7 Inventory Management Best Practices in Construction

August 22, 2023 • 10 min read

Managing inventory effectively is a critical aspect of any construction company’s success. Ensuring the right supplies, materials, equipment, and machinery are on site when required ensures projects are finished on time, as designed, and at budget.

This article will explore seven best practices construction companies use to optimize inventory management.

What is inventory management for construction?

In construction, inventory management refers to tracking and controlling the supplies, materials, and equipment required to execute construction. For some businesses, these assets may be machinery like tractors and cranes. For other construction companies, this may refer to raw materials like lumber and steel. 

Regardless of what your construction company keeps on hand, optimizing how you procure, store, track, and distribute these resources improves the speed at which projects are completed and whether they are completed within budget. Moreover, optimizing construction inventory management and inventory control reduces wast, boosts sustainability, and prevents supply shortages and stockouts, and enhances productivity by ensuring the right materials and equipment are in the right place at the right time. 

Construction companies practicing inventory management typically use one of three systems: manual inventory management (pen-and-paper), spreadsheet inventory management, or inventory management software. 

The following best practices are some of the most critical aspects of an optimized inventory management strategy. They’re practiced by construction companies of every shape and size, from small businesses serving just a few customers to national operations executing projects everywhere.

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1. Perform a comprehensive inventory analysis

Also known as an inventory audit, a comprehensive inventory analysis allows construction stakeholders to analyze inventory thoroughly, determine precisely what they have on hand across all storage locations, and then categorize materials and equipment accordingly.

Comprehensive inventory analysis is a multi-step process that categorizes and classifies all inventory by type, usage, importance, and ideal storage condition. This classification creates an inventory hierarchy that identifies what inventory is most essential to which projects and to the company’s overall profit. Many construction companies utilize some form of ABC classification to determine their most important and valuable inventory. This allows stakeholders to focus their most controlled inventory management efforts on the items that matter most.

This audit should also verify inventory quantities across every location. While this may be tedious if performed manually, recording exactly what inventory is on hand is essential to a genuinely efficient and organized inventory management strategy. Employees should compare the counts on hand to documented qualities, identifying and reporting any discrepancies.

Finally, as employees physically verify inventory, they should update a manual, spreadsheet, or software inventory system. Employees should note of the following:

  • Confirmed quantities on hand versus amounts reported
  • The precise location of the inventory
  • Whatever inventory appears damaged
  • Whether stock appears to be at risk of shrinkage or obsolescence
  • Whether asset conditions have changed and whether they’ve depreciated 

One example: a construction company realized it was experiencing delays and profit loss due to poor inventory understanding. Once it conducted a thorough audit and reviewed documentation, the company identified its most essential inventory, where to store it, and how frequently it needed to be ordered. 

Inventory audit best practices include:

  • Utilizing digital tools and software, if available, to keep better track of inventory between audits.
  • Regularly updating inventory records to reflect current stock levels.
  • Training employees to count inventory, analyze its condition, and use a QR code system to speed up these processes. 

Since audits can be time-consuming, conducting as many inventory-related tasks as possible during this time will help your business extract the most value from the process. Businesses that have adopted a QR code inventory system can perform inventory verification in a fraction of the time. Many companies find that this hands-on audit presents the perfect opportunity to begin the implementation of a barcode or QR code system.

2. Implement the right technology solutions

Many construction companies are adopting a more modern inventory management solution to maintain accurate inventory records with less effort. Integrating technology solutions, such as barcode scanners and inventory software, can rapidly streamline inventory management and enable real-time, perpetual tracking of raw materials, construction supplies, and machinery, reducing ordering and resource allocation errors while boosting overall transparency cross-company.

Consider a construction company with projects underway across the entire state. Chances are this business stores material at headquarters, job sites, storage facilities, and on the company’s fleet of trucks. By implementing a mobile inventory management app, field teams can scan QR codes on supplies and materials and input usage data right away. They can also update the location of machinery as it moves from one site to another. This allows on-site project managers and off-site stakeholders to clearly understand inventory levels at any job site at any time.

Certain inventory management apps also notify the right people when the quantity of certain items drops below a given threshold. When these customized low-stock alerts are aligned with a vendor’s lead time, construction companies can confidently place complete orders at the right time. This slashes the material shortages that cause costly schedule delays and the overtime labor charges incurred when employees must drive across the county to search for supplies or locate equipment that should have already been on site.

Technology best practices for construction inventory management include:

  • Selecting the right software for your construction company’s unique needs, processes, and future goals.
  • Properly training employees on how to use technology solutions, including offering on-the-job retraining as necessary.
  • Leveraging available resources, including technology providers’ webinars and customer service offerings.

3. Staff your workforce appropriately

In construction, ensuring the right team is working the right job is essential to positive project outcomes. The same is true for construction inventory management. Verify you have adequate staff to properly track, organize, and efficiently reallocate supplies, materials, and machinery. By correctly scheduling staff, your construction company reduces the likelihood of delays and poor resource management.

Remember that for many companies, improved inventory management does not require a hiring frenzy. Instead, follow the first two best practices in this article to shore inventory management, then identify where and how to allocate existing labor to get the most out of this new inventory management process. 

