Shelf Awareness
By asking some basic questions, reps can get their customers thinking about controlling one of their most valuable assets – the products sitting on their shelves.

Editor’s Note: The following is the first in a series on the role distributor reps can play in helping their customers improve their businesses.

Inventory management isn’t just about organizing supplies on the shelves. It’s more complicated than that. It’s about buying the right supplies, buying the right quantity of supplies, buying supplies at the right frequency, and – for those products that are dispensed or sold – making sure clients are charged for them.
One clue as to the challenge of taming this beast: Experts don’t talk about inventory control. That’s impossible, they say. Instead, they talk about inventory management.
“To me, ‘inventory control’ is kind of an oxymoron,” says Melody L. Jurgens, online services administrator for MyVETDirect, Butler Schein Animal Health’s home delivery service. “There’s just inventory management. You have to manage it to be able to control it. If you don’t work at it all the time, it’s out of control.” Prior to her current position, Jurgens was the company’s practice inventory management implementer.
For clinics, managing inventory is an ongoing, team effort, though it’s good to have a “champion” in place. Sales reps can play a role too, according to those with whom Vet-Advantage spoke.
Reps can ask simple questions about days on hand and practice patterns. They can share what data they have regarding the customer’s purchasing history and patterns. They can share the expertise of other customers who have their inventory act together. They can take pains to match the products and services they sell to their customers’ needs. And they can point out to their customers the opportunity cost of all that money tied up on their shelves – money that could be used to improve or build the practice.
“Distributors should be the experts of inventory management,” says Mark Smalley, inventory programs manager, MWI Veterinary Supply. “As we go out there and try to set ourselves apart, let’s use our best resource – our expertise in inventory management – to build better business relationships with our accounts, to help identify what they can do better, and what we can do to help them be better.”
“The bottom line is, inventory management takes work,” says Jurgens. “If the practice and the sales rep are willing to partner and work on inventory together, then the sales rep has the opportunity … to exchange [his or her] team’s inventory knowledge and experience in exchange for committed business.” With that understanding on both sides, the distributor can indeed help its customers achieve their inventory goals.
And the time to begin is now.
“As we get to that point in the economy where [our customers are] looking to cut costs or generate revenue, inventory becomes an important part of the equation,” says Smalley. Among small-animal practitioners, at any rate, inventory is the second largest cost segment – behind labor – of the practice. “Customers are saying, ‘Maybe we should look at how much we should keep on our shelves.’ ‘Should we be cycle counting?’ ‘Are we looking at our expiration dates?’ ‘Do we have the right codes to bill out?’”

Sense of urgency
Inventory management has long been a concern of Dianne Hutchins, accountant and bookkeeper, Kitsap Veterinary Hospital, a companion animal practice in Port Orchard, Wash. Traditionally, sales reps would call, perhaps on a daily basis, and Kitsap would place an order. But she knew this approach was problematic. “I’m the bookkeeper,” she says. “My focus became, what is the dollar amount we have on our shelves? We could see how much we spent [on supplies], but not how much we had on hand.
“By ordering every day, you’re not looking at the products you have,” she adds. “Somebody yells, ‘We’re out of 22-gauge needles,’ so you order a box. You don’t go back and see, ‘We’ve got too much here,’ or ‘Why do we still have this on our shelf?’”
“We have instilled a sense of urgency that’s supported by next-day air,” says Kirk Augustine, founder and president of FORAYS, a Nebraska-based consulting and advisory company focused on animal health. With proper forecasting and monitoring of inventory levels, “UPS and FedEx might quit being some of the top companies taking profits out of animal health. It’s a shame that we have let next-day service drive the definition of JIT in our businesses.”
Prior to founding FORAYS in 2002, Augustine was senior manager of marketing and vendor development for PVP, where he was the primary author of its IMPACT seminar program, an acronym standing for Inventory Management Practices and Clinic Training. Augustine participated in developing next-generation curricula for AAHA MARKETLink, and in 2008-2009, piloted inventory education curriculum that has since become part of “Making Cents of Your Inventory,” produced and taught by MWI Veterinary Supply and AAHA MARKETLink. (He is a consultant to Vet-Advantage.)
For clinics, problems begin by not assigning responsibility to the entire hospital team. “When we analyze hospitals and their approach to inventory, we find that over half of them have a sole person in the [inventory management] role, who was never educated or trained in it, or whose personality profile doesn’t lend itself to purchasing and inventory management,” says Augustine.

