The complete guide to inventory management

Inventory management might be the most underappreciated aspect of running a veterinary practice.

This guide is packed with practical tips and strategies to help you unlock better profit margins, reduced costs, and major time savings for staff - all while ensuring you always have sufficient stock on hand to deliver quality care.

Ready to transform your practice with smarter inventory management? Let's dive in!

Everything you need to know about veterinary inventory management

Take control of your inventory

Good inventory management starts with choosing the right software. Discover how ezyVet can save you time and drive revenue through real-time inventory tracking, automatic stock reordering, and seamless integration with your favorite product suppliers. 🚀

Talk to us today to learn more.

Reporting Module

Chapter 1: A couple of reminders

Is your inventory starting to look a little wild?

It's time to tame the beast. In this section, you'll find some key concepts that underpin every inventory management system. Keep them in the back of your mind as you read this rest of the guide and you’ll be on your way to creating a more organized, efficient, and profitable inventory machine!

It’s a process

Inventory management is not an annual event. It’s a continuous, dynamic process that requires ongoing attention.

Prices fluctuate. Demand varies. Products expire. Usage patterns change - sometimes seasonally, sometimes permanently. Your top seller from six months ago might be a dud today.

Even with tools that automate the process, you can’t just set and forget. Effective inventory management requires ongoing evaluation and improvement as your business goals change and client needs evolve.

Human error is inevitable

Don’t take it personally when your inventory isn’t perfect. Human error is inevitable. There’s not a practice on the planet that keeps a flawless inventory. Pills sometimes bounce off the counter and roll out of sight. People occasionally forget to update quantities. You will draw the wrong amount of injectable (or the wrong medication altogether!) from time to time.

These small discrepancies are part of the reality of running a busy practice. Learn to accept them. Acknowledging that minor mistakes can occur allows for a healthier, more sustainable approach to managing inventory.

Start small

Overhauling your entire inventory system is overwhelming. So, start small. Focus on your most important products first and learn and iterate as you go. Once you’ve established what works, you can apply those lessons to the rest of your inventory.

While it might be tempting to tackle everything at once, a phased approach allows you to build a strong foundation for your inventory management system and scale up with confidence.

Be flexible

There’s no one-size-fits-all when it comes to inventory management. While the strategies discussed in this guide provide a strong foundation, every veterinary practice is unique - each with its own specific needs, patient demographics, and operational challenges.

Use this guide as a starting point, but you can and should tailor the strategies to fit your practice's individual requirements.

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Chapter 2: Why you should care about inventory management

If you’re like most veterinary practices, inventory management probably isn’t at the top of your list of priorities.

But it should be.

In this chapter, we'll explore why your inventory deserves more attention and the profound impact it can have the efficiency and profitability of your business.

It’s expensive

From a financial point of view, there’s one very big, obvious reason why you should care about inventory: it’s expensive.

Inventory is one of the biggest expenses in your veterinary practice, second only to labor costs. Mismanagement of inventory can lead to overstocking, which ties up capital in unused products, or understocking, which results in lost sales and expensive emergency orders. If you can effectively manage your inventory, you’ll be in a strong position to control your costs and increase practice profitability.

It directly affects efficiency

Effective inventory management means you have the right products when you need them, so you can deliver timely and accurate treatments. Practices that prioritize inventory management can avoid delays in care, which keeps clients satisfied and ensures that patients get the care they need without interruption.

When inventory is well-organized, your team spends less time searching for items, handling orders, or dealing with supply shortages. This allows staff to focus on what they do best - providing care for patients and offering excellent customer service.

It influences the value of the business

Thinking about selling up in the not-too-distant future? Buyers closely examine a practice's financial performance, including how well inventory costs are managed. Poorly managed inventory can be an indicator of inflated operating expenses and decreased profitability, which translates to a lower valuation for the practice.

In contrast, a practice with a well-organized and efficient inventory system is more attractive to potential buyers. A history of effective inventory control demonstrates that the practice is well-managed, which can increase its appeal and value. For sellers, optimizing inventory management can result in a higher sale price, ensuring a better return on investment when it comes time to transition ownership.

Takeaway

By prioritizing inventory management, you’re not just making your life easier - you’re improving patient care, protecting your bottom line, and setting your practice up for long-term success.

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Chapter 3: Who’s in charge of inventory?

To drive the success of your inventory processes, it’s a good idea to designate an inventory manager. In this section, we’ll discuss what an inventory manager does and who might be a good candidate for this role.

