Managing a practice should begin with the low hanging fruit, selecting opportunities that will yield the largest improvement in cash flow or profitability for the smallest effort or cost. Inventory management is low hanging fruit in most practices. Depending upon how well a practice manages its inventory, somewhere between 14% and 35% of annual gross is spent on Cost of Goods Sold, COGS, which is sometimes called Cost of Professional Services, COPS. For every $500,000 of veterinary production $70,000 to $175,000 is spent on COPS! Imagine tens of thousands of 20 dollar bills, in bundles, sitting on shelves in a room in your practice. Would you lock the door? Would you count it periodically?
Using data from the National Equine Veterinary Economic Study, we learned that 67% of practices do NOT use the inventory module in their management software and 69% do NOT keep the pharmacy locked. I have never encountered a practice that puts minimal or no effort into inventory management that had less than a 15% shrink. Shrink represents inventory that leaves the practice but is never charged to a client. This loss may be direct theft, poor fee capture, an associate stocking the practice they intend to open and a hundred other explanations. The point is that if you don’t work at tracking your inventory and you don’t lock the pharmacy you are probably losing at least 15%.
Once the decision is made to secure the pharmacy, most practices have to gather all of the mini-pharmacies found throughout the practice for convenience and bring all of those products back in to the pharmacy. When the inventory is all in one room, lock the room! Limit access to the pharmacy, insist on all products being signed out. Put motion detector activated video cameras inside the pharmacy and outside the door. If your response is that it is “too much work or it will be inconvenient” please multiply your annual gross by 15% again and see if that amount of money is worth the effort. Companion animal practices are generally better at inventory control than equine practices but by simply locking the pharmacy, 69% of equine practices will have greatly improved their cash flow and profitability.
Almost all management software systems including QuickBooks have inventory management functionality. Remember that 2/3 of equine practices DO NOT use their inventory management module. Managing inventory is impossible without diligent recordkeeping. It is not complicated but there are lots of moving parts to keep track of.
As Dr Blach and I have mentioned several times in blogs, incentives always work. Keep that 15% shrink in mind as a dollar value and there is your incentive to lock your pharmacy and use your inventory module.
If you have questions please use the comment box or submit a question privately.
