Practice Management: Inventory Management

An effective inventory control system improves cash flow and practice profits.

Inventory Management

The treatment supplies and retail products used in medical aesthetic practices represent the second-largest operational expense, after personnel costs. Keeping track of these products with an efficient inventory management system can help your practice save money and maximize profits.
“Inventory control is incredibly important in the aesthetics practice because many of the products are high-value,” says G. Marshall Franklin, Jr., co-founder of Practice Enhancement Specialists in Atlanta, Georgia (www.pesconsultants.com). “Items like fillers and toxins such as Botox are expensive and they can tend to walk away if you don’t keep track of them.”
Inventory control not only helps prevent theft of valuable supplies; it also ensures that you are not tying up resources by overstocking product or missing out on sales by coming up short on needed supplies. “An oversupply represents a wasted investment, as tens of thousands of dollars of slower moving inventory may unnecessarily sit on shelves,” says Darrin M. Rosha, general manager and corporate counsel for Crutchfield Dermatology in Eagan, Minnesota. “Failure to keep an adequate inventory can prevent the clinic from timely service and sales to its patients. If you’re out of inventory, you’re out of business.”

The Goals of Inventory Control

Inventory control systems provide a number of benefits to practices, including loss prevention and improved cash flow. Instead of purchasing a lot of expensive supplies all at once with a large outlay of cash, you can parcel out expenditures over time by ordering products on an as-needed basis. A good system also eliminates time wasted searching through cluttered supply closets for needed items.
An aesthetics practice may stock dozens, even hundreds of different products, making it impossible for staff members to determine at a glance what they have on hand and what supplies are running low. Lewis A Lippner is the administrator for Advanced Dermatology (www.advanceddermatologypc.com), the largest dermatology group in the Northeastern United States, with 12 offices in two states. The biggest mistake he sees practices make is “loss of control—not knowing what you’re using or what you have in stock.”
The basic steps of inventory control include:

  • Performing regular physical counts of products within the practice
  • Setting reorder levels
  • Receiving shipments and verifying orders against the purchase orders
  • Stocking products to ensure that older products are used first

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Physical Counts and Reorder Levels

The first step in establishing an inventory control system is to make a physical count of all supplies on hand. “We use simple forms anybody can fill in,” says Lippner. The forms list all the products the practice uses. The person taking the inventory counts fills in the amount of each product currently in the practice.
“We long ago discovered that having a set day and time for reviewing inventories is far more effective than hoping someone simply remembers to check the inventory of an item,” says Rosha.
You may do inventory as often as once a week. The professionals interviewed for this article recommend taking inventory at least once a month for more expensive items such as fillers and toxins. For routine medical supplies you may only need to do inventory quarterly. You may find it helpful to categorize your supplies as A, B or C level supplies. A-level products are those items that you use a lot of that don’t cost a lot; B-items are moderate volume, moderate cost items and C-level products are expensive items you don’t use very often. You can establish different inventory intervals for each class of products.
Next, you’ll need a picture of how you’re using those supplies to set reorder levels. “Get a handle on your utilization,” says Lippner. “You have to know what you’re using so you’ll know what to order.” Billing records will tell you your history of use. You may need to adjust inventory levels throughout the year to meet seasonal demand. “Utilization goes up at certain times of year,” says Lippner. “There’s less use around the holidays or when the weather is very cold, but it goes up in the spring.”
Franklin recommends looking at what you sell per week, per month or per quarter to establish your reorder levels throughout the year. You will also need to consider how long it takes to receive a supply of each item. “Take into account reasonable problems that may arise that could cause a lag in the time for resupply,” advises Rosha. Weather delays, miscommunications and other factors could delay orders by a week or more.
Finding the right inventory level for each product may take some trial and error. The most efficient systems allow for enough inventory to always meet patient demand, without forcing you to tie up too much of your capital in supplies that aren’t being used. “The biggest mistake I see doctors make is having too big an inventory,” says Franklin. “They carry much more product inventory than they need. I think this is because they depend on the staff to make the orders, and if the person making the orders isn’t the one paying for them, there’s a tendency toward ordering too much ‘just to be safe.’”
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Assign an Inventory Specialist