Why you need an inventory manager

An inventory manager plays a strategic role in optimizing a practice’s inventory to ensure efficient operations and profitability. They’re responsible for forecasting demand, controlling costs, and monitoring key metrics, as well as ensuring staff are complying with established inventory-related operating procedures. They also manage vendor relationships, negotiate prices with suppliers, and look for ways to leverage technology to optimize inventory management.

In larger practices, inventory can take a surprising amount of time (when done correctly, at least!), so it’s often a good idea to split responsibilities across the team. For example, a larger practice might have a dedicated pharmacy manager, retailer manager, and supplies manager, overseen by a primary inventory manager.

This has the added benefit of creating an extra layer of checks and balances, which helps minimize the risk of human error and shrinkage. It also ensures that the practice has sufficient resources in case of vacations or absences.

Regardless of practice size, it’s important to remember that inventory is a team effort. While the inventory manager might oversee the system, every staff member has a role in upholding inventory processes in their daily work.

Skills required to be an inventory manager

We’re just going to come out and say it: Not everyone is cut out to be a good inventory manager.

It takes the right balance of skills. In addition to being organized, thorough, and trustworthy, you also need to be familiar with a dizzying array of veterinary drugs and products, and have a holistic understanding of how inventory impacts the financial health of the wider business.

Here are a few key qualities to keep in mind when selecting an inventory manager:

  • Big picture thinking: Look at the overall operations and identify specific steps that align with the broader goals of the business.
  • Fiscal responsibility: Adhere to budgetary constraints, negotiate favorable pricing with suppliers, and identify cost-saving opportunities.
  • Attention to detail: Accurately track inventory levels, expiry dates, and orders.
  • People management: Encourage collaboration between team members, enforce procedures, and resolve conflicts.
  • Communication skills: Coordinate with suppliers and practice staff. Express complex ideas effectively through both written and spoken communication.
  • Technical skills: Proficiency with inventory management software, which can streamline the process and improve accuracy.
  • Flexibility: Be flexible with unexpected requests, taking priority over planned duties.
  • Familiarity with veterinary products: A good understanding of veterinary drugs, medical supplies, and equipment.

Potential candidates for an inventory manager

There could be a bunch of people in your practice who possess the above skills required to be an effective inventory manager. The responsibility often falls on one (or more) of the following candidates, each with their own set of advantages and considerations:

Practice owner

  • Pros: In small practices, the owner may be a good candidate to manage inventory. They have a vested interest in the financial health of the practice and can make strategic decisions aligned with long-term goals.
  • Cons: Practice owners tend to already have a bunch of responsibilities. Adding inventory to their list of duties can leave them stretched thin.

Practice manager

  • Pros: Practice managers are well-versed in the daily operations and financial aspects of the practice, making them capable of overseeing inventory effectively. They might take ownership of inventory but delegate a lot of the day-to-day activities to others.
  • Cons: Like owners, managers may already have a full plate of responsibilities, which could affect their ability to dedicate sufficient time to inventory.

Technician or assistant

  • Pros: Technicians and assistants often have hands-on experience with inventory and are familiar with product specifics.
  • Cons: While veterinary technicians excel in patient care, they may not have as much experience with the fiscal responsibilities and business strategy involved in inventory management.

Front of house

  • Pros: Front of house staff tend to be very familiar with daily operations and excellent multitaskers, making them capable of managing inventory effectively.
  • Cons: Balancing front-desk duties with inventory management can be challenging. Depending on their experience, some employees may not have a thorough understanding of drugs and other products, and may require additional training.

Choosing the right candidate depends on the specific needs of your practice, existing team dynamics, and individual strengths. While technical knowledge and organizational skills are important, so too is the ability to balance these responsibilities with their existing duties.

What does a veterinary inventory manager do?

Exactly what your inventory team is responsible for will depend on the size and dynamic of your practice. Generally speaking, responsibilities will fall into one of these four categories:

  • Client management: Ensure online orders are processed promptly, maintain standing and special food orders to prevent shortages.
  • Data management: Manage inventory codes, create and maintain bill codes, and process purchase orders through veterinary management software. The inventory manager may also handle price and product updates on the practice's website.
  • Financial management: Adhere to inventory budgets, negotiate pricing with suppliers, and propose special purchasing opportunities to enhance practice profitability.
  • Equipment and supplies: Order and manage pharmaceuticals, veterinary diet products, equipment, consumables, and supplies. Regular vendor meetings and meticulous inventory stocking and rotation to maintain operational efficiency.

