Inventory Management: How to Keep More Profit In Your Pocket
Posted Nov 17, 2016 in Management
Having an organized inventory management system in place ensures you and your team have what you need when you need it. Laboratory owners of three different-sized operations detail their inventory management strategies and share tips for simplifying supply tracking, streamlining orders and minimizing costs.
Russellville Dental Lab: The Kanban System
A full service lab that specializes in removables and implants, Russellville Dental Lab in Russellville, KY, is constantly ordering supplies. “While we order products like wax and gypsum in bulk, implant parts and denture teeth depend on the case so we pretty much order those all day, every day—some days it’s as many as 52 parts,” says Lee Coursey, Owner of the 15-person operation.
To manage its implant components, as well as replacement parts for equipment, the lab uses a modified kanban method, a manual inventory control system often used in lean manufacturing that uses a visual indicator, like index cards, to track supply quantities and ordering.
Here’s how it works: Each type of part is kept in its own labeled bin in a supply area. Depending on how many parts are typically used per day and how many days it takes to get another order, a small quantity of each part is kept in the bin wrapped in a rubber band along with a reorder card that includes the supply company, part number and price. Once all the parts in the bin except those with the reorder card are gone, the technician removes the card and gives it to the department manager who places the order online. In the meantime, the missing card tells the other technicians that the part is on order. Once it comes in, the manager restocks the bin, replaces the order card and alerts the technician.
While the system works well for the lab, Coursey acknowledges a drawback to the process: numerous shipping charges. “A big challenge we face is the frequency with which we order,” says Coursey. “I’d love to be able to say ‘we order on Fridays’ but until we find a stand-alone, software-based system that we can easily integrate with our lab management program, it’s too hard for us to do that. Until then, the kanban system is the best solution I’ve found.”
Managing Denture Teeth
Because of the huge variety of shades and sizes, the lab doesn’t use the kanban system to manage its denture tooth inventory. In fact, until May 2015, the lab had no inventory management system at all for denture teeth which created an issue: $120,000 worth of denture teeth sitting in inventory.
A large part of the problem was over-ordering underused teeth. For instance, the lab had always kept a large inventory of denture teeth on hand and automatically reordered what was used. However, when bleached shades became more popular, the lab didn’t change its ordering habits. “We kept ordering a full spectrum of colors thinking we’d eventually use them up, but today fewer than 10% of our dentures are darker than an A1 so those shades are still on our shelves,” says Coursey.
So last May, with the goal of cutting its tooth inventory in half, Coursey conducted an experiment to get a better handle on what was actually being used on a regular basis: picking a random 60-day period, he put a Post-it® over the barcode of every tooth card in the lab’s supply cabinet. During those 60 days, if a card of teeth was used, the tab was pulled, signaling the manager that it was OK to automatically reorder that tooth. If the tab wasn’t pulled, the teeth were moved to a “special order” status, meaning they are only reordered if needed.
“It wasn’t the most scientific method, but it worked for us,” says Coursey. “By better managing our inventory over the last 12 months, we’ve stopped wasting money and put about $30,000-$40,000 back into our cash flow.” The lab was also able to recover thousands more by liquidating teeth or returning them to the manufacturer.
Lot Number Tracking
Lot number tracking to comply with the FDA’s Good Manufacturing Practices (GMPs) is an important part of inventory management and the lab uses its ABS laboratory management software to track patient contact materials—like zirconia and acrylic—and create an MDR, or master device record, for each case.
As technicians pull materials for cases, they use one of the touch screen computers placed throughout the lab to associate the lot number with that particular case. Several technicians may be involved in entering lot numbers for one case; for instance, for a denture case, the technician who pulls the teeth enters that lot number and the technician who pulls the acrylic enters that lot number, etc.
Image Gallery: Keeping Inventory Costs at 3% of Sales
When it comes to inventory control, Owner Lonni Thompson, CDT, runs a tight ship, keeping inventory costs at 3% of sales at her seven-person laboratory, Image Gallery in Dublin, OH. Here are three of her cost-minimizing strategies:
Once-a-Month Orders: Thomp-son is adamant about not paying a lot of shipping costs, so the full service lab orders supplies just once a month, consolidating orders with as few suppliers as possible.
