Inventory Management Blind Spots

In his more than 30 years working with veterinary practices on their finances, Fritz Wood said he has observed that inventory management is a blind spot for most of them. “The average veterinary practice does not actively and consciously manage inventory,” Wood said. Very rare is the practice that knows their inventory turnover (or number of days of inventory on hand). Few have strong internal controls to prevent excess inventory, stockouts, shrinkage and obsolescence. A minority of practices use their practice management system to manage inventory so they don’t even know how much they should have on hand.

Wood has worked with veterinarians for over 30 years through private consulting and training, finding ways to help improve their business. He is also frequently invited to present at continuing education meetings, sales meetings, training sessions and at several veterinary colleges. Wood serves on industry boards and writes on both veterinary practice management and personal finance. In the following Q&A, Wood offered some keys to success for this segment of a veterinary practice’s business.

Q: What are a few best practices when it comes to inventory management?

Wood: SKU rationalization – Practices should limit their inventory to one or two products in each major category to avoid overlap and duplication. Most practices have 4-5 flea control products or 4-5 heartworm products, and that’s nonsensical.

Process every transaction through the PM system – Inventory errors occur when in-hospital usage and employee purchases aren’t subtracted from inventory.

Perform periodic physical counts – Compare the amount on the shelf to the amount in the PM system. Investigate differences.

Shorten reorder points – Continuously allow your inventory to shrink a little further before placing the next order.

Shorten reorder quantities – If you usually reorder 36 units, shoot for 24 units and then 12 over time.

Q: What are signs that reps can be on the lookout for with their veterinary practices who may need help with inventory turnover?

Wood: If they don’t use their practice management software or some kind of “Red Flag” system to track inventory and signal reorders, there’s your sign.

Q: How vulnerable are practices to theft and/or embezzlement?

Wood: Practices that don’t track their inventory continuously are at enormous risk. If they don’t know how much they’re supposed to have, how would they know if any were missing? Larger practices dispense from a central, secured pharmacy. Video cameras may be a deterrent. Performing periodic physical counts and asking about discrepancies goes a long way to demonstrating that someone is at least paying attention.