Maintaining oversight

So, you’ve assembled an inventory team, they know what their responsibilities are, and everything seems to be going smoothly. That’s a good start - but it certainly doesn’t mean that you can completely wash your hands of your inventory.

Someone must maintain oversight to ensure everyone sticks to the procedures as prescribed. The practice manager (or, in smaller practices, the owner) should remain part of the checks and balances processes to ensure accuracy, compliance with budgetary constraints, and efficiency. For example, for added transparency and accountability, the practice manager or owner may wish to review invoices, purchasing decisions, and inventory reports.

Takeaway

Effective inventory management requires a strategic approach, meticulous attention to detail, and collaboration across the practice team. While selecting the right candidate for this role is crucial, it’s equally important to establish robust oversight mechanisms to maintain operational integrity.

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Chapter 4: The fundamentals of good inventory management

In this section, we’ll explore the key concepts that form the foundation of effective inventory management. While some of these concepts may already be familiar to you, revisiting and refining them can provide new insights and opportunities for improvement.

The ABC inventory classification method

Effective inventory management is all about prioritization.

Essentially, there’s no good reason to give every product equal attention when the value that one product delivers can be very different from that of another product.

That’s where the ABC analysis method comes in. This method categorizes inventory items based on their importance and value, allowing you to focus your resources where they matter most.

What is ABC inventory analysis?

The ABC inventory classification method is a way of categorizing inventory items based on their importance.

  • Class A: 20% of items that drive 80% of inventory-based revenue. Require tight controls. Count monthly.
  • Class B: 30% of items that drive 15% of inventory-based revenue. Require moderate controls. Count quarterly.
  • Class C: 50% of items that drive 5% of inventory-based revenue. Require liberal controls. Count annually.

It’s important to note that there are no fixed thresholds for each class and different ratios can be applied depending on inventory composition and business objectives.

Class A items

Class A items are your top performers. They represent about 20% of your inventory but generate about 80% of your inventory revenue. These items require tight control, accurate records, and should never be out of stock. Because these items have a significant impact on the finances of your practice, they should be counted most frequently.

Common examples of A items:

  • Specialty drugs.
  • Vaccines.
  • Flea and deworming products.
  • NSAIDs.
Class B items

Class B items are the next 30% of your most valuable inventory items and account for 15% of inventory revenue. They might not be the most valuable products, but they’re still critical for your daily work. These items require moderate control and should be counted less frequently than Class A items, but more frequently than Class C items.

Common examples of Class B items:

  • Prescription diets.
  • Chronic medication.
Class C items

Class C items are your lowest-value items and your lowest priority. They make up 50% of your inventory but only a small percentage of the value of your inventory (typically around 5-10%). These products tend to be useful for day-to-day work, but don’t individually contribute significant value to the business. They require the least stringent controls and the least amount of your time.

Common examples of Class C items:

  • Blood transfusion sets.
  • Urine sampling kits.
  • Cotton balls.
  • Gauze.

How to classify items

To categorize your inventory into A, B, and C classes, you’ll need to run an inventory sales report in your practice management software. The report should cover sales for at least the last 12 months, which will account for any seasonal variations. Export the report as a CSV, which will make it easier to sort and filter through the data.

Color code products according to their classification

To easily identify your ABC classes, consider physically color coding your inventory using stickers, labels, and/or tags. How you color code them is up to you, but we suggest making Class A the most striking color, and Class C the least striking.

For example:

  • Class A: Red.
  • Class B: Yellow.
  • Class C: Green.

Using clear visual cues to organize your inventory can go a long way toward helping staff quickly locate and prioritize the most critical items.

Takeaway

Implementing the ABC classification method can lead to significant improvements in inventory control and overall operational performance. By focusing on what matters most, you can ensure your practice is well-equipped to meet the needs of your patients while maintaining a healthy bottom line.

What’s the ideal inventory turnover rate for veterinary practices?

Inventory is not an investment. Investments gain value over time. Inventory does not. For every minute that a product sits on the shelf, it’s actually costing you money (in storage costs, labor, shrinkage, spoilage-related lost revenue, etc. - more on this here).

What inventory is, is a means of making money by using or selling a product. Therefore, the key to maximizing inventory profitability is ensuring that you’re regularly turning over inventory through consistent product sales.

What should your inventory turnover rate be?

An ideal inventory turnover rate for veterinary practices is between 8 and 12 times per year. This means that, on average, products should not remain on your shelves for more than 30 to 45 days. This turnover rate ensures that your stock is moving efficiently, and helps reduce the risks associated with expired products and overstocking.

