~~Reaching Your Inventory Goals
It isn’t the bears that ruin your picnic; it’s the ants. Anonymous
A nickel ain’t worth a dime anymore. Yogi Berra
Consensus among dental practice management consultants is that you should be spending no more than 6% of your gross on supplies; your overhead should be 60% of your gross, so supplies should make up no more than 10% of your overhead. So, if you have a practice that is producing $1M/year, your supply bill should be no more than $60K; this includes everything in your office that is not considered equipment: dental supplies, office supplies, cleaning supplies, etc.
In order to determine your spend, you need metrics. Remember that last month we spoke about Hidden Cost? If you don’t have an efficient way to gather your metrics (numbers) the process of getting the information becomes a cost in and of itself. Any inefficiency will add to your hidden costs in lost time and productivity.
You need at least two tools for accounting for your supply spend: a good practice management system that gives you up to the minute information on production, and a good inventory control system that does the same for your supplies. If you can’t measure a problem, you can’t fix it.
There are two “tools” that you need to have in your management toolkit: gap analysis, and Kaizen. Next month, we’ll discuss Kaizen, but, for now, we’ll discuss gap analysis.
Gap analysis is comparing your actual performance against your desired performance and finding the gap. It also should help you determine what steps you should take to close the gap. Kaizen is a philosophy and system for continuous improvement of working practices and efficiencies.
In a past blog (October, 2013), I discussed a couple of techniques for closing the gap between your current and desired states. The techniques are covered under the practice of “Countermeasure”, which are simply actions taken to negate or counteract a previous action. In geopolitics, it can take the form of eliminating the difference between the actual and desired by launching an airstrike. If you have a staff member that seems to be causing all your problems, it would probably not be a good idea to ‘nuke’ him. So, we need to modify and apply the tool in a way that will benefit your practice.
When doing countermeasuring, our goal is to ask the question “Why” at least five times to help us find the “Root Cause”.
Here’s an example:
Our analysis shows that we have some gaps in the 4th quarter’s performance:
- Our production goal was $100,000
- Our production was $85,000
- Our supply spend goal was $7000 for the Quarter.
- Our supply spend goal is 7%, so it should have been $5950; but our spend was $7,000, or 8% of our actual production.
We have two gaps here that require countermeasuring: low production and high supply spend.
Here is how we would use “5 Whys” to countermeasure:
State the missed goal gap: “4th quarter production missed our goal by $15,000”
1. Why?
a. Production of higher-ticket procedures was down 25% from the goal.
2. Why?
a. Patients didn’t take the opportunity we projected they would to use up their insurance benefits before the end of the year.
3. Why?
a. Case presentations were less than our goal by 40% in November/December.
4. Why?
a. Emergencies were up 25% over last year and we were short-staffed.
5. Why? (At this point you’re probably wanting to say, “How the #+** should I know?!” But, the gaps can’t be closed unless the reasons for them are found.)
a. Unusually bad weather, holidays, and staff sickness.
At this point we ask ourselves if we’ve found the “Root Cause” of the gap. If the staff is satisfied that they’ve landed on the root cause, it’s time to countermeasure. Now, maybe the reason could be something as simple as over-reaching on our goals. If the goal was unreasonable, that could be the answer and the countermeasure would be to learn how to implement reasonable goals. Sometimes, it’s just unintended consequences. Who knew that the weather would be so bad or that there’d be so much illness? But, was there last year? The year before? ...? Again we may have landed on improper goal setting.
There is also a way to countermeasure each why. Here’s an example I’ve used before:
Problem: Granny comes home and finds Sylvester and Tweetie with an expensive lamp lying broken on the living room floor.
• Problem: Broken Lamp
Countermeasure: Clean up the broken lamp.
• Why #1: Because Sylvester and Tweetie were rough-housing.
Countermeasure: Keep them separate
• Why #2: Because Sylvester got in the house and Tweetie got out of his cage.
Countermeasure: Put Sylvester outside and Tweetie back in the cage.
• Why #3: Because they could open the door to the house and the cage.
Countermeasure: Lock the door and cage securely
• Why #4: Because the lock to the door and the cage latch are broken.
Countermeasure: Get them repaired
• Why #5: Because Granny keeps forgetting to get them repaired:
Countermeasure: Granny starts keeping a list of things that need repairing and checks them off when they are complete.
The answer to the fifth ‘why’ is what is called the “Root Cause”. This is what led to the chain of events that caused the lamp to be broken.
Now, you remember that we had a second issue: supply spend was at 8%.
1. Why?
a. Because we produced $15,000 less than our goal, but our supply spend did not go down accordingly.
2. Why?
a. We had scheduled shipments
b. We took advantage of year-end sales
3. Why?
a. We didn’t measure our actual needs.
4. Why?
a. We were busy, so we believed that we were tracking to our goal and didn’t know we weren’t
5. Why?
a. Because we were so busy that we didn’t take time to have our monthly meeting in November.
A sub-problem can actually be found at the 2nd why. The temptation is always there to not pass-up a great “special”. After all, we’ll save 20% on some product if we stock up. It’s important to remember that you can’t spend willy-nilly because you think that you’re going to save money in the long-run. The countermeasure here would have been to take the measure of your production versus spend each month. And, in fact, this is a very important practice!
Each month, have a staff meeting to see if you are tracking toward your goal. If you are off track, you can countermeasure before things get out of control. You must, in a formal setting, sit down as a team each month and review production and spend versus goals. You cannot make assumptions. If you do, you might assume that production is where it should be, so why not take advantage of those great year-end promotions?
In summary, a well-managed dental practice will have metrics available on a “snap-shot” basis to measure performance whenever needed. Each month the staff should meet to analyze the gaps between performance and goals, and then take the time to countermeasure the causes. One other thing, gap analysis will hopefully show on a frequent basis that you are over-achieving on your goals. Use the 5 whys to find out what you’re doing right and keep up the good work!