Streamline Your Inventory
VISION CARE & WEAR
Streamline Your Inventory
When purchasing frames, these four factors impact profitability,
PHERNELL WALKER, II, BSB, ABOM, HARKER HEIGHTS, TEXAS
Frame buyers have to juggle an array of vendors, collections, styles, price points and shifting fashion trends.
Therefore, it’s best to have a streamlined approach to purchasing frame inventory.
Here are the four factors to consider when conducting your inventory evaluation.
1 The three Fs
People tend to purchase eyewear frames for one of three reasons, all of which should impact your purchasing habits: fashion, fun and function.
▶ Fashion & Fun. Frames are a fashion statement and reflect something personal about the patient. That’s why it’s important to have an assortment of fashion-forward and fun frames, such as traditional, bedazzled, “geek,” retro and more, that reflect each personality that walks through your doors.
▶ Function. There are still many people who are purchasing eyewear that are focused primarily on function. Whether it’s durability or flexibility of the frame, function is still a key component for many consumers, so keep this in mind when purchasing frames.
2 Frame vendor partnerships
A strong, positive relationship with a frame vendor is just as important as the frames you purchase. Partner with a reputable vendor who offers a wide variety of frames. Also, the vendors should be responsive to any request and should display an attitude that they want to be practice partners, not just a salespeople. If they don’t, you may want to explore new partnerships.
3 Frame inventory analysis
One of the most overlooked, yet most important, costs to running an optical business is the cost associated with managing inventory. It is essential for the successful owner or optical manager to manage and measure the effectiveness of his/her inventory investment.
You must decide which inventory items (specific items or all) should be tracked in inventory. Remember: Inventory is not about the product, but the dollars and cents (total value) that the product represents. (See “Influential Inventory and Budget Factors,” below.)
4 Frame life cycle
The faster you “turn inventory,” the less capital you have stagnant. To determine inventory turn over, divide frame revenues by your average inventory value.
Influential Inventory and Budget Factors
• Mis-tagged frames
• Frames in transit
• Incorrectly using/not using purchase orders
• Varying cost of goods
• Cannibalizing frames (new products “eating up” the sales and demands of an existing product)
• Theft (internal and external)
• Adjustments (return to vendor, received from vendor, etc.) not processed properly
• Price of the product affecting turns, or the number of gross revenues in a given period
For example, if your frame revenues through three-months are $66,000 and your inventory value is $14,000, your optical frame inventory would turn 4.71 times. Optical frame inventory should turn a minimum of seven to nine times annually. If it does not, here are the possible reasons:
▶ Buying philosophy (quantity, timing, etc.).
▶ Inventory selection.
▶ Optician’s sales ability.
▶ Patient demographics.
▶ Poor merchandising (or lack of).
▶ Retail pricing.
▶ Lack of multiple pair sales.
Also, consider cost of goods (COG), which refers to the costs associated with creating revenue. Assume that you purchase 100 frames at the beginning of the year for $45 each. The total investment, or COG, on those frames is $4,500. If each frame was sold for $179.95 within a year, your gross profit on all 100 frames is $13,495 ($17,995 revenue - $4,500 COG), meaning it costs $4,500 to produce $17,995 in gross revenues in one year. The target benchmark should be 20% of frame revenues (not total dispensary revenues).
Take a profitable approach
Every department within a practice should be a profit center and needs to be calculated independently of the revenues of the total practice. Frame buyers who use a streamlined approach of consistently monitoring their top-selling frames, purchasing more frequently and consistently reevaluating their frames put themselves in a position to generate profit. OM
Phernell Walker is a nationally recognized speaker and author of Pure Optics (American Association of Dispensing Ophthalmologists, Inc., 2006), a textbook for opticians. Mr. Walker has a Master in Ophthalmic Optics, earned a Bachelors of Science Degree in Business Management and is a recipient of the Beverly Myers Achievement Award in Ophthalmic Optics. Also, he has consulted with hundreds of optometric practices across the country. E-mail him at email@example.com, or send comments to firstname.lastname@example.org.
Optometric Management, Volume: 48 , Issue: October 2013, page(s): 54 55