you guys? Are you primarily doing that?

Yes. Me and one of the department managers as well.

What department?

So yeah, whoever manages that department, me and him will be with that vendor.

Okay. Very good. Very good. Now, how often are you reviewing costs to make sure they're not ticking up or when they do tick up throughout the year, you know about it?

I mean, here lately we're reviewing that just about monthly.

Monthly? Okay.

Yeah.

And how often will you shop vendors where you get serious enough, go, we need to look?

If they get out of control and the vendor's refusing to look and work on it, then we'll start to shop vendors. But, you know, I'm a customer service guy. We— I was built to provide great customer service. So when we receive great customer service, I'll tend to hang on to that vendor and just kind of force them to negotiate with me instead of, instead of leaving.

Sure. Yeah, no, I mean, that's true because, you know, if you want to haggle over a tenth of a point and all of a sudden you're not getting stuff, what's the point, right?

Exactly.

Yeah. Yeah, very good. Now, in terms of managing reporting rebates and stuff with us, CertainPath, who does that? Do you do that, or is there someone in your office that manages that?

My office manager, Jessica, handles that.

Very good. I mean, she, every month she's reporting that. Excellent.

I'm gonna say yes. Yeah.

It's one of those things you delegate and just assume it's handled, right? Nothing wrong with that.

Nothing wrong with that.

Now, something that Sonya, who's your coach, for those who don't know, she mentioned to me is, and correct me or her if we're wrong, that you pay your vendors, is it daily? You know, because I know a lot of vendors or a lot of members will aspire to pay weekly, right, to get a little bit of a discount. But, but you do it daily?

Yes.

Okay.

So it's kind of— it's all on purpose.

Um, sure.

I like to track and monitor our margins as, as often as possible, and we've got it down to we can track rough numbers daily. Um, so yeah, we're buying stuff every day.

Wow. Now, who, who's, who's managing to make sure that's paid every day then? In the office.

Our process manages that. Okay. We're gonna get into that.

Yeah, very good. Okay. Now, is everything you pay for— is it— is it— you try to do credit cards or is that okay? Is there anyone that insists on checks or it's all credit card?

Um, no, I think we're credit cards for everything. Um, yeah.

That's great. Is there a certain card that you, you utilize? I, I've heard now this Capital One Spark card is a Real popular card amongst the group, or do you have one that you particularly enjoy?

We do use a Capital One, um, and when we're getting close, we'll just use— I have a separate— I have a bunch of separate bank accounts, one set up just for materials. So we'll use the account or the credit card, really, really depends on where we're at on balances with both of those.

Okay, very good. Now, do you know, do you have a VMI set up with you guys, or, or, or no?

No.

You do not. Okay, very good. Now, who is ultimately in charge of that inventory Then once it arrives to the shop, do you have a dedicated manager or warehouse person?

I do have a warehouse person, and he's kind of the facilitator of the process. But the service managers, the department managers, are in charge of their department's inventory.

Okay, so, so what— so we'll talk about that process then. So stuff comes in, the warehouse person replenishes it, and what the service manager then is responsible for, just keeping an eye on it to ensure it's got everything you need.

So, so our process starts with a fully stocked truck. Like, that's the whole process starts with that. It's fully stocked bins and labels, and we developed these, these really nice— I'll show a picture here— these really nice sticker labels that have pictures for, for some of us that don't know what all the parts are.

Sure.

A bin code, a description, a picture, and a quantity. Every truck has those, and if they don't have them now, they will, you know, as we go on. Trucks have the bins, just the white corrugated plastic or cardboard bins with the stickers on the shelf. So there's no question what's supposed to be in that bin, and only that one part is supposed to be in that bin. So it's really easy to look at, really easy to inventory.

Okay.

Starts with a fully stocked truck. That has to happen first.

Yeah.

After every single job is completed, the technicians have to report a replenishment purchase order.

Okay.

If they used, you know, one faceplate off the truck, that has to be reported. One outlet, you know, one capacitor, one, one, you know, PVC fitting, whatever it is, as small or as many as they use, we require that on every single job before they are allowed to move on.

Okay.

