TRENDS IN YOUR INBOX: Is Your Inventory Controlling You? Easily Master Inventory with the Right System
by M. Carolyn Miller, MA
Mention “inventory management” to some veterinary professionals and you’re liable to hear some groans—about the detail required, the neverending monitoring, and the inevitable inventory bloopers, like the time you realized that the eye ointment your practice sells had conflicting prices.
And yet, inventory management is becoming a critical practice competence today, in large part due to market growth. The global animal health market is expected to grow 5.75% between 2019 and 2026 due to the rise in zoonotic and foodborne diseases, according to Grand View Research, a US-based market research and consulting company.
Additionally, pet medications are predicted to become one of the highest growth areas of the pet industry, according to Packaged Facts, a market research firm for consumer products. Veterinary practices, as the gatekeepers for such medications, have no choice but to adapt and to have tools and processes in place to manage that growth.
It’s not as overwhelming as it sounds. Indeed, if you can strategically build an inventory system, and a process for moving your inventory through that system, you can ensure a successful outcome.
The Inventory Framework
Inventory typically includes drugs, medicines, ointments, consumable supplies, pet food, and other over-the-counter (OTC) products.
The inventory framework is the first step in managing inventory. Like the floorplan of a house, you identify where you’ll place the inventory and who will be in charge of it. You’ll also set up the software systems that will enable you to monitor the inventory and the standard operating procedures (SOPs) that will tell everyone what the process is, who does what and when, and how they do it.
Dolores is the practice manager for Rain or Shine Animal Practice (not a real practice) in rural Montana in the western United States. She is a big-picture thinker and a people person. She’s also in charge of what she considers to be one of the most boring parts of her job: inventory management.
Dolores inherited the inventory management part of her job from her predecessor. But given her gifts and talents, Dolores may not be the best fit as the inventory lead. Tina, one of the veterinary technicians at Rain or Shine, may be a better choice because she loves detail and organization.
What this anecdote shows is that there is no “right way” to assign roles for inventory management except what works for your practice given staff’s unique gifts and talents and what is logical in a work day. One way to assess that is to outline all the inventory management tasks in an SOP document, then divide and conquer.
Inventory management involves lots of details, from how often to do a physical count to who is in charge of following up on order discrepancies or vendor price checks. But if every step of your inventory management process is documented, you have, in effect, a roadmap anyone can follow, including new hires charged with inventory responsibilities.
Documenting your inventory management process may sound labor intensive. However, you’ll recuperate that investment and more almost immediately. Team members will know what the process is so they don’t waste time grappling with unknowns, searching for answers, or creating informal processes. Onboarding time will be reduced. System efficiencies will emerge because everyone will be following the same procedures.
Additionally, once you have your SOP documented, you can then review it to identify how to delegate tasks and determine which current job descriptions could be amended to include inventory management tasks.
As part of your SOP, it’s helpful to know where your inventory is located in your practice and to let others know so that they don’t waste time looking for supplies or, worse, ordering supplies that you don’t need any time soon, which translates to money sitting on the shelf.
This tally of inventory locations can include multiple areas, including:
- Your central storage area or “practice store,” with limited staff access
- Shelves and drawers that contain inventory all practice staff need access to
- The drug morgue, where expired drugs are kept under lock and key
Practice Management Software
Your practice management software (PMS) is a gem in disguise. But many practices underutilize this valuable inventory management tool. That’s a mistake. Used effectively, your PMS enables you to track inventory quantities ordered. It also tracks inventory dispensed either via prescription or medical procedure.
Your PMS also acts as a check against physical inventory counts and enables you to run daily, monthly, and annual reports. Those reports will show you how you’re doing and where you can create financial and physical efficiencies.
For instance, a PMS expiration report will give you a heads-up on what inventory is about to expire so you can return it for a reimbursement. You can also run monthly and year-to-date sales statistics so you can anticipate, and order, only what is needed.
Inventory flows through your practice in a logical order. You purchase inventory from a vendor. That inventory is shipped to your practice. You receive the inventory and sell and/or use it for procedures and treatments.
Granted, there may be variations to that flow, such as the use of online orders and pharmacies. But the basic tenets of inventory flow—purchase, receive, sell, repeat—remain the same. Buried in those steps, however, are myriad details and checkpoints, all of which must be documented in your SOP and updated as needed.
In this phase of the inventory process, you determine what’s needed and your reorder points. You also do vendor price checks and update client costs if appropriate. Ideally, you also use a purchase order for your orders to ensure you have a paper trail. All that data, of course, should be entered into your PMS.
When orders are received, it’s helpful to check to see that your purchase order, the shipping slip, and the items shipped match. And don’t forget to check items in group codes and packages and to have a system in place for how to track back orders. Pertinent information (quantities and pricing information) is then entered into your PMS, and paperwork is filed.