Inventory control systems work best when a single staff member is responsible for maintaining the inventory, including receiving, stocking and re-ordering. If one person receives supply orders, puts the products on the shelf, keeps track of what’s being used and places orders to resupply, that person quickly becomes familiar with usage patterns and how long it takes to receive orders from various suppliers. The employee will also spot abnormalities such as missing product, unfulfilled orders or products that are expiring before they’re used.
“A physician’s time is far more efficiently spent on things that only the physician can do,” says Rosha. “Inventory control does not require a medical degree or license, but seeing patients does.”
In some practices the office manager oversees inventory, while other practices assign the job to a nurse or a medical assistant. This person should report to the practice administrator or the physician.
Whoever is in charge of supplies should receive new orders and compare them to the purchase orders to make sure the order was received in full. This person is then responsible for putting the products away in the appropriate areas as soon as they arrive. In a busy practice, it’s tempting to let boxes of supplies sit until someone gets around to putting them on the shelf. This makes it easy to lose track of what’s coming in and what’s on hand.
Letting products expire before they’re used is an expensive mistake that an inventory management system can help you avoid. While some companies will replace expired product, many won’t. “Throwing away expired product is throwing away money,” says Lippner. To prevent this, the simplest precaution is to train staff to always stock the oldest product on the front of the shelf, with newer product in the back. Additionally, provide space on your inventory form to note products that are within six months of their expiration dates. Some practices tag these products with a colored dot as a reminder to use them soon.
Most software systems allow you to set reorder levels for the products you stock. The software will then alert you when you are approaching the reorder point. If you prefer a manual system, you can employ colored file cards or markers. When the person in charge of inventory sees that X number of boxes of a particular product are left on the shelf, he or she clips a card or marker to the shelf as a visual reminder that it’s time to reorder. Having a single person in charge of supplies, and thus familiar with the reorder points for each product, makes this kind of system more effective.
Keeping supplies organized and visible also makes inventory control easier. Clear plastic tubs or bins and labels on shelves help you see your products at a glance and can speed up the process of restocking. Some practices keep more expensive products in locked cabinets or closets for extra security.
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Getting the Right Price

An inventory control system not only helps you manage cash flow and keep the right amount of supplies on hand, it can be a tool for getting better prices on supplies. “Many vendors that provide injectible supplies give discounts for larger volume purchases, or rebates at a certain level of purchasing,” says Lippner. “You want to take advantage of those discounts and rebates if you’re able to purchase at those volume levels.”
Periodically review the prices you pay for supplies. The vendor who offered the best price last year may not give you the best deal this year. Review sales flyers and catalogs for better prices. If you have a supplier you prefer to do business with, but you find another supplier who’s offering a better price, ask your current supplier to meet the competitor’s price.
Group practices can increase efficiency by centralizing inventory control. For example, Advanced Dermatology uses centralized purchasing, which makes purchases for all 12 offices and distributes supplies to the offices based on patterns of use. Individual offices can also requisition supplies as needed. Having one purchaser for all the offices allows them to purchase in quantity and take advantage of volume discounts and rebates.
Solo practices can join a group-purchasing organization to take advantage of similar discounts, though Franklin notes that not every physician is comfortable with this set-up. “It takes negotiating out of your hands,” he says. “You’re relying on the group purchaser to negotiate prices.”
Setting up an inventory control system takes a little time initially, but once in place it pays off in efficiency and cost savings. In a busy aesthetic practice, an efficient inventory control system can help you eliminate waste and maximize profit, and frees you to focus on delivering patient services.

Cindi Myers is a Colorado-based freelance writer covering healthcare and small business-related topics.

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