1
Q
Distributor/Vendor/Supplier are?
A
Terms that are used interchangeable. It is the entity that you are purchasing drugs and supplies from. It can be the manufacturer or a distributing company.
2
Q
Inventory/Supplies are?
A
Terms that are used interchangeably. It is the actual item that is purchased.
3
Q
Inventory management is?
A
A critical component of practice profitability.
4
Q
Inventory management is the _______ _______ cost of operation of the veterinary practice.
A
second largest
5
Q
The first largest cost of operating a vet practice is?
A
Staffing
6
Q
Lack of effective inventory systems is?
A
A common cause of poor cash flow in a veterinary practice.
7
Q
In most practices a veterinary technician is?
A
Put in charge of all or parts of the inventory management system.
8
Q
Inventory is specifically defined as?
A
All the goods owned and held for sale or use in the regular course of business.
9
Q
What is included in inventory?
A
- Drugs and supplies purchased to resell to clients (dispensing items)
- All inventory items used to provide medical and surgical services
- Office and computer supplies
- Cleaning and janitorial supplies
- Maintenance supplies
10
Q
Inventory control is?
A
The process whereby the need to maintain sufficient inventory to meet the hospitals needs is weighed against the cost of carrying the inventory.
*Tax definitions of inventory may be different.
11
Q
Optimum inventory control ensures that?
A
The practice will never be out of a needed item and that the cost of purchasing and carrying inventory is kept to the lowest possible level.
12
Q
What are the 3 costs associated with inventory?
A
- Unit Cost
- Ordering Cost
- Holding Cost
13
Q
The cost for each item of inventory purchased must be?
A
Calculated for the unit it is used or dispensed in.
*This is called the unit price.
14
Q
The unit price of the item includes?
A
- Sales tax charged to the practice by the vendor on each item sold to the practice (not charged by vendor in all states, but it is charged in New York State).
- Shipping costs.
15
Q
Most ordering costs are?
A
Labor-related expenses.
- Hourly wage paid to the employee performing the work.
- Associated payroll taxes.
- Employee benefit programs.
16
Q
What tasks do labor costs include?
A
- Determining the amount needed.
- Shopping for the best price.
- Placing the order.
- Meeting with the manufacturing representatives.
- Accounting for back orders.
- Receiving and unpacking the orders.
- Comparing the purchase order with the shipping invoice.
- Pricing and placing the items on the shelf.
- Posting the costs of the items in the practices disbursement register.
- Providing statements to be paid to the appropriate person (bookkeeper, practice manager, etc).
- Logging the appropriate Controlled substance items.
- The entire inventory ordering activity expends quite a bit of employee time.
- Ordering costs can account for a much as 15-20% of the total unit cost.
17
Q
Holding costs are?
A
The costs of owning and keeping inventory on the premises in anticipation of use.
*The largest holding cost is the capital tied up in purchasing the inventory
18
Q
Holding costs also include?
A
- Personal property taxes paid on the inventory value as of a specific valuation date. (usually end of year to the IRS).
- Insurance premiums paid on the average value of the inventory to protect against the risk of loss in the event of a disaster, theft, or damage.
- The cost of protecting inventory from heat, cold, humidity.
- Costs associated with outdating and spoilage, especially if inventory is not used or sold immediately.
- Pharmacy licensing fees in states where applicable (In NYS there is no licensing fees, but a veterinary pharmacy is under the same regulations as the human pharmacies).
- The cost of maintaining OSHA regulation compliance.
19
Q
The proceeding holding costs range from?
A
8-15% of the unit cost.
20
Q
The holding and ordering costs, combined, comprise?
A
25-40% of the total unit cost depending upon:
- Amount of time inventory is held (on the shelf).
- Success of discouraging pilferage (theft).
- Efficiency of purchasing.
21
Q
Inventory costs amount to?
A
Much more that what is paid to the vendor.
22
Q
Optimum inventory control includes?
A
An astute purchasing policy that minimizes ordering and holding costs while at the same time ensuring that the items required to operate the hospital are available when needed.
