Identifying and controlling the hidden costs of veterinary inventory

by By Vetsource

7 min read

Prices on just about everything are going up, and veterinary care is no exception. Many veterinary practices are raising prices in an effort to offset their ever-increasing expenses, but at what cost? At some point, pet owners will begin to decline services they can’t afford. It’s more important than ever to take a multifaceted approach to protecting your profits and include more than just price increases in your strategy.

Inventory costs are the second-largest expense for veterinary practices behind labor, so they’re often the target of practice managers looking to pare down spending. But inventory costs aren’t always the easiest to reduce because some don’t necessarily show up on your inventory expense line. That means your practice may not be accounting for certain hidden costs affecting profit margin.

Hidden inventory costs can be divided into two categories: ordering costs and holding costs.

Ordering costs: labor-related expenses Holding costs: owning and keeping inventory in-practice
  • Shopping for the best price
  • Assessing amount needed
  • Accounting for back orders
  • Requesting the purchase
  • Receiving and unpacking goods
  • Pricing and shelving
  • Keeping and managing documentation
  • Cash tied up in inventory
  • Personal property taxes
  • Facility costs to protect inventory
  • Insurance premiums
  • Obsolescence, theft, and spoilage
  • Pharmacy licensing fees

Just because these costs are hidden, doesn’t mean they can’t be controlled. If you already have an online pharmacy, think about implementing the following strategies to reduce both ordering and holding costs.

Stock only what’s needed

It’s impossible to carry every available product in your practice. Stock only what you need, selling in-demand products from your in-house pharmacy, and have your team and clients order the rest from your online pharmacy.

Classify your products into groups:

  • Group A (top 20% of sales) — Stock these items in your in-house pharmacy. They should always be available for your team to prescribe and dispense onsite.
  • Group B (next 30% of sales) — Treat these as safety stock. Dispense them out of your in-house pharmacy when available. Otherwise, sell them through your online pharmacy.
  • Group C (bottom 50% of sales) — Sell these items only through your online pharmacy. Stocking infrequently sold items ties up cash unnecessarily.

Fulfill single-dose preventative requests through your online store

Avoid breaking up packs of preventative medications to sell single doses in-house whenever possible. This practice is time-consuming for your team and can often result in lost or expired doses. Use a home delivery program that offers a single-dose option for preventatives instead, and let clients know they can have a single dose of preventatives delivered to their home every month, which means no more forgotten doses.

Save space by only stocking smaller bags and cases of food in-practice

Pet food takes up a significant amount of space in your practice, which could be used to offer additional services to your clients and patients. Carry small bag sizes so you can immediately start patients on the food you recommend. Encourage clients to purchase refills through your online pharmacy or, better yet, set them up on AutoShip during their visit so the next order arrives before their starter supply runs out.

Carry smaller quantities of controlled substances in-house

The regulations and requirements surrounding the sale of controlled medications are becoming more stringent, which adds to the cost of carrying these substances. Carry smaller quantities of controlled substances in your practice so you can dispense a starter dose to your client, and then place the order through your online store so the remainder of the prescription can be delivered directly to their home. This will minimize the time your team spends on the administrative requirements for reporting back to state and federal regulatory agencies.

Rely on additional resources

If you use Vetsource for your online pharmacy, your dedicated account manager can help you implement these strategies and identify other ways to control inventory costs.

Looking for more ways to boost profitability without raising prices? Caitlin DeWilde, DVM, shares her tips in a free 30-minute webinar.



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