Another year is almost in the books and 2018 will be upon us quicker than you can say, “Merry Christmas and Happy New Year.” Traditionally, the end of the year brings the holidays, celebrations with families and friends, and, of course, delicious foods and treats that have us packing on the pounds. It also brings a lot of work for the owners and managers of businesses.
Veterinary clinics are not immune to the end-of-year checklists. End-of-year inventory counts are near the top of the list. Nothing is more fun than counting 5-milligram prednisone tablets and finding that you still have 986 to go. And you are right — you will never get that 10 minutes back.
The inventory at my practices is our second largest expense. Mismanaged, it can create financial headaches and cash-flow issues, leaving us wondering why our bottom line is, well, bottoming out. Now is the perfect opportunity to make some inventory resolutions for 2018. If we are able to reorganize, reset and reinvigorate our pharmacy and retail space, there is a good possibility we will find some additional money to put toward the bottom line, and that is our ultimate goal.
While end-of-year inventory counts are self-explanatory, I want to take it a few steps further. Let’s start with a usage review. By that I mean taking a look at all our inventory, including the retail area, and determining which products and supplies we are using and which ones are collecting dust and awaiting their demise into the expired box. (Yes, we all have one.) This task can be done with your practice management software. Run an EOY (end of year) inventory sales report, find out which products are moving and which are not, and use this information in a few different ways.
Create a Stop List
This is a list of items you decide to stop carrying in 2018. A couple of different factors should enter into this decision. Ask yourself:
- Is this product still relevant? Is it older technology or medicine, and should we carry the newer or upgraded formula?
- On the rare occasions we want to prescribe the product, should we instead outsource it or make it a special order?
- Is the product in a similar class or does it offer similar benefits as other products that are more popular with your doctors and clients?
- Does the hospital need the product immediately in case of an emergency? Snake antivenin comes to mind. In my practices, we might see two or three snake bite cases a year. Antivenin that hangs out in the refrigerator is expensive, but when we need it, we need it.
I often find that veterinary hospitals are good about bringing in new items but not so good about discontinuing items. Five years later, the clinics are placing excess inventory in offices, bathrooms and the broom closet.
How Much Is Enough?
While we have the usage reports, let’s determine how often we turn over our pharmacy and retail items. This can be accomplished by taking the average count on hand. To do that, take the number of items of a specific SKU that you typically keep in stock at one time and divide it into the yearly total sold. For example, we may carry five 20-pound bags of therapeutic ABC food at once and over the course of a year we sell 120 bags. This would give us a turn rate of about two weeks.
Turn rates can be tricky. We don’t want our inventory so lean that we constantly run out of products. At the same time, we don’t want so much inventory that we can’t find the ringing telephone on the pharmacy counter.
A goal of 30 days tends to be a benchmark for our turns. With large items such as food bags, this may not be possible due to space and storage constraints. We also want to be strategic and consider a 45- to 60-day turn cycle for the top 10 to 15 percent of SKUs. This is a longer period than what we normally want to see, but the demand for fast-moving SKUs can fluctuate to such a degree that we want to be prepared. This also gives us wiggle room when there is a supply delay or back order.
Crunch the Numbers
Placing our end-of-year usage sheets in front of us, now is the time to evaluate missed opportunities. Delegate some reporting and charting to your inventory specialist or lead receptionist. Have them create a comparison chart for some of your top retail and pharmacy categories. How did 2017 compare with 2016? Did we grow? Did we decline? Or did we just maintain? Each number tells a story, and many of these stories end with the predictable line, “And there lies your opportunity.” Listen to the numbers and realize that with additional staff training, more client education and some goal setting, we can predict future success in 2018 product sales.
Next, set up a doctor meeting within the next 30 to 45 days. Review your findings with the doctors, share your stop list and get their input. Explain why you are considering changes, and solicit items they would like to see brought in for 2018. You may find with this conversation alone, you can add to the stop list and find supporting evidence that opportunities exist within the practice to increase your pharmacy and retail sales. Additionally, share your research on turn rates and demonstrate that you are working to ensure that the clinic will not run out of products or supplies during the year. Nothing is more frustrating for a doctor than being unable to do something for a patient because “we are out of stock.”
As opportunities are identified, purchase a large desk calendar — yes, paper is still sometimes needed — and set educational goals for each month. Have your inventory specialist reach out to the corresponding pharmaceutical reps and territory managers and leverage their support in refocusing the staff and regaining consistency throughout the hospital. It is amazing what refresher courses can do for sales, and collectively, we are reminded that we are advocates for each client and pet. It is our job to educate clients on all the available offerings and advancements available. In the end, we know that we have done our part in supporting a pet’s long, healthy and happy life.
Take the polar plunge with me this season and set reasonable and realistic 2018 inventory resolutions. Keep in mind what a vital and necessary — and expensive — tool our inventory is for a hospital. Create resolutions that will further enhance our offerings.
Cheers to a prosperous, safe, meaningful and successful 2018.