The Cost of Managing Inventory
When my Pitbull was a puppy, I hated to discipline him. He was so cute and fragile that I let him do whatever he wanted. Eventually, he began to grow. Before I knew it, he was 75 pounds of solid muscle. Unfortunately, I had not prepared him for life as a giant dog. He began dragging me all over town whenever I tried to walk him. He became overly rambunctious whenever we approached other animals. He was clueless about the concepts of personal space and boundaries. 11 years later and my poor old dog rarely gets out of the house. His joints ache from lack of use. He is lonely and bored. All of this could have been avoided if I had just set up clear boundaries and structures. He could be living his best life instead of sleeping on the couch and waiting to die.
A business is like a Pitbull. It is easy to manage when it is small. Once that business becomes large, without the right structure in place it can wither and die without ever reaching its full potential.
An optical shop manages inventory in one of a few ways.
1. Closed eyes and a hopeful heart
2. Commissioned sales reps
3. A spreadsheet
4. Practice management software
Closed Eyes and a Hopeful Heart – (10k – 60k annually)
It should be obvious that this method is worse than the way I trained my dog. Inventory should never be allowed to manage itself. It behaves likes a spoiled child! It will walk out the door without permission. It will LIE to the insurance company if your shop is vandalized. It will keep more product than you need. It will not sell when it should. The old product will never exchange itself for new products. It will never have what you need. It will always have what you do not need. It will spend too much money. It will take up too much space. It will not serve your patients. It will drive you out of business. Inventory needs clear and unbreakable rules to function properly. Just like a dog needs a crate and obedience training.
Commissioned Salespeople – (5k – 12k annually)
Sales representatives can be a wonderful asset to your business. They have a wealth of information that you probably do not have time to research on your own. However, sales reps are paid on commission. This means if you do not buy, they do not get paid. When you return the product that credit comes straight out of their paycheck! This dynamic can lead even the most honest rep to make some questionable decisions. The least of those choices is not returning the product that is over 1 year old or discontinued. The worst of those choices is padding orders or shipping product without approval. This is like letting my mother in law train my dog. Grandma just lets the pups eat table scraps, mess on the carpet, and bark at squirrels.
A Spreadsheet – (3k-6k annually)
A spreadsheet is a powerful tool. I absolutely love them. Honestly, this can be the most accurate way to manage inventory. It is consistent, accounts for every transaction, and is overseen by a human daily. It is a lot like taking your dog with you everywhere and using treats to affirm good behavior. It is highly effective but not very efficient. Ever had a coworker brought their puppy to work with them? Nobody has time for that! The unseen cost of spreadsheets is time. The average inventory needs to be managed twice per day for about 15 minutes. An optician making between $15 and $34 per hour is wasting money counting frames. Factor in meeting with sales reps and you have just spent about $5000 on managing inventory. That time could have been spent making money!
Inventory Management Built into EHR – (5k – 60k)
I remember when medical records were all kept on paper. Early in my career, I used to put the alphabet stickers on the files. It was so tedious. I cringe just writing about it. Then came practice management software. It was amazing then and it has advanced so much since those early days. What is possible now is truly incredible. I could go on and on about how programs calculate the exact prescription to fit a scleral lens on a keratoconus patient. 10 years ago, that would have seemed like science fiction. EHR programs do a fantastic job of managing medical records. The requirements for handling that protected data are intense. A lot of brilliant people are required to do brilliant work around the clock to make those programs possible. It only makes sense that they cost tens of thousands of dollars. Let us be honest though. The retail side of the program appears to be an afterthought. Most programs still require a person to spend time manually entering products and are still at least 20% inaccurate. My sister in law sent her dog to an expensive doggy boot camp program once. He still howls at the door, steals food, and makes a mess on the floor. Sometimes you do not get what you pay for.
The Alternative – ($1200 – $2400 annually)
3 years ago, I created a book a spreadsheet for a friend who had just lost her husband. Dr. Garza was the kind of person we all aspire to be. When his wife was suddenly left to manage his thriving, 20-year-old practice in Los Angeles, she was understandably overwhelmed. She noticed her inventory was out of control and taking a huge portion of her budget. I was honored when she asked me for help. I put together a collection of google sheets to help her navigate her inventory and control her spending. A month later I returned, expecting to coach her staff on how to use the “program.” I was shocked to find them using it successfully. I was even more shocked to find they enjoyed using it! They felt empowered and in control of their business in a new way. I realized that this was a problem for the entire industry. 2 months later I met and partnered with a brilliant software architect. She turned my little book of spreadsheets into a fully functioning program. Together we have made it possible to manage inventory efficiently and inexpensively.