Implementing an Effective Inventory Management System

Every practice needs to have a designated inventory manager who is responsible for inventory control. Often this individual is a technician since they are familiar with hospital drugs and medical supplies. A good inventory manager is detail-oriented and committed to saving the practice money. The inventory manager should work with the practice manager or owner to be sure inventory costs are kept in line with budgets and industry benchmarks.

Every hospital also needs a well-organized inventory management system in place to manage inventory. Some practices find using a computerized inventory system helps to better track products and their usage. Regardless of whether you use your practice management software or a visual inventory system, determine appropriate quantities to have on the shelf, establish reorder points and reorder quantities for all inventory items and set a schedule for ordering.

If the inventory manager does an inventory count and orders on a regular schedule, the practice is unlikely to run out of products. Establishing a set day of the week and frequency to place orders also improves efficiency since the inventory manager can allocate specific, defined hours to inventory management. Usually, orders are placed once or twice weekly (often online) with major distributors to minimize quantities on the shelf and to increase turnover times. Check expiration dates every week or two when placing orders so you can make arrangements to return product if necessary.

Determine Quantity on Hand Amounts and Reorder Points

“Quantity on hand” refers to the minimum quantity for an inventory item to be stocked on the shelf so that you won’t run out before the next order. Many practices never establish actual numbers for the quantity to keep on hand and manage inventory by what seems appropriate without establishing a system. This can result in inefficiency and high inventory expenses.

To establish minimum quantity on-hand amounts for each inventory item consider how much product you need so that you don’t run out of supplies but also don’t keep too much product on the shelf. To determine the appropriate amounts for your practice look at the quantities used in a 30-60 day time period or less. If you notice that some products stay on the shelf for several months, then you have an opportunity to reduce inventory and spending.

Quick inventory turnover minimizes overstocking and helps keep costs down. The practice management software should be able to generate reports which detail the monthly usage of drugs and supplies. Adjust the quantities to keep on hand seasonally for some products such as flea and tick preventives.

Establishing re-order points for each inventory items is time-consuming but well worth the time spent initially to improve efficiency and cost-savings long-term. The re-order point is reached once the quantity on hand drops to a point where the hospital may run out of the item if an order is not placed. For example, perhaps your quantity on hand amount for intravenous fluids is four cases. You may set the re-order point at 3 cases of fluids which means once you are down to 3 cases; you will order an additional case of fluids. Here’s another example: the quantity on hand for 68mg Baytril might be ½ bottle and if you see the quantity dip below this amount, you place an order for another bottle.

Keep Inventory Prices Updated

Establish price markups in your practice management software for inventory items. Target markups for most drugs are 140-175 percent of the cost of the medication including sales tax and shipping and 100 percent for heartworm and flea control products. To compete with online pharmacies, some practices have lowered markups for select products closer to a 50 percent markup.

Set up a protocol for unpacking incoming inventory items and processing inventory invoices. Place invoices in a designated location for entry into the computer software system. Assign one or two employees to enter inventory purchases and prices in the computer every week or two to ensure that fees for inventory items are updated as price increases occur.