Inventory Management: Best Practice Strategies Carolyn Salvato Director, Optical Consulting BSM Consulting Course Objectives Effectively analyze patient demographic information. Compute the optimum inventory levels and vendor utilization. Assemble a Preferred Vendor List. Develop an inventory budget. Institute maintenance and replenishment protocols. Monitor monthly frame sales. Analyzing Patient Demographic Information Age Gender Income Age Total Male Patients Percentage of Total Patients Total Female Patients Percentage of Total Patients 2-14 15-24 25-44 45-64 65 + 1
Optimum Inventory Level Benchmark Category Capture Rate: The percentage of prescriptions filled compared to the number written. Turn Ratio: The number of frames sold annually divided into the number of frames inventoried. Ophthalmology Practice 60% 2.5-3.0 times Step 1 Multiply the total number of prescriptions written per annum by 60%. Step 2 Divide the total by the optimum turn ratio. Optimum Inventory Level Levels Facility Type Ophthalmology Practice Annual Prescriptions Written 5,000 Capture Rate Benchmark 60% Turn Ratio Benchmark 3 times Step 1 5,000 Scripts x 60% Capture Rate 3,000 Annual Eyeglass Orders Step 2 3,000 Annual Eyeglass Orders 3 Time Turn Ratio 1,000 Units NOTE: If the final calculation indicates your current inventory quantity is higher than the desired level, it is not recommended that the inventory be reduced to the point that the presentation is compromised. Optimum Vendor Utilization Number of Frame Units Recommended Number of Vendors 200 400 4-5 401 600 6-8 601 800 9-11 801 + 12 Improve management of each account. Increased utilization per account for greater discount potential. 2
Assembling a Preferred Vendor List Preferred Vendor Criteria: Products have a proven sales record with your optical. Vendor representatives consistently provide support. Vendor has reasonable return and exchange policies. Exercise to Identify Top Vendors: Complete a thorough inventory of current stock. Review utilization history of each vendor and frame line. Preparing an Inventory Budget Chart all preferred vendors. Assemble Inventory Budget Chart: List the projected number of frames per line / representative. Determine cost average of each frame line selected. Multiply the cost average by the projected frame count. Calculate the discount deduction. Preparing an Inventory Budget Estimated Vendor Budgets Vendor Sales Rep Frame Lines Quantity Projected Quantity In Stock (as of 1/1/XX) Average Data (1) Cost Total Data (1) Cost Discount Percentage Total Budget Per Rep/Line Rep-Jim Marchon 20 18 $60 $1,200 20% $960 Marchon Rep-Sara Tres Jolie 15 15 $58 $870 20% $696 Rep-Jim Nike Flexon 20 25 $100 $2,000 10% $1,800 Safilo Rep-Bill Adensco Rep-Bill Gucci 15 14 $65 $975 20% $780 25 35 $110 $2,750 10% $2,475 (1) Available through Jobson Publishing, LLC 3
Inventory Transition Exchange for saleable product within line. Consider trading with new vendor. Initiate price reductions. Maintenance and Replenishment Reorder only the exact frames sold. Order new frame per sale. Reorder replenishment stock as sold. Outcome: Top selling frames always available. Improved efficiency of sales-per-frame tracking. Inventory investment stabilized. Note - Frame for frame replenishment not recommended for low-end bulk purchases! Maintenance and Replenishment Reorder only the exact frames sold. Order new frame per sale. Reorder replenishment stock as sold. Monitor all orders received. Schedule inventory reconciliations on a regular basis. 4
Monitor Frame Line Performance Monthly Sales Tracking Report Vendor Frame Lines Jan Feb Mar Total Sold Projected Stock Turn Ratio Marchon Marchon 4 2 7 13 20 0.7 Tres Jolie 3 3 4 10 12 0.8 Nike Flexon 5 1 0 6 30 0.2 Safilo Adensco 6 2 0 8 12 0.8 Gucci 1 3 2 5 24 0.2 Totals 42 98 0.4 Enhance the Optical Presentation Enhance Your Presentation: Develop displays that spark patient interest. Create a clean patient-friendly environment. Maintain a consistent presence on the sales floor. Summary Implement a strategic plan. Appeal to your demographic. Maintain a manageable frame quantity. Replenish dollar-for-dollar. Monitor frame line performance monthly. Monitor the investment monthly. Proactively exchange non-performing lines. 5
Thank You Carolyn Salvato BSM Consulting Director, Optical Consulting csalvato@bsmconsulting.com (314) 209-9720 6