EP16 - The Hidden Costs of Veterinary Inventory (And How to Fix Them)

In this episode, the crew breaks down the fundamentals of inventory management in veterinary practices and why it plays a critical role in the financial health and efficiency of your clinic. From understanding inventory turnover to reducing carrying costs, we explore practical strategies that veterinarians, practice managers, and practice owners can use to make smarter purchasing and stocking decisions!

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Timestamps
00:00 Intro
06:25 Inventory Management Basics
09:30 Determining the Turnover Time Period
13:55 Minimizing Carrying Costs
15:53 Having More Options
17:47 Figuring Out ABC Products
20:02 Overview
21:33 Outro 

Transcript

Intro

SPEAKER_01 0:10

Welcome to the Vet Practice Playbook brought to you by Vet Practice Pro, where we talk all things veterinary leadership, management, clinic ownership, and more. I'm Dr. Emily King, joined by Caleb Biddles and Richie King.

SPEAKER_02 0:20

Ooh, hello.

SPEAKER_01 0:21

Hello, everyone. Okay, just be to be different today, I have an idea.

SPEAKER_02 0:26

Oh gosh.

SPEAKER_01 0:27

Okay, what I want you to do. I didn't, because I want you to be surprised and I want it to be genuine.

SPEAKER_02 0:32

Oh okay.

SPEAKER_01 0:33

Okay. Everyone needs to open their phone. Open your phone. Oh no. Open your phone. Go to your camera roll. Okay. And I want you to find the fifth picture in your camera roll.

SPEAKER_02 0:49

Picture or video?

SPEAKER_01 0:51

Picture. And then explain the context behind said picture.

SPEAKER_00 0:55

Okay. Can I quickly give a quality?

SPEAKER_01 0:58

This is the context behind the picture. Show me the fifth picture. Oh no, no.

SPEAKER_00 1:00

No, no, no, no. The qual I qualify because your pictures show up on my pictures.

SPEAKER_01 1:04

Okay, well you can count.

SPEAKER_00 1:06

You cannot count my pictures. This picture has absolutely no meaning to me at all.

SPEAKER_01 1:09

Okay, just skip, go, go like just count your pictures. The fifth picture on your camera roll. Kayla, what do you think?

SPEAKER_02 1:15

Do screenshots count? Or does it need to be a picture I took?

SPEAKER_01 1:18

Harrison, what do you think? Yes, screenshots count. Okay. Okay, Kayla. Show the camera.

SPEAKER_02 1:25

Okay. So kind of little. So it's the news. It's the newspaper article for the gymnastics team. So we got first place in um our so sectionals. We just had sectionals on Friday, so we got second. Yes. So we're moving on to regionals. Um the meet prior, we got first. Um so it was a newspaper article of our team.

SPEAKER_01 1:48

That's amazing. That's a good thing to take a picture of. Oh. Good job. Richard?

SPEAKER_00 1:52

Okay. This is the quasi fifth picture that I have. Um I have uh show it too. It's a little late in life, but I have started to place an emphasis on buying good quality personal items.

unknown 2:05

Okay.

SPEAKER_01 2:06

Show your picture to the camera.

SPEAKER_00 2:08

I just recently purchased a leather toiletry case with my initials on it.

SPEAKER_02 2:15

Okay.

SPEAKER_00 2:16

And, and this is a little aside here, maybe these people will hear this. Um, it's uh from a company called Lifetime Leather, and the guy that started the company is named uh Ty, and they have a really cool story. Yeah. The guy was actually injured in a zip lining accident and wondering what he was going to just do with his life. And on his way home, he had learned to walk again, all this stuff. On his way home from somewhere a few years ago, he saw an old discarded leather couch on the side of the road. He stops, he grabs it, and he takes the leather on that couch and makes his family for Christmas some of these toiletry cases. That's cool. And they loved it. And I thought that was a really cool story because he's been at it for a few years now, and I I I love those kinds of you know, pick yourself up by your bootstraps kinds of stories. And uh that's not why I bought it. I bought it because I thought it looked cool. And I had an ulterior mode because I wanted to get myself one first because I've I've tried to for our our boys uh buy them things that I think are quality they could have for a long time.

SPEAKER_01 3:14

So Okay, there you go.

SPEAKER_00 3:15

That's the story behind that.

SPEAKER_01 3:16

Do you guys want me to do that? Yes, you have to do that. Okay, I have to do mine. Okay, let's see here. Okay.

SPEAKER_02 3:20

Somebody's gotta have something crazy, right?

