Profitability Through Inventory Automation
Practice owners and managers know that their second largest expense is inventory. Labor is number one, then Cost of Goods Sold is next. Anecdotal evidence suggests inventory management is lacking, that inventory is not generally professionally monitored and
managed. Abundant opportunities for bottom line improvement exist.
Inventory management goals include:
- Protecting your employees
- Physically safeguarding your inventory
- Ensuring appropriate on-hand quantities (not too much, nor too little)
- Accurately invoicing clients for purchases/usage, and
- Timely and compliant completion of essential record keeping
Logic, reason and now evidence argue for automating inventory at some level to accomplish these goals.
The Evidence
WellHaven Pet Health has 42 industry leading practices in the United States. This case study examines data from five WellHaven practices averaging $1M to $2M in revenue, for the six-month period ending February 29, 2020.
Practice areas automated include:
- Pharmacy
- Treatment (including Controlled Substances)
- Supply Room
Less On-Hand Inventory and Enhanced Cash Flow
For the five practices, on-hand inventory decreased by $13,438 – or 8.1%, from $165,538 down to $152,100 – for the 60-days ending February 2020. Cash flow increased by the same $13,438 over the same 60-day period. Depleting excess inventory is a cash flow bonanza.
When targeted minimum inventory levels are reached over time, on-hand inventory will have declined by more than $60,000, or 36%. Imagine your inventory shrinking by over one-third and having found an extra $60,000!
When on-hand inventory is reduced, significant improvement is created in two Key Performance Indicators (KPIs):
- Decrease in number of days inventory on-hand, and
- Increase in inventory turnover rate
Reduction In Cost Of Goods Sold (COGS) and Higher Profits
For the five practices, revenue and COGS for the 6 months after Cubex installation (September 2019 through February 2020) were compared to the same period before the Cubex installation. COGS declined and profit improved by 3.6%. COGS declined from 27.1% to 23.5%.
Over the 6 months, the 3.6% COGS decline and profit improvement totaled $95,206.
Workplace Safety, Efficiency and Regulatory Compliance
We can’t always measure or quantify everything that matters. For example, an extraordinarily positive (but nonquantifiable) byproduct of Cubex solutions is increased workplace safety. Bio-metric fingerprint ID and automated, electronic logging make narcotics more secure and less accessible. Automated logging keeps detailed reports of who dispensed medication and in what quantity, reducing the amount of manual labor needed for tracking DEA logs, inventory logs, and ordering.
Does it cost, or does it pay?
Automation isn’t free, but it should produce a handsome return. The evidence in this five- practice case study is abundantly clear – the benefits of automated inventory far outweigh the costs:
It’s self-evident that a rational person would be wildly eager to spend $1 to produce revenue of $6.55.