Inventory Management Tips for Frac Sand Plants

Inventory Management Tips for Frac Sand Plants Video Transcript:

Editor's note: This video was filmed in 2020 during a downturn in the frac sand market.  We've kept this video available because the tips offered are relevant in all market conditions.

Hi, I’m Bob Carter with IAC – Industrial Accessories Company. We’re coming to you today at these very difficult frac sand times when orders are off and people are asking if they should idle their plant, run reduced, or shut down one plant and keep another plant going? All of that is really a function of cash flow. Cash flow becomes king during these times, and you really sit on a dual edged sword. You’ve got money sitting in inventory, but you also need to keep your plant running.

The steps I’m going to talk you through allow you to analyze what are the best opportunities that you have to keep your plants open, retain your people, and move forward while you maintain your inventories.

The first step is you initially made a decision about maximum and minimum inventory values. You may have decided to stock four of these fittings or decided to stock two of these valves. When you go back and look at the criticality of only running one shift a day instead of three shifts a day, you might be able to use one of these inventory items and not replace it in the short term.

As you make those decisions, you have to be able to log that, so you know where to come back and replace it when you look to go back full time.

The second key component is how you’ve been working with your vendors. IAC provides a lot of equipment and spare parts to our frac sand customers. While they’re down, we’ve maintained our inventories within this whole warehouse so that we can provide pretty much instantaneous parts out at their needs, for example when they have a failure.

That allows our customers to do is lower their inventory max and mins because they know we have it in house, especially when we can usually get it there within 24 hours.

The third key component is really analyzing your equipment criticality. You may have had something when your plant was running 24/7 that if it went down, it cost you significantly. Now, if you go down, you could actually be down for two or three days, because you have silo inventory, so you can get that part in, get it replaced, get back up, without missing a customer order or demand. That can be very effective in managing your costs of inventory.

The final key is working with your maintenance crews, and understanding their work order lists, and their frequency and the down time of the various pieces of equipment to know really where you should put your money in inventory in order to be able to support it.

The other thing you have within your warehouses are your production supplies. That’s your screening material, your lubricants, your flocculants – everything you need to be able to run your wet and dry plants. So, when you look at your overall inventory management, make sure you factor these in.

We at Industrial Accessories Company have been involved in the frac sand industry for many years. I was previously Senior Vice President of operations for a large frac sand mining company for about six years. I went through two very significant downturns where we had to lay off almost seventy percent of our staff. We had to liquidate a lot of our inventory so that we didn’t replace it because we didn’t have the cash flow. We put a plan in place so that when we came back out, we could capitalize on the orders that became available.

Industrial Accessories Company is committed to help you through all those phases. We have retained our talent that understand frac sand, and helped us build, commission, and operate frac sand plants. We can come in and work with your procurement, maintenance, and operations teams to develop a strategy around inventory that could help you prepare for the short term, maximize your cash flow as it sits today, and then be ready boom when the market comes back, which it will.

You always think during the down turns, “is it really going to turn this time?”. It will! Frac Sand is very cyclical and it’s the time where we’re just right on the edge of it getting ready to take off again. We thank you for your time, we thank you for your partnership. We’re doing business with most of you today. We’ve got our permanent Permian Basin office, we’ve got satellite teams that support all the other basins, we’re ready to serve you, we’re ready to help you, and most of all we want you to stay open, successful, and retain your people.

I look forward to talking with you and please take a look at the links that point you towards our website, our telephone numbers, or feel free to call me directly. We look forward to talking with you soon and continuing our partnership.