Inventory is the second highest cost area for a veterinary practice. It is one of the most important areas to focus your management efforts. How much inventory is too much?
This is a frequent question. And, it is a great question. Most healthy practices spend less than 20% of revenue on inventory, radiology costs, food and bedding, laboratory expenses, and other similar costs. Depending upon the structure of the practice, some spend a little more, others a little less, but 20% of revenue is a good initial target for you to achieve to see a big difference in your practice.
In many cases, practice owners and managers whose practices spend too much money on inventory ask about the benchmark for this expense category. Many are typically in denial and want some way to justify their heavy inventory load. Typically, the statement, 'my practice is different' or 'my practice sells a lot of inventory' is heard from those practices. The truth? They should reduce inventory costs as a percent of revenue to reduce inventory shrinkage and lost profitability. Inventory management isn't the easiest process to implement, but given the right type of person with the proper motivation and empowerment, you will see dramatic results.
One helpful hint might provide a good starting point. Calculate last week's total revenue, and set this week's purchases limit at 20% of revenue from last week. Give your inventory manager that goal, and stick to it. You'll be surprised at how quickly your practice will reduce its inventory overload and wastage. And a second hint: lock your pharmacy. Less than 30% of all practices have a locked pharmacy. Lock your pharmacy, and enforce purchase limits each week.