For larger businesses, hiring a corporate or regional inventory manager may yield a return on investment. But in many use cases, simply empowering field teams and project managers to utilize intuitive inventory management software that works on smartphones is all it takes to keep inventory data up-to-date.

No matter the missing piece to your business’s unique inventory management strategy, the best process will save your business money, not the other way around. To ensure you’re getting the most ROI on your inventory management strategy:

  • Regularly assess the inventory management workload associated with each new project.
  • Search for scalable inventory management solutions that grow alongside your business.
  • Designate clear responsibilities for each member of your team, whether they are dedicated inventory management staff or juggle a variety of responsibilities.

4. Implement just-in-time principles

Just-in-time inventory minimizes inventory kept on hand by aligning critical material deliveries with documented project schedules. To achieve JIT, your company must establish relationships with reliable suppliers for timely resource replenishment. This allows your business to front as little cash as possible for inventory while mitigating the risks associated with over and under-stocking.

Say a national builder of retail stores for a coffee company uses a set list of trusted vendors to supply tile and flooring for their coffee shops. This corporation may implement JIT so the right materials arrive at the right stores at just the right time. As a result, cash is only spent on materials as soon as needed, giving the corporation more financial flexibility in other areas. It also reduces the resource burn of storing and securing materials before they’re required to complete a task.

 If you wish to implement JIT principles into your construction company’s inventory strategy, you should:

  • Determine which materials are critical to your jobs, then create a schedule for inventory delivery based on reliable project timelines.
  • Develop relationships with suppliers that consistently deliver materials on time and in good shape.
  • Mitigate risk by implementing contingency plans that address potential delays in material deliveries.

5. Perform frequent demand forecasting

Demand forecasting is the process of predicting supply, material, and equipment requirements based on your company’s historical data, analysis of market trends, and project schedules over the next period. This data-driven approach to inventory management helps construction companies make more intelligent decisions about procuring and allocating resources.

For more insight into market trends, construction stakeholders should chat with their most trusted suppliers about vulnerabilities in the supply chain. Chances are your vendors know what other construction companies are ordering and how supply and demand for certain products may fluctuate over the next while. These insights can help you secure products that may later become difficult to procure or even allow you to purchase them at a lower rate before demand and price surges.

Demand forecasting best practices include:

  • Consistently collecting and analyzing data on material consumption patterns.
  • Reviewing condition reports and projecting when high-value machinery may need to be re-ordered or serviced.
  • Leveraging technology to forecast demand that considers variable factors like project scope and seasonality.
  • Constantly reviewing and adjusting forecasts as projects evolve and new requirements come to light.

6. Collaborate and communicate with other teams

Construction inherently requires a variety of companies to work together to execute a job, so it’s no surprise that optimizing collaboration and communication between stakeholders is so vital to the outcome of a project. Open communication with all teams ensures that materials and equipment are available when needed, especially if a project is prone to last-minute changes or rework.

For example, suppose a construction company works with an owner and an architect constantly requesting changes. In that case, the construction company should schedule daily chats about the next steps with the stakeholders. This allows the construction company to process change orders rapidly and urgently place material requests with already-apprised vendors. The construction company should also dedicate time to crafting contingency plans that mitigate the risks of project delays and materials shortages.

Best practices for collaboration and communication with other stakeholders include:

  • Maintaining solid relationships with suppliers, field teams, owners, and more.
  • Sharing project schedules and updates with vendors to enable timely material delivery.
  • Ensuring accurate inventory management processes so materials can be rapidly reallocated between sites when possible. 

7. Improve inventory management processes continuously

During your comprehensive inventory audit or any other time, you may find vulnerabilities in your supply, material, and equipment management processes that need remedying. This is an expected outcome of an inventory audit and proof of a thorough investigation. Whatever weak spots you uncover, update your inventory management process accordingly.

For example, if a business discovers that its most valuable raw materials (i.e., copper) do not match the expected quantities on hand, new security measures should be implemented. This may mean leasing space at a secure storage facility, keeping certain materials under lock and key, or adding closed-circuit security cameras to an already-secure storage area.

Remember that even the best inventory management systems require updating as businesses grow. Regardless of the success of your inventory management strategy, your company should regularly assess all processes, gather feedback from employees, identify vulnerabilities, and tweak the inventory management process to ensure the system is working as smoothly as possible.

Best practices for ongoing inventory management optimization include:

  • Using an inventory software system like Sortly to track, organize, and manage inventory easily and avoid wasting time with outdated systems such as spreadsheets.
  • Consider barcoding your inventory to save time and ensure greater accuracy across all the items you track.
  • Ensuring processes for labeling, categorizing, and organizing inventory remain as efficient as possible.
  • Frequently reviewing and adjusting how materials are stored and how assets are allocated, making changes to reflect the current reality of project volume, customer demands, and job site locations.

About Sortly for Construction Inventory Management

Efficient inventory tracking is a must for construction companies and service providers. If your business would benefit from improved inventory management, start a free trial of Sortly. Sortly lets you organize, track, and manage your inventory—from any device, in any location. Our easy-to-use mobile app lets you and your team update inventory on the job, scan barcodes from your smartphone, set low stock alerts to remind you to re-order, and more. That means you can work more efficiently, plan for jobs better, and serve your customers to their highest satisfaction.

Join the over 20,000 construction professionals who trust Sortly as their inventory management solution and start your free 14-day trial today.