23
Q
Goals of inventory control & management are?
A
If inventory control and management are effective, the following should be true:
- Medications and supplies are available to treat patients when needed.
- Clients can obtain refills and other items when requested.
24
Q
Quantities of drugs and supplies are controlled to?
A
Minimize hospital expenditures to the lowest practical level. Large stock quantities that tie up cash are avoided unless discount savings can be shown to adequately offset the dollars tied up in idle inventory amounts on the practice shelves
25
What are some additional goals of inventory control & management?
- Staff can efficiently order, stock, and dispense the needed items.
- Controlled drugs are properly monitored and secured.
- Appropriate security systems and safeguards exist to insure that drugs and supplies will be used as intended.
- Staff is trained to correctly handle supplies that represent potential health and safety hazards.
- Fees charged for pharmaceuticals and supplies are adjusted on a regular basis and price increases are appropriately passed on to the client.
- The desired level of profit is achieved.
26
To accomplish the goals of inventory control & management, a workable hospital inventory system must be?
- Planned
- Organized
- Directed
- Evaluated
- Adapted as needed
27
Effective Inventory System Functions
Ensures that all items used in hospital are available when needed.
Signals manager when an item needs to be reordered to avoid running out of stock
Accounts for estimated delay between placing & receiving an order
Should keep supply levels that do not unnecessarily tie up capital
The accounting and reporting system should be flexible
Provide accurate detail of inventory on hand and it’s value at any given time. (perpetual inventory)
Act as a contact management tool – names, phone numbers, account numbers of vendors, log of prior orders
Should readily identify where each item is available at the least cost, how to order, and any quantity discounts if applicable
Identify and track backorders and when they will arrive
Track expiration dates so product can be returned for refunds and taken out of quantity on hand stock
Identifying factors such as seasonal usage, to better help with projecting ordering quantities
28
An effective inventory system should?
- Help verify that received orders agree with purchase orders.
- Allow for price increases by vendors to automatically adjust dispensing price to client.
- Reduce pilferage and theft by employees.
- Easily identify wastage and other forms of loss.
29
Pareto's Law
- The 80/20 rule.
- States that 20% of the inventory items account for 80% of the annual inventory expenses.
- This should be taken into account when determining the ideal turnover rate for the item.
30
How does Pareto's Law relate to clients?
20% of clients will account for 80% of the income.
31
Inventory management systems can be either, and must contain what information?
A manual card system or computerized.
- Item
- Supplier
- Quantity
- Reorder Point
- Invoice Costs
- Storage Location in Hospital
- Price to Client
With this amount of information, abbreviations are frequently used, information is customized and organized by the user
32
Inventory management systems must contain the following item information?
-Item: size, color, strength, dispensing format (pill, capsule, liquid, paste, can, case, etc).
33
Inventory management systems must contain the following information regarding supplier?
-Supplier: company name, phone #, hospital account #, discount information, billing policy.
34
Inventory management systems must contain the following information regarding quantity?
-Quantity: amount of each item ordered, price quoted, date ordered, number of each item received, date received and invoice price.
35
Inventory management systems must contain the following information regarding reorder point?
-Reorder point: maximum and minimum level of stock at which reordering should occur.
36
Inventory management systems must contain the following information regarding invoice costs?
-Invoice costs: price per item or unit, sales taxes, shipping, handling and freight charges.
37
Inventory management systems must contain the following information regarding storage location in hospital?
-Storage location in hospital: in hospital use and/or dispensed, areas where kept, at what levels should restocking of secondary locations take place (ie. Treatment area, surgery, exam rooms, display shelves, pharmacy).
38
Inventory management systems must contain the following information regarding price to client?
-Price to client: formula for determining price to be charged client, including dispensing fees, minimum price, bulk purchase price, markup over unit cost.
39
When do you assess a dispensing fee?
With things you have to count out, draw up, measure for the client.
*A box of heartworm w/a label on it would not need a dispensing fee.
