A heating and air conditioning company sells a replacement job. During the installation, the crew ran out of duct tape. The lead installer went to his truck. He couldn’t find a roll of duct tape. So, he came back to the office. No duct tape in the warehouse. He went to the supply house and purchased a $6 roll of duct tape. Then he went back to the customer’s home to finish the job.
Unbelievable, but true. We calculated how much this roll of duct tape actually cost the company:
• Stop work. Look in his truck. Travel back to the office: 45 minutes.
• Search the warehouse for a roll of duct tape and visiting with the office personnel: 15 minutes.
• Travel to the supply house: 30 minutes.
• Get roll of duct tape at the supply house (and of course check out the latest tools): 30 minutes
• Travel back to the job: 30 minutes.
Total travel time: 2 hours and 30 minutes.
• The installer’s hourly wage is $23/hr. Overhead cost per hour is $28 per hour.
Direct cost for the duct tape trip = 51*2.5 = $127.50
Then he lost 2.5 hours of productivity on the job. The job went into overtime because of the duct tape trip. So, the company had to pay an extra 2 hours of overtime to complete the job that day and get the customer air conditioning in her home:
Additional job cost:
• Overtime wage is $34.50. Overhead cost still is $28 per hour.
Overtime cost for the duct tape trip: 62.5 *2 = $125
Total cost for the duct tape = $127.5 + $125 = $252.50 plus the $6 for the roll = $258.50.
You might argue that the overtime overhead per hour is slightly less. However, there still is overhead cost for those hours. The point is that it’s expensive not to have vital truck materials on a truck.
And, before you say “That could never happen to us:”
• How many times does one of your employees “run out of something” and have to stop work to get it. What does that really cost you?
• If you have invoices from suppliers for less than $5, how much do those items really cost you?
Warehouse personnel/parts runners are critical to productivity:
• Companies with as few as four field employees can justify a part time warehouse person/parts runner. It is his or her responsibility to make sure that the field personnel have all of the consumable materials on their trucks at all times.
• A parts runner should bring any needed parts or materials to the job or the technician. Using parts runners keeps field employees working whenever possible.
Don’t let a $6 roll of duct tape cost your company over $250!