SPEAKER_01 3:22

Camera, I've got a lot of videos. Okay, let me go back. Picture. One, two.

SPEAKER_02 3:32

My whole camera is gymnastics. That's all it is.

SPEAKER_01 3:35

My there's a lot of pictures because Calvin's pictures show up in here. Let me guess. Gymnastics literally, you see.

SPEAKER_02 3:42

Okay, just keep scrolling, that's all gymnastics right now.

SPEAKER_01 3:44

All right, here it is. The fifth picture.

SPEAKER_02 3:47

Who is that? Donuts. Krispy Kreme donuts. Okay, okay.

SPEAKER_01 3:51

Because Harrison and I, when we were on our trip this past week um to film a show, we uh came across a real live Krispy Kreme building.

SPEAKER_02 4:02

Which they don't exist.

SPEAKER_01 4:03

They're not around, like, you know, like you can't find them everywhere. They're not like everywhere. So we were like, we're stopping when we leave town. So we stopped and he gave me a list of what I was supposed to get, which I did. But then when we got back to the car, because I got other things as well, I gave him the wrong box of donuts. So he ate not what he ordered. I think he probably thought I just forgot what he had ordered. So then we got home and I opened this box, and this is actually what he ordered.

SPEAKER_00 4:28

Oh no.

SPEAKER_01 4:29

And I was like, I'm so sorry. These are the ones that you really wanted. But I don't think I had any of those. They were really good.

SPEAKER_02 4:36

I ate all of them on the car.

SPEAKER_01 4:38

I ate three yeast donuts and an energy drink at 8 a.m.

SPEAKER_00 4:42

Can I can I give you a Krispy Kreme aside? Is that we've all seen Krispy Kreme boxes in our grocery store, Kroger, whatever. But there used to be uh when I was a teenager, um, and down the street from a place where I worked was uh a Krispy Kreme place. Zim's Club? No, it was a place called Mr. Gaddy's Pizza. But we used to call and trade with them, and there is a huge difference between the pr quality um of the product you get in the store versus straight going to the storefront and getting them to your point earlier, right off the conveyor belt.

SPEAKER_01 5:16

Yeah, the guy basically had his box and he grabbed them from the conveyor belt. And so my box was warm. It took all of my willpower not to actually eat all six of those.

SPEAKER_00 5:25

This was 35-ish years ago, this place, but they had a conveyor belt that literally ran everywhere inside the building. It went up over it, it was insane. It was a really cool operation and a cool thing to see. Um, but like you guys said, they're they're uh very uncommon these days.

SPEAKER_01 5:44

Yeah.

SPEAKER_00 5:44

So all right.

Inventory Management Basics

SPEAKER_01 5:45

So that's our icebreaker. So let's get into it. Today we're gonna talk about inventory and kind of like what we think in terms of what inventory should look like, why it can't look the way sometimes we want it to, which from my perspective would be like to have anything and everything that I want at my fingertips. So I think that is a Achilles heel for a lot of practices because everybody wants like what I was just saying. They want to be able to, if you have a client in a room, be able to give out whatever it is that you want when you need it, even if it may be eight months before you need it again. Right. So what is everybody's thoughts on inventory and what do you have to say to start us off, Richie?

SPEAKER_00 6:26

Um, I think it's important to first start with defining what inventory is and what its actual function is. Its function there is to uh support operations for things you're not gonna directly sell to the public, gauze, whatever, fill in the blank. Something you're not gonna individually invoice. And those things that are are individually invoiced that you could use to further their operation, whatever that is. So I mean those costs are uh certainly the ones you use internally are ones that you really can outsource because you have to use them day to day. But uh it's really important to first understand what it is and understand the role that it plays in the clinic and how it needs to be managed to minimize the cost um of those of those those items.

SPEAKER_01 7:04

I think when you had talked to me about it way back in the day, you when you'd started to describe it as an investment, that you've bought something with your money, and so then therefore you should have a return on the investment. Aaron Powell Yeah.

