Your Frames: Evaluate, Organize and Flourish
Manage inventory levels by following these steps.
MARY E. SCHMIDT, A.B.O.C., C.P.O., PLEASANT HILL, CALIF
Properly managing cash flow gives you the ability to better serve your patient base, invest in new equipment and technology and hire and train more staff.
The most effective way to do so is to evaluate and organize your frame inventory. After all, if you have an organized, well-run dispensary and your staff is well trained, your practice is sure to grow and flourish.
Here, I discuss the steps to effectively manage your inventory.
1 Assess current inventory.
The most common justification for inventory is space: “We have that much inventory because the frame displays fit in that area.” This is not a good reason for inventory volume in any practice. Inventory volume should be based on sales, not space.
Another explanation for inventory: patient choice. Keep in mind that patients are often overwhelmed by too many choices.
Obtain the complete number of frames in inventory, so you can compare this number with frames purchased and, therefore, identify the ideal amount of inventory. Don’t estimate this number — take the time to count, as it is important to have an accurate number.
Illustration by Ted Hammond
2 Determine dispensary capture rate.
Calculate the percentage of comprehensive exams performed per week that were converted into dispensary purchases by dividing the “purchase” number by the “exam” number. To accomplish this, look at your appointment book to see how many exams you provided each day and how many of those patients purchased a frame.
Once you have your frame purchases per week, multiply that number by 52 to reveal your frame purchases per year. (For example, 10 frame purchases per day X five days per week X 52 = 2,600 frame purchases per year.)
If your capture rate is below 60%, evaluate how patients are transitioned to the dispensary. (The problem may be purchasing opportunity or patient satisfaction, not inventory management — see “Achieving Exam Room-to-Dispensary Effectiveness,” below.)
3 Identify needed inventory.
Now, divide your frame purchases per year by four, which gives you the total amount of inventory needed (2,600 frame selects per year ÷ 4 = 650 frames in inventory).
Why four? A general guideline for effective inventory management is that inventory volume should revolve or “turn over” four times per year. Each frame will not sell four times, but the volume should be at that level to maximize efficiency and allow for buying patterns.
When overstocked, many practices get caught in a cycle of returns and exchanges that drain profit from the business. When you factor in the cost of lost revenue, staff time and practice overhead, exchanging a frame costs the practice approximately $18.00 per frame, based on estimated national averages.
4 Identify the correct product mix.
A general statement is that 20% of inventory generates 80% of business, and this certainly bears out based on my observations. Because of this, you must identify this 20% and have it occupy 80% of your frame board space.
To accomplish this, determine your top-10 frame styles. Start by having each staff member identify the frames they sell most often. Each experienced optician should easily be able to do this. If they have difficulty choosing, access the optical records, and take a tally. Don’t minimize this process — have an ongoing written or computer-generated record of frame styles that have sold along with all the data from each sale (e.g., lens design, material and type plus any coating or treatments). Try breaking down this information by staff member to enable the targeting of future staff training toward developing selling skills.
Next, reorganize your frame displays to help better evaluate the remaining inventory. The simplest organization method is gender, then material followed by shape.
Once the inventory is organized for evaluation, meet with your frame reps, exchange under-producing product, and expand on your best sellers. Purchase all the colors and sizes of the best-selling styles. This is called a “kit of frames.” It is better to carry an odd color or two in a great selling style than to risk a style that won’t sell at all. Sometimes, an unusual color can act as an attention getter or allow patients to rule it out, reducing special orders.
Achieving Exam Room-to-Dispensary Effectiveness
If your problem is getting patients into the dispensary, consider incorporating some of the following procedures into your office:
▸ Personally escort patients to the dispensary.
5 Maintain inventory.
Once your productive inventory is established, it should stay on your display boards. This ensures that your best products are available to all patients. Set up drop-ship accounts with your top vendors, which allow the frame to be “dropped” to the specific lab, and the billing information goes to your buying group or directly to you. This system also enables you to evaluate the productivity of frame styles. If you have a kit of frames on the board for three months, you’ll know whether it is productive.
Effectively managing inventory might seem like a complicated process, and avoiding the process might be why the practice’s inventory is out-of-control. But really, the process is fairly simple if you patiently and methodically work through each step. OM
Mary Schmidt is the founder and president of EyeSystems, a professional training and practice consulting firm specializing in the eyecare field. E-mail her at mary@ eyesystems.info, or send comments to firstname.lastname@example.org.