Practices tend to make some common inventory-related mistakes, notes Jurgens.
• They fail to keep inventory clean and organized.
• They buy large amounts of product to take advantage of manufacturers’ specials. That’s not a bad thing; after all, some of these deals are too good to pass up. But it can lead to out-of-control inventory situations. And it can eat up a clinic’s capital.
• They fail to keep track of free goods they distribute to their clients. (For this reason, they should create a “House” account in their practice management software to help keep track of free or spilled goods, she says.)

Products slip out the door
Indeed, says Augustine, clinics let a lot of products slip out the door without invoicing the client for them. That’s not only lost revenue, but it wreaks havoc on inventory management.
“A savvy 2 to 3 percent of distributor reps will ask their customers about key SKUs – ‘How many does your system show you used vs. how many you bought?’” says Augustine. At his seminars, inevitably someone will raise their hand to talk about discrepancies between what their history shows they purchased and how much they billed out. “Immediately, they’ll say it’s shrink,” he says. “But shrink from failure to record is a lot more significant than shrink from theft.”
Keeping track of product consumption – and billing for it – can be tricky. For example, as tablets are dispensed, the doctor may simply fail to note it on the exam room ticket. “Or that tube of ear ointment used in the exam room, which is then handed to the client to use at home,” says Augustine. “Is it in the exam room charge? Yes or no? You don’t always know.” And absent procedure kits or trays, like those found on the human side of medicine, it’s difficult to track exactly how much 4×4 gauze and other disposables the staff pulls for each of the four spays performed that day, for example.
Clinics often miss the inventory-management boat by failing to adjust business practices based on changes in the practice, says Augustine. For example, if the practice takes on a new veterinarian, it stands to reason more products will be needed. But are adjustments made to the minimum inventory levels? By the same token, if the practice loses, say, a cat specialist, is it reasonable to continue to order feline products at the same rate as before?

The cost of too many POs
One of the highest costs never seen on a balance sheet is the cost of cutting too many purchase orders – the byproduct of poor planning, says Augustine. Consider all the costs involved in cutting a PO – identifying the need, creating the PO, receiving the order, stocking the supplies, paying the invoices. “That’s time taken away from patient service, often by a skilled veterinary staff member, to replenish products they should never be without,” he says.
The irony is, often, the clinic doesn’t always need as many of the products it orders. “There’s a fear factor,” says Augustine. “And the more sophisticated the practice in terms of medical procedures, the greater the tendency to assume you need everything on hand all the time.”
Too much stuff can lead to expired vaccine lots, adds Jurgens. And unfortunately, it’s all too easy to have too much on hand. “I’ve seen practices where products are stored at the doctor’s house,” she points out.
Practices tend to veer between two extremes, says Jurgens. On the one hand, there’s the “dreaded ‘we are out’ syndrome,” in which the clinic is out of a needed product and has to place a rush order with the distributor. On the other hand, clinics can have too much inventory, either because they simply ordered too much product, or because they are carrying “three brands of ‘XYZ treatment’ because the three doctors in the practice can’t agree on which one to use.”
“The larger the practice gets in terms of the number of full-time-equivalent veterinarians, the harder the purchasing job gets,” says Augustine. “You get into the situation of the left-handed person who prefers one suture vs. the right-handed one who prefers another; or the veterinarian whose hand is the size of a club, who can’t use the same tools that a petite veterinarian uses.”
The goal, he says, is “SKU optimization,” that is, reducing duplicate SKUs. “A good purchaser, with the distributor’s help, will sit down at a staff meeting, share an ABC analysis, and say, ‘Here are five SKUs that duplicate SKUs in these 10; we’d like to get the total number down to 10 instead of 15. John from Distributor X helped me see what our best opportunities are, so will everyone agree that we will use these two product brands instead of three?’”
Clinics make a mistake focusing on the dollar amount of supplies rather than units used, adds Augustine. A product may cost pennies, or even a fraction of a penny, but the practice may use tens of thousands of them a year. That impact on an economic analysis might be relatively small; still, the practice can’t afford to be without them.
Inventory management software helps, of course. But that too needs tending to. “How often is the practice keeping their product codes up to date?” asks Smalley. “Are they keeping pricing up to date? If not, they could be missing out on potential revenue.” Worse, they could be charging out the wrong product altogether, he adds. “There’s a lot of money to be saved in cleaning up practice management software.”
And of course, there’s nothing to beat an occasional count of what exactly is on the shelves, adds Smalley. “It helps you identify how often you’re turning products, and your average inventory on hand.” It doesn’t have to be a massive task, he says. A cycle count – in which portions of the inventory are counted on a regular basis – will do.

