Inventory has a big impact on your practice. In most practices, inventory represents the second highest cost area of the practice, behind only labor. In general, inventory in most practices represents an expense that is equal to between 15% and 35% of revenues for the practice. Obviously, those practices who manage it more closely and are on the lower end of that scale (15% to 20% of revenue) are usually much more profitable. Would it be worthwhile to add 10% of your revenues to your bottom line (profits)? Proper inventory management can do just that.
There are other impacts to the practice of properly managing inventory. First of all, inventory is expensive. It consumes a lot of cash that is therefore not available for use elsewhere to support the practice's needs. Secondly, inventory expires and some disappears, all of which results in 'shrinkage' or loss of valuable inventory. This loss impacts the practice both in terms of reduced cash flow and profitability.
So, remember to examine your inventory costs. You should have April financials available to input into your data dashboard to reveal how you're doing at managing inventory. If you don't like what you see, dig deeper and find why the results are not what you desire. Many practices generate a weekly report which provides revenues, labor costs, and inventory costs. They then use last week's numbers to set benchmarks for next week's allocations for both labor and inventory. For example, if the practice determines that their target for inventory is 17% of revenues, then they would multiple last week's revenues by .17 to establish this week's limit for inventory purchases. The inventory manager would be tasked with keeping inventory purchases at that level.
Improve your cash flow and profitability by implementing sound inventory management!
