Construction Consulting: Find Lost Dollars
Wednesday, June 13th, 2007
Two of our recent clients, 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 that so many of our clients face…lost profits from lack of controls of material deliveries in the field.
Our larger client builds homes valued over $5 million and sells them at cost plus a profit percentage. The smaller client builds residential renovations and decks at a fixed price. In both cases, we found that their materials were being delivered to their job site without being checked in by their field superintendent.
The result of that mistake was that the larger builder lost $80,000 because their client rejected an invoice where the costs for mill work and lumber were $80,000 over budget. Was the material stolen? Was it ever delivered?
We discovered that the materials were never used in the construction of the home!
The smaller company had material costs averaging 10-15% over budget. The materials were dropped off at the job site without anyone checking them and the materials were often short and spot purchased in the field.
Our one day analysis of “jobs” showed that the supplier was short delivering, back ordering material and billing the client for the full order, while our client purchased the backordered material and then paid for the material not delivered!
The Burruano Group instituted one week of “delivery testing” in which the field supervisor received materials and checked them against the PO.
We discovered hundreds of dollars of material erroneously billed by the building materials distributor to our client. In addition, their 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 PO.
Follow this procedure, and you’ll find thousands of lost dollars in material deliveries!
I’ve heard the term “accountability” probably only second to cash flow/profit over my 30 plus years of working with privately held and publicly traded companies. I’m often told, “I hired them for their experience and expertise, they know their jobs, but I just get what I get…not what I want”.
