Business Advisory Blog

Find Lost Dollars!

Two companies, one construction company with over $100 million in revenue and exceptional personnel, training and controls in force, and another with under $2 million in revenue without any controls, had the same problem: lost profits from a lack of material delivery controls in the field.

The larger company builds homes valued over $5 million and sells them at cost plus a profit percentage. The smaller company builds residential renovations and decks at a fixed price. In both cases, we found that materials were being delivered to jobsites without being checked in by a field superintendent.

The larger builder lost $80,000 because their client rejected an invoice where the costs for millwork and lumber were $80,000 over budget. Was the material stolen? Was it ever delivered?

The materials were never used in the construction of the home!

The smaller company had material costs averaging 10 to 15 percent over budget. The materials were dropped off at the jobsite without anyone checking them, and the materials were often short and spot purchased in the field.

A one-day analysis of “jobs” showed that the supplier was short delivering, back ordering material and billing the client for the full order, while the client purchased the backordered material and then paid for the material not delivered!

Gold Gerstein Group instituted one week of “delivery testing” in which the field supervisor received materials and checked them against the purchase order.

Hundreds of dollars of material was discovered erroneously billed by the building materials distributor to the client. In addition, labor overruns were made even higher due to their employees finding it necessary to take the time to locate, pick up and deliver the shorted material!

To avoid this loss of dollars, provide your field superintendents with a report of materials to be delivered, copies of the purchase orders and an instruction to check the materials delivered against the report and purchase order.

Follow this procedure, and you’ll find thousands of lost dollars in material deliveries!