And that's a function—

go ahead. Real quick, just so those— just to kind of interrupt, a little interjection. Is that all— I'm assuming that's all tracked through software. They're entering it through software. So it's in real time. So that warehouse per— who does that go to? The warehouse person or service managers?

Dispatch, warehouse person, and service managers.

Okay, very good, very good. All right, go ahead.

So it goes to dispatch so that person can stop that technician if it, if it's not.

Got it.

For example, they're, they're looking at the tickets before they will give the technician another ticket, and they're looking for—

Beautiful.

Did we do tasks? Are there materials for this? This is what dispatch is doing. And if there are materials that kind of halfway somewhat match the tasks, she'll move them on. Okay?

Okay.

If the service manager is not doing it in real time because he's busy doing something else, he will fall back to that later and say, hey, you installed 4 GFIs on this job, but your material, you know, doesn't match that. Fix it.

Right, right.

So he'll get on them to fix it.

That's great. So it's all real time. Very good.

Correct. And then that— then the purchase— we call him a purchasing agent, our warehouse guy— gets those purchase orders in real time. Then he knows to take it off the bin, off the shelf, put it in the guy's material bin, and it's available for him at the end of the day or the next day whenever they come back to the shop.

Excellent.

The idea is the guys use parts off their truck on Monday. When they come back into work Tuesday morning, it's in their bin ready to restock.

Very good. And then the guys go ahead and grab their bin and they just restock it?

Yes.

Just right after their morning meeting or whatever and their training, and then they do that and boom. That's great.

And then it's every single day, but when they do, they should have a bin full of whatever material they use in the last couple days.

Now, who— so is it the manager, the service manager then, that initiates the reorder? If, if, you know, we used, uh, sold 3 capacitors or whatever, is that who initiates that, that reorder?

He oversees it. The, the purchasing agent knows That bin out in the warehouse has the same matching labels as these, but also has a minimum and maximum.

Okay.

So he can just look, if he pulled the capacitor out of that bin, that's, you know, a minimum of 3, now there's only 2 in there, he knows that has to be reordered.

Okay, very good. Now does he have any kind of an incentive to ensure that everything's stocked and your materials and equipment percentages at a certain rate? rate, or no, not at this point?

Not beyond hearing it from me, no. Um, okay, down the road, I know a lot of people are, are doing spiffs on, on margins and stuff like that. We haven't gotten there yet.

No, that's fine. Yeah, that's, you know, but you brought that up. How frequently are you talking with him, making sure everything's going smoothly, that kind of check-in type stuff?

Sure. I mean, we look at margins every single day, right? And so we can see if the margins have slipped for a day or two, something's up. Okay. And then, you know, frequently I'll just kind of wander around the warehouse and just kind of stick my head over here and stick my head over there. That's my warehouse inventory control.

Okay. Hey, you know, there's lots of guys I've heard go, if things are stacked up in corners and looking disheveled, you know that you've got an issue. You don't need to look at the numbers per se. You know you've got an issue.

Right.

So very good. So do you do a total inventory of the warehouse ever, or are you just kind of real time? That's your process?

It's just real-time replenishment. Now, in our warehouse, there's not— it's not a matching part to everything that's on the truck. We have our top 15 to 25 things that move off of the vans in the warehouse just so we can replenish those fast.

Right.

Like, for some reason, like, weather-resistant GFIs are something we move a lot of. I don't know if they're popular here. Our guys like to sell them. We just sell a bunch of them, whatever. So I have a couple of cases of those on the shelf. So we can replenish those pretty quick. Other items that we don't move as fast, I'm not going to pay to have in the warehouse. Our suppliers are pretty good. If we order it like on a Monday, it'll be here Wednesday or Thursday.

Okay.

Those particular slower moving items are maybe 2 or 3 days behind in replenishment.

That's not bad at all. So you don't really run into the issue of having too much stock of any one particular thing. You've gotten pretty lean with that.

I mean, if it was up to me, we would have no warehouse at all, but that stresses everybody else out around here. And so, right, we've just got a little bit.

Sure. How about like larger equipment? We were talking before I hit record about air conditioners and stuff like that, you know. And, um, how, you know, do you— how many systems do you have stacked up in, in the warehouse at any one time?

None.

Really?

Yeah.

Do you have a drop ship right there?