The goal
Well-managed practices can reduce inventory cost to below 20 percent of revenue, some as low as 13 percent, says Jurgens. “That’s savings that can be applied to other areas of the practice.”
“Inventory is an asset, and it needs to be managed as intentionally as cash,” says Augustine. That means paying attention to turns, that is, the number of times inventory is sold or used in a year. “We have an industry that is probably turning inventory between 4.5 and 5 times a year,” he says. Some believe 12 turns a year is ideal, but eight seems about right to him. “I think 12 is maybe too aggressive. If you’re at five, you won’t get to 12 easily, but you can get to eight with small, progressive adjustments.”

A priority
After attending inventory management seminars by MWI Veterinary Supply and the American Animal Hospital Association, Dianne Hutchins and the Kitsap veterinarians decided to address inventory management in stages. With help from MWI’s inventory management consulting team, Kitsap segmented inventory locations into “templates,” which it uses as a basis for ordering supplies through its Cornerstone® Practice Management System. For example: “Dental drawer” might be one template, “Pharmacy shelf 1” another, and so forth.
With Cornerstone, the Kitsap staff can get “quantity on hand” reports, which also reflect a dollar amount of product on the shelf. On a quarterly basis, the practice tries to do a physical count, to compare what the system says should be on the shelves with what actually is there.
Inventory management is an ongoing process, says Hutchins. It’s difficult to keep on top of products – such as needles – used in the clinic for patient care. And it’s not unheard of for tablets to be pulled from a bottle on the shelf and given to the client to take home – without being invoiced. Without invoicing, the system doesn’t know to deduct those tables from the quantity at hand. (For items that are invoiced, the Cornerstone system issues an alert when Kitsap reaches pre-determined minimum levels. The staff can then review these “want lists” and place orders as they see fit.)
“Our inventory [situation] has improved, only because we’ve made it a priority,” says Hutchins. “That includes the doctors. We’ve gotten some great reports with the help of MWI, which show us what our ABC products are. We’ve pared down a lot of things we don’t use and we don’t sell.
“The whole idea is to increase turnover. The ideal is one turn a month. You can do that with some products, with others you can’t. But you don’t want something sitting on your shelf for six months with no use.”

Champion needed
Every practice needs a champion, points out Smalley. But inventory management isn’t a solo project. “We provide that champion with the tools and the know-how to work with the team, because it’s the team that pulls it together. If [staff] have a better understanding of how products are acquired, used and replenished, as a team they can create a better operation.”
“My biggest advice is to get everyone involved,” adds Jurgens. “It should be a daily process. If the practice creates a process of counting something every day, then over time, each employee learns to fully understand the value and importance of running a tighter inventory solution.” Continual monitoring, along with diligent use of quantity-on-hand reports from practice management software, will ultimately reduce inventory and shrinkage. “That’s the end goal,” she says.