SPEAKER_00 7:17

I mean, I I think of inventory as um cash that's un that hasn't been liquidated yet. So when you exchange cash for product, hard good, that sits on yourself that you do plan to then reconvert with a return, convert it back into cash, reinvest into the product. If you start to think about it more like that, it's less um it's it's uh it's less just stuff, it's more from a practice ownership management standpoint. It's like, how do I take that inert object and then reconvert that and liquidate it back into cash with the return and then repeat that cycle over and over. And that's where I think if you start to think about it like that and consider the the power of the time value money and how money should always require return for a variety of reasons, inflation, we're all familiar with that these days. Um you have to your purchasing power erodes over time. So you have to make sure that what unliquidated cash has a you have some way of making a return on it. So the longer it sits there, the the more your return erodes over time. In an ideal world, uh you would take that inventory and the moment you get it, you would immediately convert it to cash and then lock in that return and then and uh and re and repeat it then. But that's not in the real world, that's not the way that happens. So you'd have to come up with a finite period of time, say 30 days or something, and say, what is my expectation of liquidating this particular item into back into cash with a return. And because so often people think, well, I just buy it, it's gonna sit there. It's like a t-shirt that sits in your closet. Well, it's not the same thing. I mean, the return's different. So you're there, it's you buy it to sell it. You don't buy it to hold it, you buy it to get rid of it eventually, or use it. I mean, it could be something like preventatives that that's specifically there for resale or things that uh you use in the hospital. I mean, another example would be you wouldn't want to buy 10 years worth of gauze pads because it's just gonna sit, it's gonna take forever to convert it. So uh it doesn't necessarily have to be directly for resale, but the concepts is still the same.

Determining the Turnover Time Period

SPEAKER_01 9:15

Okay, so I have a couple of questions because I used to sit when you would say things like you haven't sold that for however many months or whatever, and I'd be like, Well, eventually it gets sold. Like, right? Like we would say, like, right, well, you know what, why does it matter? I'm selling it at some point. So that's one thing I think I hear from people, like, why does it matter? I sold it anyway. I sold it at the end of the day, I sold it. Right. And how do you determine how how what would your recommendation be for people in terms of that turnover time period? What do you think people should depend about the product? Okay. No, no, you go ahead, answer those two questions first.

SPEAKER_00 9:56

So the question being, what was the first question again? Sorry.

SPEAKER_01 9:59

Why should you care that it needs to be turned over in the required amount of time?

SPEAKER_00 10:05

Okay, let's start talking about that one first. Uh, we use this in one of our classes where we talk about just money under a mattress. You'll take if you take a thousand bucks and today and put it under your mattress, what is it, March 4th, 3rd, 2026, and then 10 years from now, March 3rd, 2037, pull it out. Same thousand dollars, same ten hundred dollar bills, can you buy the same in ten years that you can today? The answer is obviously no, because uh purchasing power uh purchasing power erodes over time due to inflation, a lot of different factors, but it's not gonna buy the same as the same amount. So you it you have a vested interest in turning when you have if you consider that inventory is cash sitting there in search of a return, it's in your best interest to um effect and realize that return as quickly as possible. Because the longer it sits on your shelf, the the more that return erodes. Now, it doesn't have to be within 24 hours, it's not like that. You just can't have stuff sitting on your shelf for three years. Because if your return, let's say, is 10%, if you sell it in 30 days, with each successive 30-day period that it remains unsold, the value of that product, the return on that product goes down. So you may sell it in three years, you may liquidate it into cash, yes, but your return now is gone. It's because your holding cost, your your carrying cost has is eaten up whatever return was was there. Now you do have cases, you see this a lot in retail, especially uh clothing, things like that, where you'll see things, you know, 70% off. Well, that's a different story. They're trying to liquidate, they're trying to convert something into cash. That's where that comes from. But that's not what you run into in vet clinics.

SPEAKER_01 11:43

So what's the time frame that most products should be turned over in?

SPEAKER_00 11:46

Well, it depends on the product. That's when you do an ABC analysis and see uh you'd have categories. If you have things that cost a penny, like per pill, then it's a different story than something that's that costs, I don't know, I'm throwing this a thousand dollars for a carton of it or something. I mean, because the numbers are larger, it's you know, if if it's if it's something that doesn't move very much, you're not gonna manage it that tightly. You're gonna buy because let's say something comes at a bottle of a thousand. Well, and you look historically and go, it's gonna take me two years to sell this bottle of a thousand. Well, that's the only way you can get it. And that's okay. I mean, because that goes to the first in, fire, first out kind of concept where you would you know you buy those things, you sell them as in the quantities that you can as quickly as you can. So it just depends upon the product, really. I would say those things like preventative things like that are the things that you really have to watch very closely and uh make sure you're turning them um as quickly as possible. And that goes to order quantities and management. Because if you know on average, if say, for instance, you move a hundred units of a product on average in a month, well, you're not gonna turn around and keep 500 units on your shelves. That's silly.

SPEAKER_01 12:51

But people do because they want to take advantage of the sale price.

