The goal of procurement is to buy the right products, in the right quantity, at the right time, and at the best possible price. Buy too late or too little, and you risk running out, but buy too soon or too much, and you're tying up valuable cash and racking up carrying costs.
Much like the story of Goldilocks and the Three Bears, getting inventory “just right" takes a little finesse, and if you’re not careful, you may get burned in the process. How you calculate the right inventory levels for your organization or practice is a critical business decision with multiple decision factors and a slew of repercussions.
These formulas and purchasing triggers have a direct impact on your efficiencies and financial health. To target the “right” inventory levels that make the most sense for your dental organization and its values and objectives, you must weigh your decision criteria carefully. This requires knowing your risks (we’ll dig into those later) and understanding your company's tolerance for it, and carefully balancing this with your desire for improved cash flow and cost savings.
Using a value-driven decision method allows you to align your procurement strategy with your overarching business objectives, a vital step in meeting your targets.
Here’s the information you need on some inventory management basics and the various purchasing models that, when chosen correctly, enable you to get there.
To provide you with some foundational knowledge, below we have listed some quick explanations of the terminology behind the various inventory management techniques and methods that you should get to know (i you haven’t already).
JIT is the Lean's world "just right," aiming to get deliveries at the last possible moment without risking an outage. You would achieve JIT by using tools such as reorder point/ reorder quantity or Kanban.
The length of time, typically in days, between the placement of an order and delivery. Note that suppliers should be quoting their lead times on Request For Quotes (RFQs), but if you don't have them, just ask.
Just as it sounds, safety stock is an additional quantity of an item you keep "just in case." It's your buffer, safeguarding you from running out due to the unforeseen, such as late delivery, inaccurate inventory levels, or increased usage. It should be calculated separately for every item, as each product may have varying usage volumes and supplier lead times.
ROP is a pre-determined inventory level where once the total on hand plus on order falls under the set point, it triggers a replenishment order.
ROQ is the set order quantity for placing replenishment orders.
Safety stock is your safety net, and only you can figure out just how big you can afford or want it to be. Use a common-sense approach. Know your sales rep is in town and will bring you some in his car if need be? Carry less. If the item is a low-value item but imperative to operations and has a long lead time, go heavy.
Here are some things you should consider when setting the safety stock level for dental supplies:
It’s important to note that the above two options are given mainly for items with large swings in daily consumption rates. For items where your usage is fairly stable, it will make little difference which you choose.
To calculate your reorder point, you want to figure out how much you are going to use before the order delivers (average daily usage x lead time in days) and then add your safety stock.
Again, this formula is not a hard and fast rule here. What you decide to set your ROQ at can vary depending on a couple of determining factors. The primary considerations should be the consistency of your usage (the more stable, the less risk), lead times, and any price advantages of purchasing specific quantities.
Also, keep in mind that any potential cost savings should be weighed with the cost of carrying inventory. For example, if you could save 25% by buying an extra 3-5 days' worth of inventory, this is likely very worth doing. However, if you’ll be saving 5% and the quantity will last you a year, your risks and additional carrying costs likely outweigh the small savings.
In dental procurement, demand signals tell a buyer when to buy. They can be either physically visual or electronic, available on a report. Based on your current inventory levels, open purchase orders, and preset ROP and ROQ, Method's order report will provide a list of items and quantities needing to be purchased.
If you're doing your due diligence and maintaining the necessary processes, knowing what to order is as easy as that. However, at Method, we understand adopting new practices and making improvements doesn't happen overnight. Depending on resources and organizational maturity, a physical demand signal that requires less system maintenance may be better suited to some dental practices. In this case, Kanban may be the "just right" solution for you.
Knowing where you are as an organization and setting realistic goals is imperative to gaining adoption and seeing gains. Remember the Kaizen philosophy, and focus on establishing a gradual adoption of small but impactful improvements.
Keep in mind that as your organization grows and changes, what is "just right" will as well. Dental procurement and inventory policies and procedures should be reviewed periodically or along with any significant business changes. And your spend management software should be simple and flexible enough to implement quickly while being robust enough to grow with you as you scale and mature your business practices.
Once you’ve gone to the trouble of deciding how its best to manage your inventory and just how lean or stock-heavy you want to run, you may want to consider implementing a spend management platform that provides you the control you need to set and govern corporate policies and manage your inventory efficiently and effectively across locations.
Streamlined digital procurement brings many benefits for all parties, making life easier for employees so they can spend their time focused on their patients and empowering business leaders to leverage buying power, lower costs and improve profits.
Whether you’re a dentist or a dental assistant who manages the inventory on top of everything else you need to do, sometimes wearing so many hats can get exhausting. That’s why we created a cloud-based software to help you manage your inventory, receive your dental supplies, and pay your vendors all in one place!
Contact us today to set up a demo to see how it can revolutionize the way your purchase your dental supplies.
Method Procurement Technologies gives independent dental practices and DSOs the inventory management and procurement capabilities they need to succeed. With our full, end-to-end solution, ordering dental supplies is straightforward and hassle-free.
Learn how Method Procurement's spend management solutions can improve your bottom line. Get in touch with our team today or request a demo to see it for yourself.