What can the distributor do?
Ideally, practices would keep their inventory neatly stored in a secure, centralized location. But that’s often not the case. “Often you’ll find [inventory] under the doctor’s desk, in the front office, back in the kennel, in the exam rooms, in different places,” says Jurgens. If it’s a mixed-animal practice, you might have five-gallon buckets of products sitting next to eight-ounce bottles of shampoo.
Adds Smalley, “A central location to pull products from is ideal. But the typical practice uses every cubbyhole they can find.”
The Cubex™ automated inventory management system, which is carried by MWI and Butler Schein, can help. The system comprises supply cabinets that function much like an ATM machine. Using manual or badge input, the staff member gains access to the supplies in the locked cabinet, then notes which items he or she has removed. Supply inventory levels are automatically updated. If minimum/maximum levels have been pre-determined with the clinic’s distributor, a replenishment order can be issued automatically.
Short of selling their customers an automated system such as Cubex, distributors can do plenty to help their customers get a handle on inventory. The MWI team, for example, works with the clinic staff to identify what inventory they have on hand, and, based on an ABC report, what products they should have on hand.
Online ordering programs can help. “Online ordering in general helps the practice put a more complete order together, and a more timely order together,” says Smalley. “[The practice] can generate templates or a favorites list, which [staff] can review as they put the order together.” What’s more, electronic ordering gives the practice a history of what’s been ordered, so they’re no longer struggling to remember, “Did I place that order?” And the distributor can, at the customer’s request, deliver products on a cabinet-specific basis, he adds.
Electronic ordering forces practices to institute standards for ordering, and can help them identify and eliminate duplicate item types, notes Andrea Wright, DVM, manager, veterinary practice tech services, Butler Schein Animal Health. “When duplicates are identified, schedule a doctors’ meeting to determine the brand to keep on hand,” advises Wright, writing for Butler Schein’s The Animal Health Solution customer newsletter. Electronic ordering can also help staff identify and manage the top 20 products used, she adds.
Distributors’ home delivery programs help practices keep on top of inventory as well, notes Jurgens. Such systems help the practice lower inventory quantity on hand, and free up capital. They also help reduce product shrinkage, non-revenue-generating consumption of free goods, inventory storage space requirements and physical processing of incoming inventory.

The rep’s role
It’s true that distribution companies can offer veterinary practices valuable tools and services to help with inventory management. But their greatest asset might be their sales reps.
“To sell from an inventory management perspective, the rep has to have the ability to set aside their orders-and-dollars paradigm long enough to collaborate, investigate and understand the true re-supply needs of the hospital, and to help them understand the cost of lots and lots of small orders,” says Augustine.
“In my opinion, it is our industry’s responsibility to help clinics purchase an appropriate amount of inventory for the upcoming period, which shouldn’t exceed 30 to 45 days of on-hand usage,” he continues. There are exceptions, of course, such as when the distributor or manufacturer offers exceptionally favorable terms on a big purchase.
For the rep, getting started is really pretty simple, says Augustine. “There are two simple questions to ask: ‘What’s the quantity on hand?’ ‘What’s your 30-day usage?’ If reps did no more than that, we’d improve our industry significantly.”
One thing reps can do really well is help hospitals forecast their needs, continues Augustine. Again, the answer can be found through a simple set of questions. “Is this an ‘A’ or a ‘B’ product?’ If they don’t know, check out their historical purchases, help them create an ABC analysis, and plan reorder points.
“If it is a top product, then ask the second question: ‘Looking forward a month or six weeks, do you think your usage pattern will change?’” With this information in hand, the rep can guide the hospital on its next purchase.
“[As a rep], you’re looking for a way to better your business relationship with the account,” says Smalley. “Clinics look at price, but they also want someone who will work with them. If our reps can set themselves apart, pricing is not as big an issue.
“By providing basic inventory tools … we become a better and smarter business partner.”