Give your practice an inventory intervention


Give your practice an inventory intervention

Face it—you've got a problem with inventory. For help, turn to our nine-step program to cope with overstock, expiration dates, and even theft.
Mar 01, 2009

It's time to face facts: You've got a problem with inventory, and it's hurting your practice and your profit margin. You may not even know this is happening. That's where I come in.

First, you have to recognize the signs. Many of you think of inventory as an investment, but investments appreciate in value. Which of your drugs or supplies have ever increased in value over time? Almost none. Inventory isn't an investment—it's a way of making money because you charge clients when you use it or sell it. Inventory that's just sitting on your shelf is an expense and it's costly to your practice. Now's the time to let go. It's time for an inventory intervention.


First, the denial has to stop. You need to know whether inventory is being handled properly at your hospital. One way to determine this is to calculate inventory as a percentage of your practice's gross income. Take the inventory purchases for the month and divide that by your gross revenue for that month. Experts agree that this number should run between 14 percent and 16 percent, unless you sell a lot of pet food or retail items.

So let's say you find that your inventory purchases to gross is closer to 20 percent. Well, I'm here to help. Your fears of tackling your inventory issues can be conquered. You can face your overloaded, profit-sucking shelves and get your practice back on track. Recovery is just eight more steps away.


The major reason most clinics lose control of inventory costs is that items stay on the shelf too long. Shelf life is defined as the time between when a product shows up and when it's used or sold. Here's a quick question: What's the ideal shelf life for a product at your practice? Ideally, of course, the right answer is 60 seconds or less. You want to purchase only what you need at any given time. Inventory that sits on your shelves ties up your hard-earned money and cuts into your practice revenue.

Now we all know that a 60-second shelf life is a pipe dream. A more realistic turnaround time is 30 to 60 days. And there will be exceptions to this rule. Certain products such as gallons of alcohol or pills that come in large bottles can't be bought in smaller quantities and will sit around even longer. There are also items you buy in smaller units, like pet food, that should sit no longer than two weeks. For most products in your clinic, however, aim for a shelf life of one to two months.


Reorder points automate the inventory process wonderfully. When stock of an item depletes a certain amount, you order more—that's the reorder point. And reordering when you have one month's worth of a product left is the best way to achieve a 30-to-60-day shelf life. For example, if you normally use 24 bottles of ear cleaner on a monthly basis, you'll set a reorder point of 23 or 24. You can glean inventory usage information from your veterinary software, but beware of seasonal variations. Adjust for high-demand and low-demand periods.


Once you know your reorder point for an item, the next step is to set up a reorder quantity. Your reorder point and reorder quantity should be the same. In the above example, if you use 24 bottles of ear cleaner each month, you let the product get down to 23 or 24 (the reorder point) and once it does, you order 23 or 24 of that item (reorder quantity). Even if the product comes in the next day, you have a two-month supply—the perfect shelf life for that product. That's not so hard, is it?


Product duplication can also cause your inventory costs to careen out of control. Do you carry four ear cleaners that all do the same thing? How about similar shampoos or brands of food? If so, you're extending your shelf life and tying up cash in your inventory. You'll be better off if the doctors select just one or two products for a specific purpose. This will help you standardize purchases and recommendations at your hospital.

If a doctor decides to prescribe something that your practice doesn't normally carry, he or she can suggest the client buy it from your practice's Web site—you do have a venue for selling items you don't carry in the clinic, don't you? Product duplication complicates inventory management. Eliminate it.