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Can you afford to keep writing-off lost tool inventory?

tool inventory

A tool write-off occurs when the value of a tool has been reduced to zero due to the fact that it is lost or broken and repairs aren’t feasible. This typically occurs when a tool becomes obsolete, becomes damaged beyond economic repair, or is stolen or lost. 

The process that a written-off tool goes through is an inventory write-off, which involves removing the tool from the record-keeping system, which is then followed by a physical write off, such as removing the tool from the workshop. In order for companies to physically scrap written-off tools, they need to be taken to a specialist recycling site, which usually comes with a charge.

This can often be a long and costly process and if you have a large amount of recurring inventory write-offs this can be indicative of opportunities to optimise inventory management. To counteract this, companies often purchase duplicate or replacement tools because they have lost track of existing items, which is not only added cost to an already expensive process, it is highly inefficient. Increased write-offs lead to bigger losses, which in turn reduce productivity.

 

Why are tools being written-off?

Tools are written-off regularly across the industry for a number of reasons. These include:

1. Crime 

According to CIOB research, it is estimated that the construction industry suffers a loss of more than £400 million a year due to vandalism and theft; with some of this being due to the fact that the tools are often left on site without proper security, or stored in an environment that isn’t secure. When a tool is stolen it needs to be written-off because it is no longer in your possession.

 

2. Lost tools

When a tool goes missing, it has to be written-off because it can no longer be kept track of and there is no guarantee that it will turn up. This can be extremely frustrating for directors, because it can be difficult to differentiate between tools that have been lost and tools that have been stolen if the lost tool is not located.

3. Damage

Causing accidental damage to a tool is a common occurrence throughout the industry and sometimes it is unavoidable. However, a lot of damage to tools is usually caused by poor maintenance and management. When a tool is incorrectly stored or used without proper training, it increases the tool’s chance of being damaged beyond repair and having to be written-off.

4. Out of date technology

As technology advances, a lot of the features included in much older tools is becoming obsolete, or deemed non-compliant by regulations. These tools have to be written-off because they can be dangerous and have a higher risk of being damaged while in use.

When tools are written-off (for whatever reason) it causes productivity to decrease. A loss of productivity can be damaging for your company in terms of employee morale and cost. 

What is the cost of writing-off tools?

There are a number of costs associated with writing-off tools, from the process itself to the loss of productivity. These are just some examples of the cost of writing-off tools:

  • Writing-off a tool means it can no longer be used. Therefore, the more tools become unusable, the more you have to replace or source from elsewhere. These replacement tools often have a procurement cost in which the write-off triggers an input cost. 

  • The more tools you need to replace, the more input costs you have to add. For example, if you were to lose one tool every month, you would incur the costs associated with procurement each time. 

These costs can be direct, which is the cost of the tool itself, and indirect, which refers to the time spent searching and comparing feasible replacements, obtaining quotes, purchasing new tools and the time spent getting a replacement tool to the site where it is needed. These costs often cause margins to shrink across projects and could lead to a loss in profit.

  • The cost of actually calculating the write-off and paying the necessary people to do this (accountants or internal departments) can be extremely high and this will only increase with the more write-offs you acquire. On top of this, further charges arise out of scrapping fees for electrical appliances and the cost of having an employee move tools from the storage location to the scrapyard.

  • If you have a large number of write-offs, it can be detrimental for reasons beyond how much it costs to process them. Not only is writing-off a large amount of equipment extremely unproductive, in extreme cases if information is recorded incorrectly it could leave you open to fraud accusations.

Reducing tool write-off

Luckily, there are many ways in which you can reduce the number of tools you write-off which can be easily implemented and will improve overall productivity. Some of these include:

1. Improve security

Prevent the possibility of your tools being lost or stolen by ensuring tools are stored safely and by holding employees accountable. Often, a lot of tools are lost because they are treated as commodities and just left lying around because nobody feels responsible for them.

To improve security, on a basic level, you could fit alarm systems and locks. However, it is recommended to look into an asset management system that includes asset tracking, so you know exactly where your tools are, and who has them.

2. Improve accountability

You need to ensure that your workers take responsibility for the equipment they are using so that tools aren’t misused or misplaced. This could be done through training, or with an asset management system that will hold people accountable for the tools they are using and reduce the chance of them being damaged.

3. Improve technology

Ensure that you have the right tools for your workers and the jobs they are doing to avoid breakage due to misuse. You can do this by ensuring that you don’t have an excess of unused and old tools - try trading these in for new tools with the latest safety technology.

4. Scale down your toolpark

To make sure all your tools are accounted for, try optimising your tool park by only investing in tools that will be used and maintaining and managing them effectively. 

The bottom line is, you cannot afford to keep writing-off tools - it is expensive, time consuming and potentially damaging to your company’s reputation. 

Fortunately, you can reduce the number of tools being written off by improving how you manage and maintain your assets. By keeping track of your tools you can ensure that they are safe, secure and suitable for the job, ultimately reducing the number of tools you have to write-off. This can have a direct, positive effect on overall productivity on your construction site and reduce costs significantly.

To find out more information on how to improve productivity across all aspects on site, download our guide How to Increase Productivity on Your Construction Site. It contains everything you need to know about construction productivity from how to define it, to how to best optimise your tool management and implement strategies to improve productivity throughout your business.

 

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