Inventory Control – Orders and Outdates and Options – Oh, My!

By Kirk Augustine


No one ever disagrees that inventory management in a veterinary practice is a BIG JOB. What does require consensus, though, is an action plan for what hospital staff members truly need to do to effectively manage the products in their practice.

Clinic balance sheets will show inventory expense as a top five line item. Yet, at the every-day practice level, your customers lose thousands of dollars every year by not invoicing items sold, failing to return outdates, poorly managing items on hand, ordering too frequently, carrying two or more duplicate products, and spending hours haggling over pennies.

The focus on cost of goods sold (COGS) seems like an appropriate activity but no amount of negotiated savings can replace the cost of time (and its opportunity cost) that multiple purchase orders, multiple sources, and multiple shipments cost practices every single day. Few people would leave a $50 bill lying on the counter but think nothing of spending 30-45 minutes calling four or five distributors to save 10 cents a bottle on a 12-bottle order.

Thinking total cost

Responsible inventory management focuses on balancing all aspects of the total cost of acquiring inventory. These include time for organizing, counting, forecasting, creating purchase records, tracking incoming orders against purchase records, receiving product, unpacking and stocking shipments, verifying invoices against purchase records, handling returns and errors, paying invoices, even garbage handling associated with an estimated of 15+ boxes of product per week per clinic.

The metrics are clear – inventory management is costly and much of that is duplication costs resulting from just-in-time (JIT) paradigms. JIT delivery (sometimes same day) has become an expectation rather than a perk. This expectation is, in fact, a consequence of poor inventory management. The only companies benefiting from hospital inefficiencies are carriers like UPS and FedEx. And, replenishment orders from customers that are less than $500 each tax profitability for distributors.

SKU duplications are another key area of cost control. In some product categories it is easy for a clinic to be ordering and managing 4-5 skus when a simple decision would eliminate two of them immediately.  Product segments where this is common are: anti-infectives, topicals, otitis treatments, skin/coat care products, and supplies. DSRs are valuable resources to help hospitals streamline and remove product overlap. Remember to present new and improved products in the context of streamlining inventory and cost control when appropriate.

Balancing enough with too much

While seasonality and variable demand are frequently used as excuses for not carrying enough product on hand, the most successful hospitals realize that stocking a minimum of two-to-three weeks of key products at all times keeps them from needing emergency shipments or turning clients away. Such hospitals set reorder points that account for the time it takes to recognize, react, reorder and restock product. They realize when they run out, there was an error and correct it. “0” on hand is not a reorder point. And, “0” on hand likely causes lost revenue or reduced client service for your customer.

Advocate a team mindset to “get it done”

“Everyone in the hospital uses product but no one wants to help count or keep records,” say hospital purchasers. While true, successful practices schedule time during slower client traffic days to count inventory items and run reports to form the foundation for forecasting products needed. This need not take all day. The typical veterinary practice has more than 750 different line items in their hospital. Two or three people can verify an inventory count on that many items in two or three hours if they work as a team. By advocating a team approach to inventory management, DSRs should see a reduction in returns, outdates, and customers more willing to make informed purchase decisions.

Purchase against a forecast vs. reacting to “we’re out of…”

A forecast based on historical purchases or sales-out records makes the job easy. With a defined period (e.g. as 12 months) of historical information, it is easy to compare what you have on-hand against a reorder point calculated by simple division (e.g. annual usage / 18 = reorder point; resulting in about 21 days of stock on any given day). Similarly, reorder quantities can be calculated in the same way. Round the reorder quantity to case quantities when convenient.  Suggest your customers order two to three weeks of key products once vs. two to three days of the product 10 times in the same period This is a win-win for you both.

Proactive distributor reps help empower their customer using purchase files that focus on units purchased before dollars. A rolling 12 month report easily becomes a tool to assist the clinic buyer. Additionally, web-based customer portals now offer purchase history and export functionality. Teaching your customers how to use the information and tools in your on-line ordering system is another proactive activity that will further endear your customer to you.

Getting started

Changing behaviors is not easy. Still, the results from simple adjustments to your current habits can provide more time for veterinarians and staff to interact with clients and provide the care their animals demand. Inventory management starts with an attitude of efficiency and support from the entire staff. Ordering every day may seem convenient, efficient and free. But when you think about it, the inefficiency is one of the biggest costs you never see as a line item on a hospital balance sheet. If UPS or FedEx drivers are your hospital’s most frequent visitor, is this really efficient and cost effective?

 

Editor’s note: Content for this article was adapted from an article directed toward a clinic audience and written by Kirk Augustine (PVPL • the Resource • FALL 2007)

 

How many times do your customers order product every week?

Industry experts suggest that every purchase order represents a minimum of $50 in cost to business owners. A review of annual order patterns of over 4,000 hospitals indicates they place over nine orders per week per location which generates at least 15 separate shipments. If your customers are receiving 20 boxes of product a week that means they spend approximately $1,000 a week to restock  shelves, cabinets, and coolers.

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