Inventory: Get a grasp on the goods

Managing your practice's inventory can be a tricky business. Order too much, and you've wasted money on products that may never sell before they expire. Order too little and you could take the heat from a doctor who's running low on her favorite antibiotic.

"Inventory management is a time-consuming job," says Carol Schubert, MBA, RVT, CVPM, a Firstline Editorial Advisory Board member and an instructor at the Veterinary Technology Department at St. Petersburg College in St. Petersburg, Fla. "But done right, it shouldn't be frustrating." Below you'll find a list of common conundrums and solutions to ease the pain of managing inventory.

Q. Who should manage inventory?

The quick answer: not the doctor, says Mandy Finnell, RVT, an advisory board member and a technician at Cherokee Animal Hospital in Overland Park, Kan. "Our doctors don't have a lot of spare time," she says. "And we don't want doctors to make decisions about which products to stock quickly. The salesman might talk them into buying a case of something right away. "

Instead, Finnell acts as a filter, speaking to pharmacy representatives first and learning about new products from journals and at continuing education meetings before she decides whether she'll recommend a new product to the doctor. Her criteria: Is the new product better for the client and the clinic?

Nancy Allen, the practice manager at Olathe Animal Hospital in Olathe, Kan., says she divides inventory duties between a few core staff members. For example, one technician handles orders for the bulk of the inventory, including prescriptions. A second technician manages over-the-counter items, a veterinary assistant tracks pet food, and the kennel manager handles shampoos and other kennel-related items. "They coordinate to determine what needs to be ordered," Allen says. "This way, we haven't thrown the entire inventory job on one person."

Q. How can I track my inventory?

Schubert says there are three common approaches to inventory tracking: the tag system, the want list, and computer tracking. With the tag system, you tag a warning item in your inventory that signals it's time to reorder. When you use the tagged item, you place the tag in the inventory manager's ordering stack. (Just make sure you have enough of the product in reserve after the tagged item to last until your order arrives.) The want list operates in much the same way. When you take the labeled warning item off the shelf, you add the product to the want list. Many software packages will also track your inventory—as long as you track recent orders and usage accurately.

Another option, says Ronald Althaus, an inventory management instructor in Cincinnati, is the two-bin system. Start by dividing inventory into A, B, and C items. A items, Althaus says, are the 20 percent of items that account for 80 percent of activity. B items are the next 30 percent of items that account for 15 percent of activity, and C items are the last 50 percent that account for 5 percent of activity. "The goal is to identify which items require closer evaluation and control mechanisms," Althaus says.

Once you've identified your A, B, and C items, he says, you're ready to use the two-bin system. For each A and B item, create two bins. You won't worry about bins for C items, Althaus says, because your C items are low cost, low volume items that don't require close tracking, such as stationary or brochures.

Next you'll divide your inventory into working inventory, which goes in bin 1, and reserve inventory, which goes in bin 2. You'll keep a reorder card at the top of the reserve inventory to trigger a replacement order.

How much reserve inventory do you need? "Your reserve should be the amount of product you need from the time you place your order until the order arrives," Althaus says.

Use your computer

Q. How often should I place orders?

"I order once a week," Finnell says. She recommends scheduling a regular time to place orders because it establishes a routine—you don't have to guess when orders will come in, and you can schedule time into your day to restock the shelves. This approach also helps you avoid costly minimum order fees.

"If you order just once a week, all of the charges—freight, boxes, and so on—go on one ticket," Finnell says. But if you place multiple orders for less than $50, you might get hit with a $15 fee each time because the order is so small, she says.

Q. How much product should I stock?

The amount of product you stock depends on your practice size. To gauge the right amount for your practice, Schubert says, it's key to become familiar with the products the hospital uses. She recommends spending some time looking through hospital drawers and through the pharmacy to determine how much of each product you should stock. At Schubert's former practice, the rule of thumb was that the cost of drugs and supplies never exceeded 14 percent of gross and the cost of diets never exceeded 3 percent of gross.

An easy way to tell whether you're overstocked is to look for products that have lingered on the shelves for a while. But watch out for seasonal items such as allergy medicines, Finnell warns. "We might not use any in the winter, but in the spring the doctors use it like crazy," she says. A good guideline: "If a product's not seasonal and it hasn't moved in six months, you probably don't need it."

Q. How often should I do a physical inventory count?

Plan to do a physical inventory of your top 10 to 20 items—including flea and tick preventives, heartworm preventives, and diets—at least once a month, and preferably once every two weeks. You'll want to do a complete physical inventory at the end of the year for tax purposes.

Q. How can I cut down the number of vendors I work with?

The number of vendors you use is really your choice, Schubert says. Her former practice only used one main vendor—a step that saved the practice's inventory manager valuable time and effort. "You might save some money by shopping around, but you're also wasting valuable time calling vendors when you could be generating revenue instead," she says. "It's like driving across town to use a coupon at a different grocery store—you probably aren't going to save enough money to balance out the time and gas you've expended. If you use a particular vendor exclusively, you're probably getting the best deals anyway."

You could also try a single-source ordering service to manage inventory—a step Finnell says cut her phone orders from 20 a week to five or six. The service also allows her to print records of the products her practice has sold the most and the ones they're not using, which Finnell says helps when she's trying to measure how much of each item to stock.

The steps to effective inventory management are simple. Find the right inventory manager, adopt a system, and plan time for that person to dedicate to the job. Then offer your team member the training and support he or she needs to manage inventory effectively.

Overstocked? Consider this

Fritz Wood, CPA, CFP, cites these risks if you carry extra inventory:

• theft
• damage
• spoilage of perishable items, such as vaccines
• product obsolescence
• inability to return unsold product
• cash shortage when invoice is due

Make time for inventory

Regardless of the tracking system you use, Ronald Althaus, an inventory management instructor in Cincinnati, says you need to allocate time for ordering when you’re relying on a trigger to replenish inventory. "No system will work if you put off ordering for a week," he says. His advice: Plan some time each week for your inventory manager to handle inventory tasks.

EDITORS' NOTE: Have an inventory question we haven’t answered? Send your question to us by e-mail at firstline@advanstar.com; fax (913) 492-4157; or write to Firstline, 8033 Flint, Lenexa, KS 66214.