Can you accurately answer this question: How many cylinders do you own?
How many cylinders do you own? This may not seem like the most important question at first, but not knowing this answer has the potential to greatly impact your rental income and relationships with your customers. For over 30 years, the team here at Dataweld has had the good fortune of working side by side with distributors in the gases and welding supply industry. In that time I have long since lost track of how many times I have asked this question, but one thing that I do know is that the answer is almost always the same.
Smaller distributors tend to say that they have around 1,000 to 2,000 cylinders, while larger distributors tend to say around 15,000 to 20,000 cylinders. Let's think about this from an assets standpoint. Cylinders have different prices, but for the sake of discussion, let's just use an average price per cylinder of $200. A variance of only 1,000 cylinders would represent an investment around $200,000. That's not exactly pocket change. What if you were looking at accounts receivable and, instead of finding an exact number, found a note that read "somewhere between $200,000 and $400,000"?
4 Suggestions for Solving the Asset Problem:
1. Put controls in place.
2. Keep accurate records of cylinders shipped to your vendors.
3.Keep track of empty and full cylinders on your dock.
4. Consider using bar codes or RFID tags to track serial numbers.
Think about the accuracy of you cylinder records from another perspective. Inaccurate cylinder records can have a negative impact on your customer relationships. Improper record-keeping often means incorrect billing. Incorrect billing often results in lost billings on gases, cylinder rental income, and time spent reconciling balances with customers.
Identify the Problem
Many of the distributors we've worked with over the years have said things like "I don't make that many mistakes..." or "It's not that big of a deal...", but let's apply a little math to this topic and see what the numbers say. Let's say that there are 100 invoices a day and that there are two types of cylinders on every invoice giving us a total of 200 cylinders. Assuming that there will be returns, for this example we will keep the returns equal to the amount of shipped cylinders, our total amount of cylinders is now 400. Now there are 400 transactions involving cylinders for every 100 invoices billed. Assuming 22 working days in the month and 12 months in the year, the result is more than 100,000 transactions.
If cylinders could talk...
How old is your oldest cylinder? Whip Seaman, president of Corp Brothers in Providence Rhode Island, reports that he has a cylinder dated 1911. "It's shoulders are covered with retest dates, every five years, from then to present. Can you imagine the places that cylinder has been? Fab shops, hospitals, ambulances, factories, served our country through two world wars, and to sea on a research vessel. How many times was it refilled? What customers kept it the longest time? What gases were pumped into it? Questions like that could go on forever!" Indeed those questions could go on forever. Again, the question stands, how old is your oldest cylinder? What is your best cylinder story? Let us know by clicking here: My Cylinder Story
Let's also assume that we are above average and are 99 percent accurate. In this example, if we only make one error in every 100 invoices, then 1000 errors will be made before the end of the year. There are more things to consider however.
Things to Consider:
1. Did the mistake involve one cylinder or ten?
2. Was the mistake in my favor or the customer's?
3. Did the customer loose the cylinder or were the returns improperly recorded?
Solve the Problem
Where do we begin? First, 1. Controls need to be implemented. Employees need to be balancing the trucks, every day, to the orders that were both taken and delivered. The place to start is by taking a physical inventory of each truck before it leaves and when it returns. The beginning inventory of cylinders, plus or minus the number of cylinders that were delivered to customers, should equal the ending inventory. If there are too many cylinders on the truck, then the driver most likely didn't record some of the returns. If there are too few cylinders on the truck, then the driver may have forgotten to record those extra cylinders that the customer didn't order but asked for at the time of delivery. Catching these mistakes now will keep things from getting out of hand later.
2. Keep accurate records of cylinders shipped to your vendors. Vendors make mistakes, but no one wants to loose assets or pay rent on cylinders that don't exist because a vendor's driver didn't record the correct number of shipments and returns.
3. Keep track of empty and full cylinders on your dock. Knowing how many cylinders are on the dock completes the picture of how many cylinders are available and where they are located.
The Formula: 1 + 2 + 3 = How many cylinders you have.
1. How many cylinders are at customer sites?
2. How many cylinders are on the dock?
3. How many cylinders are at the vendors?
The suggestion above will do wonders for the accuracy of cylinder records, but there is another important benefit. Not counting cylinders can say to employees that cylinders are not important. If employees see from management that these assets are highly valuable, then they will be much more likely to also value the assets.
Now would be the time to take a closer look at tracking cylinder assets by Serial Number using Bar Codes or RFID tags. Tracking by Serial Number can help to resolve those more complicated issues. For example, if a cylinder asset is returned from a different customer than it was shipped to and no tracking is in place, then there will now be two customers with incorrect cylinder balances.
The cylinders that were shipped to the first customer may have been returned, but credit was not given to the customer for the cylinder. Now the second customer has been given credit for cylinders they didn't rent. This sets up the company for loss of rental income and an unpleasant meeting about cylinder discrepancy.
GAWDA Cylinder Task Force
The US Department of Transportation says that a standard cylinder must be filled by its owner or by someone with the express permission of the owner. As we all know, the question of determining cylinder ownership has been a longstanding problem in this industry. To combat the issue, GAWDA's Government Affairs and Human Resources Consultant, Rick Schweitzer, has been working with a handful of GAWDA distributors as part of the Cylinder Task Force. The goal: to develop a policy template that will help resolve ownership issues. Please check the GAWDA website for more information.
Accuracy is the Key
When it comes to cylinders, accuracy is everything. There needs to be as much emphasis on accurate cylinder balances as there is on bank records. The purpose of accurate cylinder records is not just about answering a question or giving the overall number. The purpose is about improving customer relationships, about reducing those uncomfortable discrepancy meeting, and about improving billing revenue. Accuracy should be your state of mind.