40
When using a manual system, separate lists would have to be kept?
For vendors, contact #, account #, etc
41
Whomever is selected as an inventory manager must be able to?
Maintain a working relationship with the vendors, but can not develop unfair biases for or against a particular vendor.
42
It is best to price shop vendors and?
Deal with a small group of vendors instead of a large number of them.
43
Determining What, How, When and How Much to Order...
- Remember the “80-20 rule” – that 20% of the products account for 80% of sales or use.
- Figure out which products make up the 20% and pay special attention to them.
- Make sure not to overstock products that make up the other 80%.
44
The key to an efficient and effective ordering policy is?
Being familiar with the suppliers and a good knowledge of how the items are used in the practice.
*This knowledge will make it possible to order the right amount of goods at the least expensive rate.
45
Know when drug representatives will be?
Visiting the hospital. Being prepared saves lives.
*Keep a list of the items that need to be reordered from each supplier prepared.
46
Anticipate seasonal?
Needs for some supplies.
47
Most vendors “close their books” between?
The 25th and 30th of the month. Try to order large amounts after that date so you will not be billed till the next month.
48
Try to take advantage of vendor?
Discounts (ie.) 1% discount if statement is paid within 10 days.
49
When ordering supplies, try to avoid?
- Ordering small quantities that may bear additional shipping charges.
- Late payment finance charges.
50
To properly plan for proper inventory levels, you should?
```
Periodically analyze each item or class of items to:
*Forecast demand for the next month, quarter, or year, including seasonal trends.
```
51
Determining quantities and timing...
- Estimate the lead time.
- Plan usage during the lead time.
- Establish and monitor quantity on hand.
- Determine safe reserve of stock requirements.
- Place items on order.
52
The higher the inventory turnover for a given period of time?
The more efficient the inventory control
| Best to try for 8-10 times per year. This averages 35-45 days on the shelf.
53
Average Inventory on Hand for that Period
| Formula
Beginning inventory + ending inventory
________________________________
2
54
Inventory Turnovers
| Formula
total purchases between inventory dates
___________________________________
average inventory
55
Average Shelf Life in Days
| Formula
365 days
_______________________________
inventory turnovers per year
56
3 factors control the timing of orders:
- The time needed for delivery.
- The rate of inventory usage.
- The safe stock levels.
57
Product Pricing
- Inventory is an asset to the practice.
- It is nonproductive till it is used or sold.
- Until that happens, it costs the practice money.
- An adequate charge needs to be assessed and collected from the client.
- Otherwise, no matter how well the expense side of inventory is managed, there is no profitability to the practice.
58
Adequate and timely product markup is?
Necessary.
```
100% = 2 X cost
200% = 3 X cost
300% = 4 X cost
```
59
Markup can range from?
A low of 40% to a high of 400%
*A 40% markup prices the product very close to the break even point
60
Some inventory items have?
A recommended dispensing price by the manufacturer. This can range from 40-45% markup.
*Example : prescription dog foods
61
High cost items are usually given?
A low markup % to keep the pricing reasonable.
Many times flea/tick products and heartworm preventative is given a low markup to keep competitive with the online pharmacies
62
Product Markup Example
A bottle of 500 amoxicillin 500mg capsules Costs: $54.95
Sales tax: 4.47
--------------------------
Total cost: 59.42 for bottle of 500 caps
Cost per Capsule: $0.12
At $ 0.12 per capsule:
100% markup = .24 dispensing price
200% markup = .36
300% markup = .48
63
Sales Tax
- In New York State we pay sales tax on all the products we purchase from the vendors.
- We add sales tax we pay into our calculation of product unit cost.
- The state tells every type of business which items they must charge sales tax on when they are purchased by the client.
- Fortunately in veterinary medicine, we have a very few items we need to charge sales tax on.
64
Examples of things that NYS requires we collect sales tax on?
```
Examples:
Boarding and grooming
Cremations
Collars, leashes
Pet toys
```
A copy can be obtained from NYS Dept of Taxation
