Like other small businesses, many optometric practices do not track optical inventory, or it’s a manual inventory management process. It’s not surprising then that many practices have too little or too many items in their stock. And the answer isn’t as easy as stocking up. More frames don’t necessarily mean more sales. Too much stock can tie up capital that could be used for other purposes. Unsold items can eventually expire or become a loss. Balancing supply with demand takes an intentional effort and some trial and error. Let’s start by better understanding the challenges of managing inventory.
At the highest level, the primary goal of efficient inventory management in optometry or any business is to optimize the balance between supply and demand. When supply and demand are out of balance, optometry practices may have higher operational costs from overstocking inventory that isn’t moving and could potentially expire or become obsolete.
Other issues to look out for include inventory-related tasks that detract from patient-focused services, which could also impact capture rates or patient retention. Practices must also watch out for the strain on staff due to complex inventory processes or insufficient proper training. Multi-location clinics also deal with complexities in synchronizing inventory across various sites.
Before we get into the strategies, let’s align on the common goals a practice looking to manage their inventory more efficiently might aspire to:
- Ensuring Product Availability: Ensuring that the right products are in stock when your customers need them, minimizing lost sales, and satisfying customers.
- Reducing Excess Inventory: Avoid overstocking to prevent your capital from being tied up in unsold inventory. This also reduces the risks associated with inventory depreciation, obsolescence, and storage costs.
- Improving Cash Flow: By effectively managing inventory, you ensure that your stock investment is as low as possible while still meeting customer demand, which improves your business’s cash flow.
- Streamlining Operations: Efficient inventory management leads to smoother operations, as it helps predict demand, automate restocking, and reduce manual workload.
- Enhancing Decision-Making: By accurately tracking and forecasting inventory needs, you can make more informed decisions about purchasing, sales strategies, and overall business growth.
- Adapting to Market Changes: Being agile in response to changes in consumer preferences, market trends, and supply chain dynamics.
In essence, the name of the game is to have the right products, in the right quantity, at the right time, and at the right cost, aligning your inventory closely with your customer’s needs and your business goals.
Great! So….how do we do that?
Inventory Management Strategies
The following areas are the ones that will make the biggest impact. These are the strategies that any expert in the area of optometric inventory management will tell you. Later, we’ll share some lesser-known strategies that could help you squeeze more efficiency into your process.
Data Accuracy and Management
Understanding your customer demographics and industry trends requires the correct supply to meet demand. Your inventory should reflect the demographics of your practice, ranging from budget to designer frames. The stock should be diverse enough to suit different tastes, face shapes, and profiles, ensuring a range that appeals to your clientele. Therefore, collecting customer demographic data can help you analyze styles, brands, and price points based on demographics. It could also help you look into industry trends based on the demographics your practice serves.
Using data to make decisions only works if that data is accurate optical inventory data. As we’ll touch on more later, this boils down to adopting a POS (Point of Sale) or inventory management software that can help you analyze past purchase behavior and monitor what’s in and out of stock.
Segmentation and Categorization
We live in an image-conscious world. Most customers already have a preference for certain brands before they ever set foot in your practice. Focus on product categorization by designers and brands. It helps customers focus on what they want. Also, categorization by style can lead to a monotonous display, reducing the perception of choice, which is crucial for consumers. There are multiple strategies to consider for merchandising your frame board.
At the same time, not all customers are brand loyal. Sometimes, factors like the availability of frames or lenses might be important to a customer. By having a customer accessible view of optical inventory management software, you could offer customers a way to dynamically sort or filter your stock based on what’s important to them.
Use of Technology and Automation
In both of our previous sections, the use of software and technology has come up. Adopting computerized stock control systems or POS systems for inventory management is arguably the most significant impact on your inventory efficiency. These systems enable you to monitor fast-moving and slow-moving stocks, which aids in planning stock replenishment and demand forecasting. For instance, you can stock more if aviator frames are in high demand.
It’s essential to have a firm grasp on what’s in stock and what’s needed. This knowledge helps order frames on your terms rather than being dictated by vendor visits. To access this knowledge, a practice can integrate analytics tools with inventory management systems to understand sales trends, product performance, and customer preferences.