It’s important to recognize that this average is a composite of all products within your inventory. Your A Class products will naturally have more turns compared to your B and C Class products. So, it’s essential to monitor the turnover rate of individual products closely. It’s highly likely that your inventory will include some slow-moving items that aren’t available in smaller quantities but are absolutely essential to keep in stock.

Setting reorder points

Identifying your optimal turnover rate allows you to determine your inventory reorder points.

A reorder point is exactly what it sounds like: The threshold at which you should order new inventory to maintain optimal stock levels. It’s a proactive approach to inventory management that ensures you have sufficient stock for the future based on past usage trends. Some practice management systems can be configured to automatically order inventory when stock reaches a user-specified reorder point.

To determine your reorder points, you’ll need to review past usage data by running an appropriate inventory report in your practice management software. Note that order points should be based on previous usage, not previous purchases.

For example, if your goal is to achieve 12 inventory turns per year (essentially a monthly supply), you can review the past year's data of a given product and divide it by 12. This calculation will give you a baseline for reorder points and/or reorder quantities.

If you prefer a lower reorder point or lower reorder quantity, you can divide the past usage data by a higher turnover rate, such as 18-26 times per year, which corresponds to a two- to three-week supply.

It’s important to note that smaller hospitals with high turnover rates may not have the physical space to store large amounts of inventory. In such cases, adjusting your reorder points and quantities is essential. For instance, instead of placing a monthly order for consumables, you might place a fortnightly order to align with your storage capacity.

Margin vs markup

When it comes to setting product prices, remember that margin and markup are two very different things - and getting them mixed up can have a major impact on profitability.

Markup

Markup refers to how much you increase the cost of a product to determine its selling price. It’s calculated as a percentage of the cost. Let’s say Product X costs $10, and you sell it for $12.50.

To calculate the markup percentage:

($12.50 – $10) ÷ $10 = 0.25 or 25% markup

This means you marked up the cost by 25% to reach your selling price.

Margin

Margin, on the other hand, represents the percentage of the selling price that is actual profit. To calculate the profit margin on the same product above that you bought for $10 and sold for $12.50:

($12.50 – $10) ÷ $12.50 = 0.20 or 20% margin

Why it matters

If a practice confuses markup and margin, they may undercharge for products, reducing profitability. For instance, if you aim for a 50% margin but mistakenly apply a 50% markup, you’ll end up with less profit than expected. Over time, these miscalculations can significantly affect your practice’s bottom line.

Pricing is an art, not a science

It’s important to realize that setting a selling price involves more than just marking up the initial cost. The true COGS includes not only the purchase price but also the time your team spends ordering, stocking, and managing the product.

Consider what the market will bear. While applying a flat markup across all products is an easy way to get started, it’s usually not the best option to maximize profitability in the long run. Instead, look at value-based pricing, a strategy that involves pricing products and services based on the perceived value to the client rather than just the cost of delivery. For example, high-volume, low-cost items may require a smaller markup, while specialized or in-demand products might justify a higher price.

Factoring in both market demand and client value can help you price more strategically and increase profitability.

Ordering frequency: Bulk vs just-in-time-ordering

When it comes to ordering inventory, balance is key.

Bulk buying

Buying inventory in bulk may seem appealing, especially with the potential for discounts. However, purchasing more than three months’ worth of stock at once is often not profitable unless there are substantial savings and the risk of expiration is minimal. In cases where holding costs are high, turnover is low, and shrinkage risk is high, it might make more financial sense to use a pharmacy rather than spend resources on keeping the product in stock yourself.

Just-in-time ordering

At the other end of the spectrum, an increasing number of practices are using just-in-time (JIT) ordering, a strategy that involves receiving goods as close as possible to when they are needed. While the JIT approach can be a savvy way to keep your holding costs low, it usually results in higher labor costs. Employees need to process a higher number of smaller orders, with inventory arriving multiple times per week (or even per day!). There’s also a higher risk of stockouts and backorders. For this reason, JIT ordering is often best reserved for your B and C Class products.

Tailor ordering to your needs

Tailor your inventory management practices to your hospital's specific needs and constraints. While the recommended guidelines provide a solid foundation, don’t hesitate to modify them to suit your practice's size, storage capacity, and operational rhythms.

Chapter 5: Using practice management software to simplify inventory management

While inventory management will always involve a human element, technology is solving many of the more menial challenges.

In this section, we’ll show you how practice management software can streamline your inventory management processes, saving you time, reducing errors, and boosting profitability.

