Continuous Improvement: Excess Inventory
“Insanity is doing the same thing, over and over again, but expecting different results.”
― Narcotics Anonymous, Narcotics Anonymous
“Never put off till tomorrow what may be done day after tomorrow just as well". From: "More Maxims of Mark”
― Mark Twain
“I have not failed. I've just found 10,000 ways that won't work.”
― Thomas A. Edison
Just a reminder, waste is defined as, “anything beyond the absolute minimum amount of materials, manpower, or machinery needed to add value to a product or service”. (Flinchbaugh & Carlino, 2006) As I mentioned in that blog, there are seven main sources of waste in the dental practice; this month we will cover Excess Inventory:
• Overproduction
• Waiting
• Unnecessary Transport
• Over-processing
• Excess Inventory
• Unnecessary Motion
• Defects
Inventory control is like the weather: everyone complains about it, but nobody does anything about it. The three quotes above this blog describe pretty well how dental offices deal with inventory issues: never changing the system in spite of the aggravation it’s causing; procrastinating because, while it’s important, you’re tied up with other, more pressing needs; changing over and over without ever finding a system you’re satisfied with.
I’ve been in the dental trade for 38 years next month. In that time, I’ve seen a number of “inventory control systems” used in dental offices: tie-tags, online, barcode, etc. But, I’d bet my bottom dollar that 80% or more of dental offices are using a variation of the shopping list, or sticky notes.
What is the current focus of inventory control in dental offices? In my experience, it’s 2 things: don’t run out of what you need & spend as little as possible.What should be the focus: cost control. Notice, I didn’t say “price control”. What should your cost of inventory be? I’ve seen anywhere from 3% to 12% of your gross income quoted, but historically, and reasonably, you should shoot for 6% ± 1%; by the way, that includes all the supplies in your practice, including office supplies. It does not include equipment.
There are other ways to control costs by controlling inventory (The Advantages of Inventory Control, 2014):
• Customer Service:
- An increase in customer service levels results from having a highly defined and working inventory control system. How? By making sure you don’t run out and inconvenience your “customers’. Remember, your customers aren’t just your patients. Customers are also co-workers that depend upon you providing the needs that are part of your job description.
• Labor Cost
- Well-defined inventory control policies can reduce the labor costs associated with managing the inventory. How much handling is required to dispense, receive, store, and shop for supplies? Each of these involves labor; and labor costs money.
• Inventory Costs
-"Lower inventory cost is a definite advantage for the (practice) that effectively controls its inventory. Business owners need to fully understand the costs of carrying inventory, not just how much the inventory costs to purchase. Inventory carrying costs consist of all the expenses a company incurs for owning inventory. These expenses include the cost of capital, storage and risks costs (including obsolescence, damage, theft and deterioration) plus the appropriate taxable amounts. Effective inventory control reduces these costs because it reduces the total amount of inventory required to manage the business. Inventory control monitors the level of inventory and proactively manages obsolescence and deterioration by ordering in the appropriate quantities. Effective inventory control also reduces storage costs, because it orders enough inventory to fill consumer demand and not much more.” (The Advantages of Inventory Control, 2014)(Emphasis mine)
How much inventory should you carry? I recommend one month to six weeks, and other experts do, as well. (Cathy Hollister) What’s the minimum? Two weeks. Why? Because, 99% of the time a vendor backorder will be fulfilled in less than 2 weeks.
Now, let me remind you of some other problems – each costing labor & money – that arise from a lack of effective inventory control:
• Un-credited returns
• Un-fulfilled promotional goods
• Expired shelf-life
• Lost repairs
• Late or unfulfilled backorders
• Out of needed product for a clinical procedure
• Lost time shopping for the best price
It’s important that you understand what’s called “opportunity cost”. Very simply, opportunity cost is losing the opportunity to spend money on something because it’s been spent on something else. If you buy a year’s supply of impression material, besides the costs listed above under “Inventory Costs”, you’ve tied up money that you may want or need to spend on something else. Once that money has been spent, it’s gone.
Remember, one of the biggest advantages that vendors have over you is that THEY UNDERSTAND AND CONTROL THEIR INVENTORY. WHY? BECAUSE THEY UNDERSTAND THAT INVENTORY IS MONEY!
So, what is the summary? Focus on controlling costs rather than price. Control the cost of your inventory by carrying about one month’s worth of inventory and putting in place a well-defined inventory system and policies: who, what, when, where, why. Periodically evaluate to make sure you are around 6% of your gross. If you are more than 7%, figure out why and correct it.
Finally – if you need help. Give me a holler. I’d be delighted to help!
Works Cited
Cathy Hollister, R. M. (n.d.). Dental Inventory Control. Nashville: Nashville Area Practice Management Series Dental Support Center.
Flinchbaugh, J., & Carlino, A. (2006). The Hitchhiker's Guide to Lean. Dearborn: Society of Manufacturing Engineers.
The Advantages of Inventory Control. (2014). Retrieved July 9, 2014, from Chron: file:///C:/Users/Bleiweiss/Documents/Consulting/Inventory%20White%20Paper/The%20Advantages%20of%20Inventory%20Control%20%20Chron_com.htm