SPEAKER_00 12:53

Well, now it is possible. I have to qualify this because we used to do this at the clinic. I used to be able to sit there and say, I get a 20% discount to buy six months worth of product. That discount, that discount negates the carrying costs that would otherwise have occurred had I paid full price. So it just depends.

SPEAKER_02 13:14

You know, it just As long as you go through the product.

SPEAKER_00 13:16

That's the thing. I mean, if they're going, you know, I'm gonna buy two years worth of product, don't do that. I mean, unless it's something horrific. They're giving you 50% off or something just outrageous. But we I think we'd buy like 90 days. I think we used to stick st stick with a fairly tight time frame.

SPEAKER_02 13:29

Yeah, that's what I say. I thought it was like we wanted our products like 30 days. Right. And then like 90 days if there was like a big quantity we ordered. But 30 days came in my head like immediately.

Minimizing Carrying Costs

SPEAKER_00 13:41

I mean, and sometimes they would they would do delayed billing or something. So it's it's there's there's all different kinds of ways of doing it. But I mean, I think uh from a broad concept, you know, concept standpoint, um minimize the number of products you have on your shelves in order to minimize your carrying cost.

SPEAKER_01 13:59

That's the big thing right there that nobody is willing to do because maybe they don't want to have a hard conversation with their drug rep because they love them, because they breed them Starbucks. And so they don't want to tell them, oh, guess what? We're not gonna carry your prevention anymore. So they continue to have prevention on the shelf from multiple companies and yet don't go through it fast enough. And also then they minimize the effect of support from the company as well as rebates from the company. In my opinion, the more that you can kind of narrow down your selection choice, the more likely you are to be able to take advantage of the rebates, of the customer support, you know. Um, and I think those are huge advantages.

SPEAKER_00 14:41

And the larger you get, I mean, what we just discussed was kind of the operational side, the financial side, well, that's somewhat of a financial side. From like the PL side, is the more you can minimize your cost of goods sold, those percentages, whatever they are, just go directly to the bottom line to your profitability. So if you save a couple points on, let's just say your EBIT was 20%. If you could save two points on COGS, then that now it's 22%. And then a hospital of any any size, that's material. So I think uh that's the way you have to look at it is that if it's just cash sitting on your shelf that could otherwise be eliminated through better management, it's silly not to uh to manage that tightly and maximize that bottom line.

SPEAKER_01 15:20

Yeah, that's where in that talk that I give about streamlining farms, you have that picture of the kid just throwing money out the window. True, though. Because that's what it you're doing. You're basically just throwing money away. And I think people don't see it as that. It's almost like if you could take those products and make them into dollar bills. Do you know what I mean? Like it's like people may see them differently as act, it's actual money. It's like sitting on your shelf.

SPEAKER_00 15:45

And I think go ahead, I'm sorry.

Having More Options

SPEAKER_02 15:47

So do you think I agree with they don't want to have hard conversations with the reps if they don't want to sell their product, but do you also think they like the options?

SPEAKER_01 15:55

Like being able to have them in front of them. Yes. Yes, I think that is so you say you have a practice like All Star that has 10 doctors, right? Unless you're driving everybody in the same direction, unless you decided as a doctor group that these are the preventives that we are going to carry and this is why we're carrying them, and this is what we believe in, then you're gonna have 10 different opinions. Right. And somebody's like, you know what, I need to have pro heart. Somebody else is like, I need to have whatever, yeah, Sentinel. I need to have whatever. And instead, I think what you can do in those situations is I think as a doctor group, you do have to decide what it is that you want, because otherwise you have staff that are horribly confused, that are not masters of the information, which then affects confidence when they're in the room, right? So if you're having to learn five different preventions and what they do and what they don't do and the differences between them, you know, how good are you gonna actually be at?

SPEAKER_02 16:49

I think it confuses the clients too. Like, well, I I don't know. Tell me which one I Right.

SPEAKER_01 16:53

You go see Dr. Whoever, Smith, and then they're saying this, but then you go see Dr. King and she's saying this. How who's right? And who's, you know, like who am I supposed to believe? So I think that there's all this trickle down that people don't really necessarily take into account that also affects systems as well. Yeah.

SPEAKER_00 17:11

I think too, I don't know. I mean, I think with with the online options today, if I think if you had a doctor that was just like, no, I absolutely won't do this, I have to do that. I think their online options are Yeah, that's exactly right.

SPEAKER_01 17:21

That is exactly why you have an online pharmacy.