1. Automatic stock reordering

One of the primary benefits of using practice management software for inventory management is automatic stock reordering. The software can monitor inventory levels, send alerts when items drop below a pre-set threshold, and automatically generate purchase orders when stock levels reach a certain point.

ezyVet takes this one step further by allowing you to set different reorder points for each month, which can help you optimize stock levels even during seasonal fluctuations. Given that inventory ordering is one of the most repetitive tasks in a veterinary practice, automating the process can save your team significant amounts of time.

2. Easy inventory tracking

Some practice management software solutions offer real-time tracking of inventory, allowing you to monitor stock levels accurately and reduce the risk of overstock and understocking. Some software solutions may be able to track batches and expiration dates, which can help you ensure that older stock is used first and minimize waste from expired products.

But inventory tracking isn’t just about monitoring your current stock levels. Depending on your practice management software, you may be able to use reports to gain a better understanding of consumption patterns, providing you with the data you need to make smarter inventory decisions. This insight can lead to more strategic purchasing decisions and better overall financial management.

3. Integrations with product suppliers

Integrations allow you to simplify complex business processes and add powerful new functionality to your practice management software.

These days, many practice management systems can integrate with your favorite product suppliers, allowing you to seamlessly send purchase orders, track inventory movement, and receive invoices directly inside your practice management software. Some integrations can also automatically update inventory prices, which helps you ensure that margins are always set correctly and minimizes the risk of revenue loss.

ezyVet, for example, can automatically update the cost price of items across all its integrated suppliers, regardless of whether you’ve ordered the item. The direct integration ensures your markups, margins, and cost prices are always accurate on thousands of products.

If you want even better visibility of inventory-related finances, consider connecting your practice management system with your accounting software. A flexible, integration-rich system can really turn your practice management software into a central hub for all of your practice’s operations, rather than being just another tool in the toolbox.

Check out this page for a full list of product suppliers that integrate with ezyVet!

4. Automated billing and invoicing

Manual data entry is time-consuming and prone to errors. Good practice management software can automate many data entry tasks - including those related to inventory.

By linking your inventory with billing processes, your practice management software can automatically update inventory records and generate invoices when items are used or sold. This automation ensures accurate billing and inventory counts, reducing the administrative burden on staff and minimizing the risk of errors. Accurate billing is essential for maintaining financial health and ensuring that the practice is compensated for all services rendered.

Book a demo to see how ezyVet can simplify your inventory management processes!

Takeaway

Practice management software offers a robust solution for automating and improving your inventory management processes.

By leveraging the full capabilities of a proven practice management solution, practices can enhance efficiency, reduce errors, ensure compliance, and ultimately provide better care to their patients. Investing time in understanding and utilizing these features can lead to significant operational improvements and cost savings.

Chapter 6: How to do an inventory count

Even with the most meticulous inventory management processes, discrepancies between your records and your actual physical stock will occur. To identify those discrepancies, you’re going to need to physically count your stock.

In this section, we’ll show you exactly what you need to do to conduct an accurate and efficient inventory count.

1. Plan ahead

Begin by scheduling the count during a time when the practice is less busy, such as after hours or during a slow period. This minimizes disruptions to daily operations and allows staff to focus on the task at hand. To make the process more manageable, consider going room by room rather than trying to count every item across the entire practice at once.

As mentioned earlier in this guide, you can use the ABC inventory classification system to determine how frequently you should be conducting manual counts.

Counting cadence is unique to every practice but may look something like this:

  • Class A items: Counted monthly.
  • Class B items: Counted quarterly.
  • Class C items: Counted annually.

This approach ensures that your team focuses more frequently on the items that matter most to the practice.

2. Organize inventory areas

Before starting the count, it’s essential to organize your inventory areas. Ensure the shelves and storage bins are neat and orderly. Group items by category, such as medications, surgical supplies, and consumables, and ensure that each storage area is well-labeled. Clear labeling helps reduce confusion during the count and allows team members to quickly identify where each item is stored.

3. Assign responsibilities

A well-coordinated team is key to an efficient inventory count. Start by dividing the staff into teams, and assign specific areas or categories to each team. Pair less experienced team members with those who have more experience to ensure accuracy and provide learning opportunities.

Each team should have clearly defined roles. Typically, one person acts as the "counter," responsible for physically counting the items, while another acts as the "recorder," responsible for documenting the counts. This division of labor not only speeds up the process but also reduces the likelihood of errors.

