Updated 1/23/2023
Carrying inventory is costly.
Inventory carrying costs are the total costs related to buying, storing, and managing inventory. It’s an important number managed carefully by organizations everywhere, and for good reason. Carrying inventory ties up cash flow, takes up valuable space, and puts you at risk of taking a financial write-off if goods become obsolete (expired, damaged, or rendered unusable due to degradation.) Carrying high levels of inventory also makes for more work, as the more you buy and hold, the more you must manage, further increasing your cost of doing business.
Although manufacturing facilities and retailers have long since been Leaning into Lean inventory management, one has to wonder, is this really a big deal for dental practices? Well, it’s said that inventory carrying costs can run between 20 and 30% of the total cost of inventory.
And remember, unlike revenue, savings have a direct penny-for-penny impact on profits. We've estimated that saving one dollar is equivalent to generating $2.94 in production revenue. So yes, it’s a highly costly habit that makes for bad business, which is why Lean inventory practices are at the core of Japanese methodologies and have long since become the global supply chain standard.
The goal of Lean is to provide a continuous improvement approach to bringing more value to customers (or improving profits) by increasing efficiencies (doing more with less) through the systematic removal of waste. For dental practices, it means improving how you manage dental supply costs.
Although, at first glance, not all the principles seem to relate to dental service providers directly, it’s good to understand the underlying methodologies so you can adapt and modify them to suit your business. It’s also imperative to understand the big impacts these seemingly small and inconsequential changes can have on your efficiencies and margins.
As we explained in our Intro to Japanese Methodologies, there are many different kinds of waste that eat away at your profitability, and it’s essential to keep them in mind as you set up or look to improve dental inventory practices.
Similar to the other methodologies, Lean also provides five principles to help guide its practitioners. Let’s review.
Identify and understand the value of inventory and the importance of minimizing the amount of dental supplies you carry on hand. Much like an unruly garage, the more you have, the more chaos and costs it brings. This may take a bit of a shift in mindset, as people often quelch their fears of not having “enough” or not being able to locate what they need through over-buying (in the Lean world, this is referred to as “Just-in-Case” inventory). In the end, this creates more issues than it solves.
Keep it moving. The goal is to keep your dental supplies inventory moving as effectively as possible. Reducing any wait time and obstacles from the flow of inventory allows you to optimize your inventory levels. Wait times and obstruction of flow can consist of boxes sitting at the door waiting until someone has time to move them to their holding space, having various holding/hiding spots for inventory, or keeping inventory in hard-to-reach or poorly organized areas. The 5S Lean principle (sort, straighten, sweep, standardize, sustain) is a great tool to reference when organizing your stock area.
Be ready to adapt to change. Employees should take a proactive mindset that relates what is happening in your dental business with what it means to your material requirements. Open limited hours during the holidays? Speeding up production? See that you may be running short? Don’t wait until you run out or are sitting on a heap of unused inventory before you take action.
As your practice grows and changes, or as you discover issues you hadn’t foreseen, your process should be reviewed and adapted. Adopt the Kaizen philosophy and create a culture of continuous improvement that empowers employees to take ownership and find better ways of doing things with a focus on implementing small but consistent and ultimately highly impactful improvements.
The principles of Lean inventory help to create efficiencies. By lowering the cost of doing business, you increase your profitability. And by removing chaos from the management of supplies and creating a controlled process, you bring calm to the day-to-day workings of your practice and present employees the opportunity to bring you increased value by doing the things they do best. Go Lean, and free up your cash and your people, so they can get back to taking care of patients.
Contact Method today to learn more and see how our dental procurement software can help you achieve a Lean inventory without increasing the burden on your employees.
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. Contact Us