Inventory Size and Stock Control
To avoid overstocking or missing out on a sale from out-of-stock inventory, a practice needs to optimize inventory size to align with demand. High inventory levels don’t necessarily correlate with increased sales. The goal should be to stock the smallest amount of product for the shortest time possible. Many practices carry an excessive number of eyeglass frames relative to demand, tying up significant capital. Striving for a high capture rate with minimal stock is a solid goal for any practice.
Key strategies include using inventory management software to track stock levels, set reorder points, and generate reports. Automating the ordering process based on sales data and trends helps maintain optimal stock levels and reduces the risk of overstocking or stockouts. Integrating inventory software with other systems, like sales and accounting, ensures seamless data flow and efficient inventory management.
For products like contact lenses, a just-in-time inventory approach is often effective. This method involves maintaining minimal stock and ordering products as needed, facilitated by reliable and predictable shipments from contact lens companies.
Opting for a consignment deal for specialty frames could be beneficial, allowing inventory to be display-only and reducing the pressure to purchase during vendor visits.
One effective strategy for knowing if you have the proper stock levels is the concept of economic order quantity (EOQ). EOQ is the level of stock that balances the costs of holding stocks (such as the space occupied and the money tied up) against the costs of ordering stock. The ideal level of stock, or EOQ, varies across different practices and requires careful determination. This balance is key because ordering more at once can often lead to better deals, but it also requires more space and capital tied up in inventory. To calculate EOQ, you’ll need to do the following:
- Determine the Annual Demand (D): This is the total number of units expected to be sold over a year.
- Identify the Order Cost (S): This is the cost incurred every time an order is placed. This can include shipping, handling, and order processing costs.
- Calculate the Holding Cost (H): This is the cost to hold one unit of inventory for a year. It can include storage costs, insurance, depreciation, and opportunity costs of the capital tied up in stock.
Then the formula is: EOQ = 2*D*S/H
The primary aim of EOQ is to find a quantity that minimizes the total inventory cost. While the EOQ formula might suggest an ideal number, practical considerations like packaging (items might come in packs of specific sizes) and supplier minimum order quantities should be considered.
Perhaps counterintuitively, having a limited number of major and specialty vendors can also help improve efficiency. First, it can increase the amount of products you’re buying from individual vendors, which could reduce your costs from higher volumes. It’s also easier to train staff on the various products. It should not come at the expense of having enough styles and brands to satisfy your customers, so consult your sales history to identify slow-moving vendors that you could potentially eliminate.
Regular Review and Adaptation
Review your stock situation regularly, at least once a quarter, to track sales, profits, and customer interest trends. This data can guide business decisions, like promoting underperforming products or discontinuing certain items.
A simple strategy for reviewing stock is the ABC Analysis—a method of categorizing inventory based on importance and sales performance. ‘A’ items are high-value with low frequency of sales, ‘B’ items are moderate in value and sales frequency, and ‘C’ items are lower in value but high in sales frequency. This helps in prioritizing inventory management efforts.
Annual stocktakes can be laborious and disruptive. Implementing a rolling stocktake approach, where stock is checked more frequently throughout the year, can avoid the need for a massive annual stocktake. This method requires consistent attention but can be more manageable and efficient.
Mastering Inventory Management
The abovementioned strategies demonstrate the importance of balancing supply and demand and utilizing data and technology to make informed decisions. These approaches not only help in optimizing stock levels but also enhance overall business efficiency and customer satisfaction.
Becoming more efficient in inventory management in optometry is an ongoing process of learning and adaptation. By aligning inventory with market trends and customer preferences, practices can ensure they are well-equipped to meet their clients’ needs while maintaining financial health. Regularly reviewing and adapting these strategies will be paramount in staying relevant and competitive in this ever-evolving field. The key takeaway is clear: effective inventory management is not just about having the right products; it’s about having them at the right time, in the correct quantity, and at the right cost, thus creating a harmonious balance that benefits the practice and its clientele.