4. Do blind counts

Boost count accuracy by doing blind counts. In a blind count, the person doing the counting does not know the expected quantity of each product beforehand. This prevents bias and ensures that the counts are based on what is physically present rather than what is expected to be there.

Blind counts are especially important for high-value items or items with a history of discrepancies. By removing the expectation of how much of each product should be there, you reduce the risk of errors and improve the accuracy of your inventory data.

5. Use inventory counting tools

Leveraging the right tools can make your inventory counts a whole lot easier. For ezyVet users, we recommend using ezyVet Scan, a FREE inventory scanning app that natively integrates with ezyVet. ezyVet Scan uses your device’s camera to scan product barcodes. All inventory changes submitted in the app are instantly updated in ezyVet across all devices, eliminating the manual processes associated with third-party apps and barcode scanners.

ezyVet Scan links directly to your ezyVet database through your practice's URL and login credentials. All of your products are automatically available in the app, meaning that as soon as you scan a product, it is instantly recognized and tracked. If your practice hasn’t yet implemented barcodes, the app allows you to add them easily, or you can manually search for products when needed. If a product isn’t set up to be tracked, the app will notify you.

ezyVet Scan is free for all ezyVet users and is compatible with Android and iOS devices. Read more here.

Another tool to consider is a pill counting app. These apps use the camera on your smartphone and artificial intelligence to accurately count large quantities of pills, making it easier to track and manage pharmaceutical inventory.

Traditional inventory counting methods, such as manual tallying or using inventory sheets, can be time-consuming and prone to errors. Digital tools, like ezyVet Scan, offer a more structured and streamlined approach to inventory management.

6. Reconcile and adjust

Once the physical count is complete, it’s time to reconcile the counts with the records in your practice management software. Look for any significant discrepancies between the physical count and the recorded inventory levels. If discrepancies are found, investigate the cause. Common causes include theft, misplacement, or administrative errors.

After reconciling the counts, update the inventory levels in your system to reflect the accurate counts. This step is critical to maintaining accurate inventory records and ensuring that future purchasing decisions are based on reliable data.

ezyVet Scan can help here, too! Because ezyVet Scan is natively integrated with ezyVet, any inventory changes submitted in the app are instantly reflected in ezyVet. The inventory manager (or whoever has inventory admin privileges in ezyVet) can then quickly approve the counts and/or inventory transfers quickly inside ezyVet.

7. Review and report

After the inventory count is complete and reconciled, it’s important to review the data and analyze it for insights. Look for trends in usage, identify overstocked or understocked items, and consider any potential waste. This analysis can provide valuable information for improving inventory management practices.

Share the findings with the management team to inform future purchasing decisions and inventory management strategies. Regularly reviewing and reporting on inventory counts helps keep the practice running smoothly and ensures that inventory levels are optimized.

Takeaway

By planning ahead, organizing inventory areas, assigning responsibilities, using the right tools, and carefully reconciling records, your practice can maintain control over its inventory, reduce waste, and optimize purchasing decisions. Regular, well-executed inventory counts are key to keeping your practice running smoothly and ensuring that you always have the right supplies on hand.

Chapter 7: Shrinkage in the vet practice: Where did all my inventory go?

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 section, we’ll take a deep dive into the common causes of shrinkage and practical strategies you can use to prevent inventory waste.

  • Common causes of inventory shrinkage.
  • Conduct regular audits.
  • Securely store your inventory.
  • Provide regular staff training.
  • Leverage your practice management software.

Common causes of inventory shrinkage in a veterinary practice

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.

Here are the most common causes:

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

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 counting a subset of your inventory on a regular, cyclical basis. Audit frequency depends on the product’s importance to the business - see the earlier sections How to conduct an accurate inventory count in your veterinary practice and Why you should use the ABC inventory management method in your vet practice for more information.

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.

Check out this page for a full list of controlled drug management solutions that integrate with ezyVet!

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.

Book a demo to see how ezyVet can simplify your inventory management processes!

Takeaway

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.

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Final thoughts

Mastering inventory management is no small feat, but it’s one of the most rewarding things you can do for your practice.

By applying the strategies discussed in this guide, you’ll start to see real improvements in efficiency, cost control, and patient care. Stay patient with the process, make adjustments as you learn, and trust that every step you take brings you closer to a smoothly run, more profitable practice.

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Good inventory management starts with choosing the right software. Discover how ezyVet can save you time and drive revenue through real-time inventory tracking, automatic stock reordering, and seamless integration with your favorite product suppliers. 🚀

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