Yeah. I mean, so our purchasing agent, he, he's assigned a company truck. He's got a pickup truck. Um, when we sell an air conditioner that we're doing the same day, he'll just go get it Take it to the shop. Our local suppliers are really good about keeping things in stock for us now.

Yeah.

That wasn't the case a year ago, but now they keep a pretty good inventory of the systems that we sell. And again, our air conditioning department's not super huge.

Right.

You know, we did $1.5 million last year. We hope to do close to $3 million this year. So we're not moving 30 units a day.

Sure.

So we can get a unit every day. We can get 2 units some days. It's not— has not been an issue yet.

Right, right, right.

And if it ever becomes an issue, we have driven hours to go get a system ourselves just to take care of the customer.

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Uh, you know, it's the unfortunate thing that, that you have to be taught, it has to be talked about, but how do you secure your warehouse? I know some guys have like cages around it so things don't, you know, there's a crime of opportunity. Good people do stupid things sometimes. Do you, do you have something like that just to ensure nothing walks away?

So yeah, our warehouse is secured. Uh, keeps the honest guys out.

Right.

Um, I mean, there's a cage that goes all the way around it, and in our warehouse below where the material bins goes, there's some staging bays that you can crawl through, you know, pretty, pretty easily. But it's like, you know, some don't, don't do that. And for the most part, like, they're pretty good. We, we track shrinkage a little bit, so it's, it's not, it's not crazy. Um, and as far as security, there's cameras out there and we lock the doors when we're not there. Right, right, right.

Very good. Now, you talked about inventorying a truck, you know, right away. That's step one. Who does that? Is that your purchasing agent, your warehouse person with the new tech, the technician, or how— what's that process?

So part of our process, I can run through this, is that the service manager and the technician will inventory the truck.

Okay.

All right. So they hire a new guy today, inventory the truck. It's yours tomorrow. Okay, so you're responsible for all the parts on that truck, and then you're responsible for the replenishment purchase orders. Um, and then every Wednesday after our family meeting, the service manager will go out to the parking lot with the techs and inventory a letter code on the truck.

Mm-hmm.

Each bin is, you know, I try to keep like items together, like all the connectors are like A1, A2, A3. And then try to keep like items in the same letter group in different bin numbers. So I think our plumbing truck has all the way up to letter U. So each week we'll inventory a letter code. So, for example, today's Wednesday, we're going to inventory all of the A's in the plumbing.

Mm-hmm.

And he's going to fill out a sheet. We're missing X amount of fittings that weren't reported. Fell off the truck, were lost, forgot to be reported, or whatever the case is. Um, so because that technician is assigned for that truck, they are now financially responsible for all shrinkage.

Ah.

And I give them a little variable of about $100.

Okay.

Okay, so if you're missing a $2 part off the truck, I'm gonna slap your hands and say don't do it again, and we'll really punch it. But if you're missing $200 worth of parts that has not been sold to a job, it is not on a On a purchase order, and you don't know where it went. That's coming out of your check.

Wow! So they know you're doing this obviously regularly. So they know, hey, you know, even again, the honest guys still make mistakes sometimes, but they know it's getting checked. So there's there it is makes no sense for me to even try to get sly with this. Wow! That's great. That's great.

The guys, I mean, there's they have no reason to not do the process. Right. You know, it doesn't cost them anything to order material from us. Sure. And you know, I'm a super lenient guy. If if If technician Bill wants to do a little side job for his mom, like, hey, I'm fine. Yeah, let me know what you use, just reorder it for the truck. As long as it's not crazy, I'll let it go.

Yeah.

And so—

I mean, do you have those conversations regularly? Hey, if it's for immediate family, what is the rule? Is there, I mean, there has to be, I'm sure, some kind of rule. If it's immediate family, it's okay?

Immediate family that maybe can't use us, doesn't wanna use us, whatever.

Yeah, yeah.

But like friends and all that, We'll run that through the company.

Okay. So is there—

you know about it is the main thing.

Sure, sure. Um, is there ever a situation where they have to run to a Home Depot or something? So how often do those come up?

