Cliff's Notes

The Business of Dentistry

Just-In-Time Inventory Management

 

Maintaining an inventory for any business is a necessary evil. It is part of the life blood to continue business operations and requires an investment of time and money. Although it is not a glamorous investment it does effect every profit center within your dental practice. We’ll get into “profit centers” later on, but for now let’s try to understand inventory expense and control and what Just-In-Time Management can achieve.

Just-In-Time Inventory Managementhttp://www.accountingtools.com/questions-and-answers/the-advantages-and-disadvantages-of-just-in-time-inventory.html. Who handles the replacement of consumable inventory in your office?

Consumable inventory … Your practice can’t function without products or tools. From copy paper to cotton rolls everything you use you during a normal business day needs to be reordered. Most dental offices have a clinical assistant make the list of clinical supplies and place the orders (what happened to the checks and balances from my last issue of Cliff’s Notes?). You have the clinical team make the list because they know what the products are and the front office orders the business office supplies that they need because they know where to get the cheapest pens. There is nothing wrong about this approach it just is not very cost effective or smart. Most dental practice owners tell the team members doing ordering “just get me the best deal” or they do it themselves. That is a consumer mentality and not good business sense, it may actually cost you more money due to carrying costs.

Carrying Cost … Most dental entrepreneurs don’t understand carrying costs. Did your business advisor ever ask about your operational procedures or do they just talk about numbers. Numbers tell you that if you buy 4 and get 1 free you are saving 20%, that’s true if all the product is used up within 30 days of paying the bill. If the inventory sits on the shelf more than 30 days it has a carrying cost. If it reaches expiration date you may have laid out money for un-usable product and now that savings could turn into a negative. How much expired inventory do you discard every month? How much is sitting in your supply closet? Do you know? Probably not. Distribution Partners also affect carrying costs.

Distribution Partners … Your choice of the distribution and supply chain organizations you work with is a key factor in achieving J-I-T inventory. Aside from an occasional hiccup (even Babe Ruth struck out once in a while) you need to have consistent restock time frames. You need to know how long it will take for product to arrive. My clients know that if they palce an order by 4:00 in the afternoon (EST) UPS will deliver the order the next day with a 99.8% fulfillment rate.

An Example … About 4 years ago I was approached by a large dental practice in crowded/fast paced northern New Jersey. The problem was lost inventory. Lost inventory is what expires and needs to be destroyed. The owner was alerted to the issue by accident when he observed his head assistant throwing away dental supplies because they were expired. He decided to centralize his ordering process for everything the practice was ordering, from light bulbs to composites. Clinical and business supply lists would be given to one person who could access usage levels and order product for a 5-8 week supply. The problem was that the “buyer” did not know clinical supplies so everything needed to be turned into widgets, we did that with a bar code scanner. The scanner along with purchasing software allowed the buyer to track usage quantities. The office orders twice per month and the stock room is in perfect order. Inventory is turning 4 to 6 times per year and nothing expires. Carrying costs have been minimized and they never run out of product.

Why keep walking over dollars to pick up dimes? … Start automating your systems! Next week we’ll talk about why and meet Watson.  Please feel free to contact me with any questions or concerns.

 

March 19, 2017 Posted by | Uncategorized | Leave a comment