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.
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.
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.
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.