Sure, a little more often than I'd like. Um, okay, we're constantly tweaking the truck stock to, you know, get rid of things that we don't ever use and add things that are new and stuff like that. But occasionally the guys will have to run to a Home Depot or a Lowe's or whatever. And they have to call their service manager, get approval.

Okay.

And depending on location, what's happening on the job, and where our warehouse guy is, we will either bring them the parts that they need so they don't have to leave the job.

Oh, okay.

Or, you know, if it makes more sense for them to go, then we'll just send them to Home Depot. Okay.

They—

and I make this really difficult— our guys do not have company credit cards.

Oh, okay.

Any way to pay for anything.

Yeah.

So they have to go pick out the parts they need, go stand, and if anybody's ever made a phone sale at Home Depot, they know it's a huge pain in the neck. So they gotta wait in line, and Jessica will not accept the purchase unless they give her a purchase order number, which they can make right on their tablet.

Yeah.

So she can track all that, and they know that, and she's rejected them, and they get all mad and, you know, upset about it, but That's our procedure. It's got to be followed. Yeah. And then they go back to the job. So why do I make it super difficult for my guys to do that? Because I don't want them to do it.

Right, right.

That's, that's good.

That's interesting. Now, are they paid? I mean, your pay— I forget how you set up your pay structure. I can't remember if anyone's hourly or anything like that. Are they paid for any of those running times to Home Depot? I can't recall again what you do.

You know, Florida law says we got to pay them for the time that they work. But we break that down into performance pay. So you're paid for dollars per task on the job.

Right.

Okay.

You're performing.

Yeah. So if you failed to prepare for this job that you're going to and you don't have the parts that you need or whatever the case, like you're not paid any extra to go to Home Depot and back.

Yeah. So they really generally don't want to go, right? Is bottom line when it comes down to it. That's great. So because, you know, we hear all the time, oh, you know, I Like some other friend will call Joe the kind of, hey Joe, I see 7 of your trucks at Home Depot. I guess you're not making any money right now. So that's thankfully, that's thankfully something you're not dealing with anymore.

Yeah.

So I might have picked at some scabs for people that are listening to that right now. So sorry, guys.

Uh, I mean, everybody had company credit cards. Everybody had access to go all out. Um, yeah, in fact, we had these cool little debit cards that they can go anywhere with. And we were trying to keep track of about 15 of them. And then I noticed somebody bought a $250 pair of sunglasses on one of the cards, but nobody owned up to it. So that next day we cut them all up and said, we're not doing this.

Wow. How long ago was that?

That was about 2 years, 3 years ago.

2 years, 3 years ago. And so you've been just working on this process ever since, I guess?

Sure.

Refining Jill. Yeah, that's cool. I'm assuming I know the answer, but I'm gonna ask it anyways. Do you allow your guys any like wiggle rooms in terms of materials that they, you know, really like? For example, a guy really likes a certain type of fixture, he's just locked into a certain brand, or do you have, hey, this is the Home Service Heroes stock and, you know, we really would prefer if you sold that?

Actually, I am a little bit lenient when it comes to that, to a very small extent. Okay, okay, like we only want to install Our material that we purchase so we can warranty it. I do have these 2 technicians that really love this one specific type of LED retrofit bulb. Whatever, it makes them happy to keep that, so they can have that. One of my plumbers really enjoys this particular type of garbage disposal versus what we normally buy. If he likes it, he's going to sell more of it, then he can— that's fine. He can have that.

Right.

Breakers and panels, we try to keep those pretty consistent to what we like. Air conditioning systems, we're only selling our brand that we like. Water conditioning and stuff like that, we're specific to those. I mean, that's really it. It's not a whole lot of that, but I know those 2 instances came up.

Right. That's interesting. Well, and you're right, you said it. If a guy's more comfortable with it, it means he's gonna be more comfortable to offer it, right? And build it into options. So it's gonna lead to more sales. So I definitely get that, but I'm sure it adds a little more work, but, you know, for a few more sales, it's worth it. Let's see, we talked about how— so again, just to reiterate, your techs do not get debriefed to another job until they enter all those materials, or maybe they do, but the service manager's calling behind, you know, if the dispatcher isn't able to say, hey, get that entered right away so that doesn't get lagged too behind.