SPEAKER_00 17:23

Because then you're like, you know, we've I think we had this at the clinic where you know we we would have doctors that were experienced that came in and had a book of clients, and they were like, listen, I've always used this product with this particular client. Well, then there's online options now you can utilize to do that. But then the practice isn't different because they don't there's no carrying cost. It's just it's a drop ship kind of situation. Exactly. So um I think there's certainly online options uh that you could utilize for those kinds of things.

Figuring Out ABC Products

SPEAKER_01 17:46

So last thing here I'll say before we wrap it up or at question I'll ask is what's an easy way for folks in management to be able to look, like say they take their PIMS, what can they do to figure out what their A, B, and C products are? Like what's an easy way or what's a nice step that they could a first step they could take if they were interested in figuring out how things are being turned over?

SPEAKER_00 18:10

Aaron Powell I mean, you would look and see what's what you sell the most of. Okay. And then you would just tier it based upon that particular practice and what you're carrying.

SPEAKER_01 18:16

Aaron Powell So you would just basically print a report and of all the products, and then you would see, okay, we are selling over the course of a longer, like a long period of time.

SPEAKER_00 18:26

I mean, like say 12 months, like the trailing 12 months or the previous calendar year, something like that. And you would say, okay, what are the things we sell the most of, the highest dollar, what what what generates the most revenue in gross sales, and then you go from there and then figure out, you know, again, going back to the the the bottle of a thousand tablets, you know, if you're selling twenty of those a year, you that's obviously a C product. That's not something you're gonna count every month. Um, but but you there are certain products, the the A's for sure that you're gonna be counting frequently.

SPEAKER_01 18:55

Aaron Powell And those are ones you want to make sure you don't run out of, right? Because I mean, the people are buying them. Right.

SPEAKER_00 19:01

So your reorder points. I mean, you can automate a lot of that now where you just once you get down, you'll get an alert. I mean, if your inventory system, if you're individually invoicing correctly. Um years ago, people used things like the tags and things like that. But nowadays in the practice management software systems, you'll have automatic reorder points that pop up and you'll just verify real quick and then I think that's one thing that people don't use enough.

SPEAKER_01 19:22

Like they don't set those, they don't use the systems that are there to support them.

SPEAKER_00 19:28

And I think don't they have them now? I thought that I read on I've been out for a few years, but it's I could swear that they had something set up that was interfaced with the vendor.

SPEAKER_01 19:38

Yes, now they do.

SPEAKER_00 19:39

That you could just as soon as it pops up, you just get your normal order.

SPEAKER_01 19:41

Right.

SPEAKER_00 19:42

So you don't that's you don't have to do anything. If the reorder point's set up right and everything's individually invoiced to deduct from inventory numbers, then it's easy.

SPEAKER_01 19:50

Okay. Well, there we have it. Inventory 101. All right, you got a class on inventory, don't you, that people can go take that's in way more detail to help them. Okay. On vet practice pro. Yes. Okay, awesome. Any last words of advice you guys would give anybody and when it comes to inventory, any big points you want to make before Kayla closes us out?

SPEAKER_02 20:11

I just know, like as an RVT, like it is helpful to not have a million choices.

SPEAKER_01 20:17

Yeah, that's what I was gonna say is streamlining is where it is. That's the secret sauce.

SPEAKER_02 20:22

Yeah. So it was nice to know like you go in and you're taking your history, you have an idea based on your history of like, okay, this product's gonna be better for this family than this one. And then that's what you sell instead of going through 10 different products.

SPEAKER_00 20:35

So and make sure that you have those items in stock that clients want. I think clients, client behavior is generally lazy because we all are. We want the easiest, you know, water finds the easiest path down a hill. So I mean, have those things there. I mean, if if if you know you're gonna need them, if you if you sell them historically, have them there, satisfy that need and send them on their way. Okay. Sounds good.

SPEAKER_01 20:56

Thanks, guys. Okay, okay. We're that's it.

Outro

SPEAKER_02 20:59

Okay, do you want to do the call to action or whatever you want? Okay. Um, so yes, just make sure you check out our website. We um we are live and launched. So make sure you check out our courses, um, subscriptions, um, consulting, all that's on the website. So make sure you check it out. Also, check out our circle community if you are not a part. Um, the circle community is just a great resource for people in the veterinary world to um come together, ask questions, vent whatever you guys need. Um, it's is an app. So download that and join us. And then um, yeah, just ask if you have any questions, join our email list if you guys aren't. So um, but that's it for today's episode of the Vet Practice playbook. We hope you got a few plays to use yourself or for your clinic. If you enjoyed this conversation, share it with others, leave us the review, and check out vetpracticepro.com for tools and courses that can take your clinic to the next level. See you guys next week.