To stay organized, the lab uses a simple but effective inventory management system: The front office staff maintains a master list that includes all of the lab’s supplies organized alphabetically by category, an item description, product number and pricing. Each month, technicians check supplies in the departments and supply closet, then mark the quantity needed on the master list and one of the two office staffers places the orders online.
Quarterly Bonus Program: If the lab makes its breakeven point at the end of each quarter, all staff members are able to receive a portion of 10% of the lab’s profits; Thompson decides who receives a bonus and how much they receive based on their efforts during that quarter. In the case of the office staff, if they are able to keep inventory costs under 3% of sales or shop around to save the lab money, they’ll also receive a portion of the profits—which they did during the first two quarters of 2016.
Stock Up Smart: Although Thompson doesn’t like to keep more than a two-month supply of products on her shelves, the lab will occasionally take advantage of a sale. “If it makes sense, we’ll go ahead and stock up when we can,” she says. “For instance, if there’s a promotion on die stone or burs we’ll go ahead and buy in bulk because we know we’ll definitely use them up.”
Thayer Dental Laboratory: ‘Just in Time’ Delivery
Fifty-person Thayer Dental Laboratory in Mechanicsburg, PA, doesn’t want a lot of excess inventory sitting on its shelves—or its balance sheet—so it uses a “just in time” delivery system. Orders are placed once a week on Thursday for Friday delivery.
Here’s how it works: Each department has its own Excel database that lists all the tools and consumables used in that department’s fabrication process. For instance, the “C&B/waxing/CAD/CAM” worksheet lists burs, diamond wheels, dowel pins, mixing bowls, waxes, milling pucks, investment, etc.; the size or color used; and ordering information such as the part number, where it’s ordered from and the price.
Department managers communicate with their technicians throughout the week, checking off which items and quantities need to be ordered and, on Thursdays, give the sheet to the office manager who calls or emails the suppliers to place the orders.
There are a few exceptions to the “just in time” delivery system. For instance, since implant parts and denture teeth are determined as cases arrive, they’re ordered daily and, because the lab uses such huge quantities of plaster and die stone, it usually has 50 boxes delivered at a time to take advantage of volume discounts.
Here are two other ways the lab minimizes inventory costs:
It has a list of “lab-approved” supplies. “Some labs allow their technicians to order the products or tools they prefer, like a favorite bur. We standardize whatever we can—from burs to rubber wheels—so we can get volume discounts from just a few suppliers,” says Rob Gitman, Company Administrator.
It plans ahead. At the end of every year, the lab asks its suppliers for two reports: a printout of its purchases so it can see at a glance what it bought and the total dollars spent, and another report showing what pricing will be for the upcoming year. “We review the information and use it to start a dialog or as a negotiating tool,” says Gitman. “For instance, if prices are going up, do we need to shop around or can we get next-day shipping at no charge or some other value-added incentive?
It Happened to Us: Technician Steals $26,000 Worth of Alloy
When it comes to your inventory, would you know if a staff member was stealing? How long would it take you to catch on? Thanks to a good system of checks and balances and a little help from the local police department, in 2006, Thayer Dental Laboratory in Mechanicsburg, PA, was able to stop a thief in his tracks.
Here, Rob Gitman, the lab’s Company Administrator, shares the story:
“Each month, we compare department sales with our P&L statement and we noticed a problem with C&B: for the number of noble and high noble crowns we billed, we spent way too much on alloy.
“As we were looking into the situation, we got a visit from a detective at the local police department. He pulled out a packet of alloy ingots and said he believed someone who worked at our lab had been pilfering alloy and trying to sell it to three local pawn shops; the owners became suspicious and alerted police. We had a pretty good idea of who the culprit was and the person’s description confirmed our suspicion.
“As he was leaving the lab the next day, the technician was arrested; he confessed and was prosecuted for stealing $26,000 worth of alloy in less than two months. While we keep our alloy in a locked safe, he had access to it for early morning castings and would take more ingots than he needed, scoop the flash out of the ring, or claim to have a miscast but pocket it instead of putting it with the scrap.
“We were lucky: the problem was caught and resolved early and our insurance covered the entire amount; it could have been much worse. Besides having our technicians turn in scrap on a weekly rather than monthly basis, we didn’t make any major changes to our procedures. We have good employees and trust them; he was just one bad apple.”
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