Building a Medicinary with JIT Inventory
Written by Jamie Oskin, ND
Operating an efficient medicinary inventory can be stressful and a huge drain on a business. New business owners often make gross errors in stocking their medicinaries costing thousands of dollars in products that unnecessarily sit on the shelves, don't move, and tie up cash flow. Many NDs think that their medicinaries are a big source of revenue only to take a look at the books and realize that they are a significant drain on cash flow due to ordering inefficiencies. Using Just In Time (JIT) inventory can help you keep cash flow available to fuel other areas of your practice growth.
Just in time (JIT) inventory is a production strategy that was made popular by Toyota. It is a strategy that strives to improve a business's Return on Investment (ROI) by reducing the wasted inventory sitting on shelves and the associated carrying costs with shipping. It's really simple: inventory is waste. Ryan Grabosky said it best that JIT is having “the right material, at the right time, at the right place, and in the exact amount.”
Here are some basic tips to run an efficient and cost effective medicinary with Just In Time Inventory:
1) Start Small and Focused.
If you are a new grad starting a private practice, then start your medicinary inventory small and focused. Pick one or two conditions that you are passionate about treating. Only stock the main products needed to treat the one or two conditions. For me, I started my medicinary very lean and it remains lean to this day. I see a fair amount of pre-diabetic and diabetic patients in my practice. My first medicinary order included a small order of multiple vitamins, fish oils, and a blood sugar support product – that's it!
Purchasing products for the condition or two that you plan to treat will prevent your business's cash flow from being tied up in products that just sit on a shelf. It is possible that you may not have the chance to sell these products before they expire. I've seen colleagues literally throw away upwards of $5000 of expired products because they couldn't accurately predict the types of products they would need to service their patient's needs.
2) Utilize Online Virtual Medicinary Models.
Companies offer online virtual medicinaries that patients can order directly from if given a unique password. You may make a smaller percentage of the profit, but you will save a lot of money. You will not need to lay out cash to stock your shelves and pay for shipping. Since the bulk of most NDs' practices are treating chronic diseases, many of the necessary products for each unique condition can be ordered by the patients and drop shipped directly to them.
Don't waste time buying every product under the sun for every possible patient that may walk through your door. Save your cash and let patients order directly from the distributor and drop ship to their homes. If you start to see a higher volume of patients needing the same supplements for a particular condition, then perhaps you can justify keeping related products on the shelf. You have to know the inventory will move if you are going to stock it.
3) Only order enough to keep on the shelf to have just in time before the next order without running out and without ordering too many.
I make about one order per month of diabetic related products. Since my distributor can ship products to my office within two days, I wait to make an order until there is only one or two bottles left on the shelf. That way, the next order will arrive before I'm completely out, but not too early so that tons of product wastefully sits on the shelf waiting to expire.
We do a lot of homeopathy in our group practice. Because we order so many homeopathic remedies, we are constantly checking our inventory need to make sure the shelves are stocked, but not over stocked. Our staff makes a weekly order to prevent overstocking. This way, we should be able to have four Sulphur 30C's on the shelf at any one time and not need to worry about ordering 8 at a time. Four Sulphur 30C's is enough that we won't use more than that in a week's time before the next order goes out and it also won't tie up shelf space by needing an area big enough to stock 8 of that potency. If you order frequently and in large enough volume, often companies are happy to negotiate deals on the shipping.
4) Use basic spreadsheets in Excel or GoogleDocs to keep track of inventory and orders.
As your practice grows you will need to grow the medicinary. Keep track in an organized and methodical way. Your medicinary can naturally grow to keep pace with the growth of your niche. As you add more and more patients, you can slowly add more volume to each product order as well as slowly add peripheral products that are more commonly used for that niche group. If you follow this slow and steady model of growth it will protect your company's cash flow and allow the medicinary to naturally expand to meet the needs of your practice.
In summary, you should focus on a niche area to build a small medicinary with specific products that you will see a high volume of patients. As I mentioned earlier, I see more diabetics in my practice so I started my medicinary with only the basics I would use frequently for treating patients suffering from diabetes. To this day that is the core of my medicinary and the inventory turns fairly quickly (within about a month). My supplement order arrives within two days of my order so I never have to order until I have only one left on my shelf. As time has passed and my cash flow has increased, I've slowly added a couple of other supporting products to the mix of core products. I have only added enough so not to tie up valuable cash flow that is needed to fuel other areas of my practice's growth.