Shrinkage will shrink your profits

As we've discussed, inventory is most often the second highest cost area for most practices.  Yet, in recent surveys, as few as 30% of practices have secured their inventory in a LOCKED pharmacy.  Thousands of dollars worth of drugs and medical supplies are left on open shelves and unlocked cabinets.  It is not uncommon for practices that implement sound inventory management to find in retrospect that as much as 30% to 50% of their inventory prior to proper inventory management implementation was either missing or unaccounted for.  This lost inventory is called shrinkage, and it will shrink your profits.

What are the sources of shrinkage?  Theft is a big one.  Most practice owners refuse to acknowledge that employees and clients might be engaging in some form of theft from their practice.  Yet, over time, most will experience theft by someone they trusted in their practice.  It is disheartening, but it's fact.  In a National Retail Federation/University of Florida study in 2015, they found that approximately 73% of shrinkage was due to theft from both employees and customers, split almost evenly.  

Other sources of shrinkage include lack of appropriate capture of charges for procedures performed, treatments used or dispensed.  It is important to put in place fail-safe processes to capture charges in your systems when they are incurred.  Failure to reconcile lab invoices to ensure that all lab procedures are invoiced appropriately can lead to significant shrinkage or impact upon your Cost of Professional Services.  Additional shrinkage can occur when supplies arrive at the practice if they aren't appropriately checked in and reconciled with shipping documents and invoices.  Suppliers can make mistakes, so it is important to reconcile every shipment to ensure that you received the product for which you are invoiced.  Another big source of shrinkage is product that expires while sitting on your shelves.  This can and should be prevented by having appropriate oversight and management of your inventory.  A good relationship with your suppliers will also help with this issue.  Pricing errors, or failure to appropriately adjust pricing when product costs change can also contribute to shrinkage.  

For these and other reasons, it is important to implement sound inventory management programs to protect your practice from 'shrinkage'.

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