Correct. Yeah. So, yeah. And so we make sure they don't forget. I created a part number called no material used. If we do a particular job, there's some out there that's maybe just a diagnostic or just a labor only, and they don't use material, they still have to enter that part number.

Oh, that's a good nugget.

So they know they didn't forget and keeps them in that routine.

That's really good. That's a good nugget for sure. Some people will like that. I guess, you know, you're just watching your numbers in real time, right? You're watching those labor percentages, those material percentages. You know, anything gets squirrely fast. And I guess you guys huddle every morning to kind of talk about that as a management team?

Correct, yes.

Okay, very good. Yep, what gets monitored gets fixed.

Managers are in charge of performance pay and they're in charge of their department's inventory, so they report those numbers every morning at our huddle. And we, you know, we use our, uh, sales minus those 2 for kind of a rough gross margin number, and we look at that daily.

Do you, do you have, um, like materials percentages broken down by technician? I know it's something like Jimmy Dale has, and he always uses that to help Drive how to fix certain problems.

I heard him say that a while ago, so we did that for a 4-week period.

Too much.

I killed us. It was a lot to track down for each individual guy, and it turns out that all our guys are pretty much the same. So I was like, okay, you can go back to the group. I, I want to see if any— anybody was super shining or dragging everybody else down, but they were all very That's good.

That's good. Do you ever see much of a swing in terms of your material percentage? Is it more than a point or 2 or not generally?

No, it's never more than a point or 2.

Okay.

Okay.

What was the biggest— I mean, you've outlined a lot of steps of your process. Was there anything that really made a big difference? Was it just that inventorying of the truck, for example, or anything you can point to that you go, hey, hey members, you should do this?

Having the trucks organized is, is, is key to the whole process. Trucks have to be organized. You have to inspect them weekly or they will become unorganized. And doing that inventory weekly is kind of the truck inspection and the little inventory as well.

Yeah.

So I've got to keep on top of it. Everybody knows technicians are busy. They're out at 8 o'clock at the job. At the end of the job, everything's thrown back into the truck and they'll deal with it tomorrow until tomorrow's job, and then they throw everything on top of that. So Got to keep on top of them every single, at least once a week to keep it organized.

Yeah, that's great.

And took the truck and followed the materials on the floor.

And so I guess this has become, I don't want to call it part of your culture, but it's an expectation, right? Everyone knows you can't get away with having a sloppy truck now. So where did you, I, you know, Sonny mentioned me, you, I know you've been to Texas a bunch. You've visited Milestone, Baker Brothers. I guess I'm sure you've And I know you do a good job connecting with other members. How did you kind of come up with this system? Was there anyone in particular that resonated with you, or is it just an amalgamation of a bunch?

I took a few things from Milestone. I took a few things from Baker Brothers, took a few things from Brothers, and of all the other contractors that we network, I took a little bit from you, a little bit from you, a little bit from you, put together our system. And funny story is these little sticker labels that I made with the pictures on them, I made them as I was outlining our plumbing trucks because I don't come from the plumbing world. I don't know anything about plumbing parts, so I needed the pictures to help me put them on the truck.

Sure.

Wow, that— I'm gonna do this for all the departments.

Yeah. Hey, whatever little things make a big— you know, those little things make a big difference for sure.

Excellent.

Well, hey, last question for you, John. This was great. This was a packed, you know, 25, 30 minutes. Any final advice you might have for members? You know, setting up, managing their trucks, their inventory, anything to kind of help them, you know, secure that winning edge.

Keep them organized and check them regularly, and then watch your numbers as often as you can.

Right, very good. Excellent. Well, John, really appreciate your time. You're always so generous. I know our audience thanks you. Wish you and the rest of your team at Home Service Heroes continued success. Have a great day, and have a great day everyone that are watching and listening. Thanks so much. All right.

Thank you.

That's John Plizzi of Home Service Heroes in Tampa, Florida on inventory management. I hope you've enjoyed today's show. If so, please like and subscribe on YouTube. If you're on your favorite podcast player, please leave us a 5-star review. The 2 seconds you take to leave a review will help other success-minded contractors like you find us and hopefully get a little bit better, which elevates our entire industry. And please join me for future episodes. This has been The Successful Contractor powered by CertainPath.

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