Use/Sale of Inventory
As you use up inventory in your practice, be it for prescriptions or for procedures and treatments, it’s necessary to note that use in your PMS and any other physical inventory management systems you have set up. As inventory is used up, it will also trigger purchasing needs. And so the inventory cycle repeats itself.
The art of inventory management lies not only in this flow but also, and more importantly, in your practice’s ability to track, analyze, and control that inventory so you have exactly what you need when you need it and, coincidentally, can maximize profits and minimize costs.
How do you find the sweet spot between too much and not enough inventory? Some practices learn over time and through trial and error what works for them. But there is a more efficient way to accomplish that. Your inventory tracking reports and purchase order history, located in your PMS and migrated to a spreadsheet so you can analyze the data, can help you identify your reorder points and the maximum quantities to have on hand.
Products on Hand
A rule of thumb is to keep two to three weeks’ supply of products on hand and have products on your shelf for no longer than 30 to 45 days, according to some veterinary practice experts.
Checking Expiration Dates
Your PMS will help you monitor expiration dates on your products. (You can also use a tag/sticker system.) A rotation system on your shelves (first in, first out) is also helpful. Finally, weekly monitoring can keep you apprised of upcoming expiration dates.
With those items that are set to expire, keep in mind that manufacturers will often reimburse you for unused items if you return them prior to the expiration date.
The ABCs of Inventory Control
There’s a rule in business called the Pareto principle. Named after Italian economist Alfredo Pareto, that principle says that 80% of your results come from 20% of your actions.
Adopted and translated by accounting and finance professionals in supply chain management and, specifically, inventory management and renamed the ABC Analysis, it is a way to classify inventory based on how quickly it is used up.
“A” items are the items you use on an almost-daily basis and consume the most. They demand that you put some strict controls around them, including weekly inventory checks to ensure you don’t run out, in large part because they have the greatest potential to impact your costs and practice operations. This is the 20% of your inventory that produces 80% of your results.
“B” items have a lower consumption value than “A” items and are items your practice uses on a semiregular basis. Control of these items is not as demanding because of the lower frequency of use. Counting these items monthly should suffice.
“C” items have the lowest consumption value and represent the bulk of inventory from a classification perspective. However, their use is irregular and, in some cases, could be special ordered as the need arises. Monitoring these items can occur on a quarterly basis.
Much like retail stores, it’s advisable to do a physical count of your entire inventory and update any discrepancies in your PMS on an annual basis. As your system becomes more efficient and staff becomes more familiar with their inventory tasks, you should get closer to the sweet spot in inventory management.
There are also some practical tips to facilitate that.
|Classification||Percentage of Inventory||Consumption||Controls|
|C||50%||10%||Monitor quarterly or special order|
Tips for Inventory Control
Tip 1: Eliminate duplicate types of medication.
We are all creatures of habit, and doctors are no different. They tend to prescribe their favorite medications. This is fine if the practice is a one-doctor practice. However, if there are multiple doctors, each one prescribing his or her favorite brand of medicine, guess what? The result is an additional layer of detail and duplication/replication of inventory.
But there’s a simple solution: Create a product request form and ask your doctors to identify (1) what they’d like to prescribe and (2) if they would be comfortable with a comparable replacement product.
Tip 2: Consider limiting the number of vendors you purchase from.
Prices between vendors are often competitive. Thus, it may be in your best interest to stay with a select few that you know and trust. Periodically, you can also vet new vendors. Keep in mind that customer service, timely shipping of items, and additional services, such as ordering online, should be key for those vendors you use.
Tip 3: Stay on top of your pricing.
Once upon a time, there was high markup on inventory products. But that is not the case today. In fact, practices must be competitive—with online pharmacies, superstores, and the veterinary practice down the street—and realistic about their pricing. Otherwise, you risk losing some of the trust you’ve built up with your clients.
Tip 4: Be aware of federal and state laws when it comes to inventory.
What would you do if a 70-year-old client who is raising her grandchild asked you not to put her pet’s prescription in a childproof container because she couldn’t open it? If you agreed to do so, you may be breaking the law, according to the Consumer Product Safety Act. That’s why it pays to be aware of federal and state legislation related to pharmaceuticals.
Tip 5: Be aware of the difference between markup and margin.
To know how profitable your practice is related to inventory, you have to know the difference between markup and margin. Markup is the percent difference between actual costs and selling price. Margin is the difference between the selling price and profit and takes into consideration expenses such as staff time and market factors.
Inventory at Amazon
You think you have inventory management challenges? In this video, Amazon takes you to the warehouse and shows, via its systems, the important role software tracking—and robots—play in their inventory control process.
M. Carolyn Miller, MA, is a senior instructional designer and seasoned writer who, true to the Pareto principle, wears 20% of the clothes in her closet.