Shrinkage refers to the loss of inventory that occurs between the point of purchase and the point of sale. It represents the difference between the inventory that’s recorded in your books or in your practice management system, and the actual physical inventory you have on hand.
In any veterinary practice, a certain level of shrinkage is more or less inevitable. However, if left to go unchecked, shrinkage can start to severely reduce profitability, damage the client experience, and potentially compromise patient care if essential supplies are not available when needed.
In this blog post, we’ll take a deep dive into the common causes of shrinkage and practical strategies you can use to prevent inventory waste.
Key takeaways:
- Identify shrinkage causes: Addressing common shrinkage sources - like theft, expiration, and mismanagement - are critical to control for maintaining profitability.
- Inventory controls: Secure storage, regular audits, and staff training are effective strategies for reducing inventory shrinkage.
- Software: Leverage software to streamline inventory tracking, minimize errors, and optimize stock levels for efficient management.
Common causes of inventory shrinkage in a veterinary practice
1. Theft
Theft is one of the most common causes of inventory shrinkage in veterinary practices. This can be either internal (by employees) or external (by customers or visitors). Internal theft often includes stealing supplies, medications, or equipment. Signs of internal theft can include discrepancies in inventory records, missing high-value items, or unusual employee behavior.
There are many strategies you can use to reduce the risk of theft, including implementing strict inventory controls, conducting regular audits, and installing security cameras in storage areas.
2. Expiration
It goes without saying that many veterinary supplies, including medications and vaccines, have limited shelf lives. If you don’t use those items in a timely manner, they spoil or expire, rendering the stock unusable and unsellable. Experts estimate that inventory waste due to expired medicine can cost as much as 1.5-2% of a practice’s total revenue.
Proper stock rotation (first-in, first-out), monitoring expiration dates, and maintaining optimal storage conditions are essential strategies to minimize spoilage and expiration. Some practice management systems can generate inventory reports that include product expiration dates, helping you to identify and use items before they become unusable. If stock is regularly expiring, it might be time to review your reordering points and on-hand inventory to see if you’ve fallen into a pattern of overordering.
3. Mismanagement
Effective inventory management is impossible if you don’t have good foundations. Poor practices, such as over-ordering, under-ordering, or not properly tracking inventory, can all lead to shrinkage. Mismanagement can result in excess stock that is never used, or stockouts that disrupt service delivery.
There’s no quick fix here. The best option is get back to basics, evaluate your current inventory management processes, and start building a more robust system from the ground up. Regular training for staff on proper inventory procedures can also help reduce the risk of mismanagement.
Check out this blog post for more tips on designing an effective inventory management system.
4. Damage
Inventory items can be damaged during handling, storage, or use. This is especially relevant for fragile items like glass bottles or sensitive equipment. Proper handling techniques, adequate storage facilities, and careful monitoring of inventory can help minimize damage. Staff should be trained on the correct methods for handling and storing different types of inventory to prevent breakage or deterioration.
5. Administrative and recording errors
A significant portion of inventory shrinkage can be attributed to administrative and recording errors. This includes mistakes in data entry, mislabeling, errors in inventory tracking systems, and unrecorded usage. Supplier fraud or errors, as well as misplaced or lost items, also fall under this category.
To minimize these errors, think about implementing strict inventory control procedures, regularly review and reconcile inventory records, and utilize reliable inventory management software. Conducting periodic audits and spot checks can help identify and correct discrepancies.
How to prevent shrinkage in your veterinary practice
1. Conduct regular audits
Conducting regular inventory audits is essential for maintaining accurate inventory records and identifying any discrepancies early on. Audits can be performed weekly, monthly, quarterly, or annually, depending on the size and needs of the practice. An effective audit involves counting physical inventory, comparing it to recorded inventory, and investigating any discrepancies.
In saying this, counting your entire inventory every week probably isn’t the best use of your time. Instead, we suggest doing cycle counting, which involves counting a subset of your inventory on a regular, cyclical basis. This method ensures that inventory records are accurate and up-to-date without the need for a complete inventory shutdown.
For a more in-depth explanation of cycle counting, check out this blog post.
2. Securely store your inventory
Ensuring the secure storage of valuable items is crucial in preventing theft and loss. High-value items, such as medications and equipment, should be stored in locked cabinets or secure rooms with restricted access.
Security measures, such as surveillance cameras and alarm systems, can further deter theft and unauthorized access. Consider automated dispensing systems for medications and other high-value items. These systems can track dispensing activity and limit access based on staff credentials while integrating with your practice management system to reduce double handling of data.
3. Provide regular staff training
Training staff on proper inventory management procedures is vital for reducing shrinkage. Employees should be educated on the importance of accurate inventory tracking, proper handling and storage techniques, and the procedures for recording inventory usage.
Regular training sessions and refresher courses can help reinforce these practices and ensure that all staff members are knowledgeable about the best practices for inventory management.
4. Leverage your practice management software
These days, most modern practice management systems offer some form of inventory management capabilities, which can significantly improve the accuracy and efficiency of inventory tracking.
Modern software solutions offer features such as automated reorder points, real-time inventory tracking, and detailed reporting. These features help practices maintain optimal inventory levels, reduce the risk of human error, and provide valuable insights into inventory usage patterns. When selecting inventory management software, look for solutions that integrate seamlessly with other inventory-related solutions and offer robust support and training.
Frequently asked questions
What is inventory shrinkage in veterinary practices?
Inventory shrinkage refers to the loss of inventory due to factors like theft, expired items, or record discrepancies. Managing shrinkage effectively is essential to maintain profitability and accurate stock levels.
How can veterinary practices reduce inventory shrinkage?
Implementing regular audits, using secure storage, and tracking inventory through management software can help reduce shrinkage by ensuring accuracy and minimizing losses.
Why is inventory management important in a veterinary practice?
Effective inventory management ensures products are available when needed, reduces waste, and controls costs, ultimately impacting the practice’s profitability and operational efficiency.
What are the main causes of inventory shrinkage in veterinary clinics?
Common causes include human error in recordkeeping, untracked product expirations, employee theft, and poor stock management practices.
How often should veterinary practices conduct inventory audits?
Monthly or quarterly audits are recommended to catch errors early, minimize shrinkage, and maintain accurate stock levels, especially for high-value items.
Conclusion
Inventory shrinkage is a common challenge in veterinary practices, but it can be effectively managed by understanding its causes and implementing the right solutions.
By addressing issues such as theft, spoilage, mismanagement, damage, and administrative errors, you can reduce inventory shrinkage and improve overall efficiency and profitability in your practice.
Regular audits, secure storage, proper staff training, and the use of advanced inventory management software are essential components of a successful inventory management strategy. Taking proactive steps to manage inventory effectively will ultimately lead to better patient care and a more successful veterinary practice.