STEP 6: REMEMBER TO CHECK YOUR PRODUCT MARKUPS

If the above tips don't solve your inventory crisis, then look at your markups. Make sure that someone is entering inventory into the computer every time it's received and that your software is marking up the price correctly. I once consulted with a practice whose inventory to gross revenue percentage was way off. I checked the practice's computer and found that the option for automatic markups was turned off. No one knew! The team had been dutifully entering inventory into the computer and assumed the software was marking it up correctly.

A normal markup is between 100 percent and 150 percent, depending on whether the product is one that clients shop around for or not. Some practices may have substantially greater markups, some a little less. Double-check that your team is promptly entering new inventory into the computer and entering prices correctly. Also verify that your team or management software is adding a dispensing fee and a minimum prescription charge.

No one likes to think that theft might be happening in their own practice, but unfortunately, it happens all too frequently. I once got a call from a veterinarian whose client had asked her whether she was selling a certain flea control product on eBay. The veterinarian said she didn't sell products on eBay. The client then asked if "Susie Smith" was an employee, because that's who was selling the product. Turns out Susie was the receptionist. The veterinarian contacted eBay and learned that Susie had received more than $37,000 from the sale of veterinary products. Any guess where Susie was getting her inventory from?

The moral of the story: Regularly monitor your inventory numbers. If you buy $2,300 of food in one month and only receive $2,500 of revenue, you have a problem. When I review financial information with veterinarians, we compare certain inventory costs to income on a monthly basis. This lets us know if inventory is walking off. Don't neglect total inventory checkups either. Most accountants recommend that you perform a complete inventory at year-rend or a rolling inventory count. (In a rolling count, you tally different product lines each month—antibiotics in January, suture materials in February, and so on—until you've finished everything by the end of the year.)

STEP 8: CHECK YOUR DOLLARS AND CENTS

If your inventory-to-gross-income comparison is too high, there may be another factor at work that has nothing to do with inventory. It may be that your practice's gross revenue is too low. You're not charging appropriately for your services, you're giving too many things away, or you're discounting your services. Or (see step 7) an employee is stealing money from under your nose.

Regularly compare your gross revenue to data from similar practices, both regionally and nationally. Sources of this data include Benchmarks: A Study of Well-Managed Practices and the AVMA. If your income from laboratory, radiography, surgery, and anesthesia fees is less than regional and national averages, you could have a problem with the fees you charge or with missed charges, not with your inventory.

STEP 9: TAKE THE RED DOT CHALLENGE

Here's a simple way to find out if you have a shelf life problem: Ask someone in your practice to walk around the hospital and put a red dot sticker on every inventory product you own. Thirty days later, go back and see how many items still have a red dot on them. In 60 days and in 90 days, do the same thing. Ideally, there should only be a few red dots left after 60 days. Those items that still have dots on them may be a problem for the practice. Many practice owners and managers I work with have tried this and are surprised at how many items still have dots after 60 and 90 days.

Recovering from an inventory problem may sound like a lot of work—and it is—but the savings you realize as a result will be substantial. Your new inventory control system will ensure that items are on hand when you need them and turn your practice from a warehouse back to into a tightly run veterinary clinic.

And consider this: If you've got inventory issues, you're not alone. After the last recession in the 1990s, a reporter asked chief executives of Fortune 500 companies how they helped their businesses survive the economic downturn. Their answer? They reduced inventory. That may not have been your first idea when you thought of ways to combat this recession, but it needs to be high on the list. Face your inventory problems one day at a time, and you'll be recovered in no time.

Mark Opperman, CVPM, is Veterinary Economics' Hospital Management Editor and owner of consulting firm VMC Inc. in Evergreen, Colo. He's speaking on management and team motivation at the Veterinary Economics Managers' Retreat April 23. He'll also be speaking about updating employee manuals on April 26 at CVC East in Baltimore. Visit http://TheCVC.com/ for details.