Session 11 Organization Flashcards
What is shrinkage?
A decrease in on-hand inventory that is caused by use that is not recorded.
What is the second largest expense category?
Inventory
What is the largest expense category?
Staff costs
What is inventory control?
The process of weighing the need to maintain sufficient inventory against the monetary cost of carrying the inventory.
What is merchandise inventory?
Products purchased for resale to client
What is medical supply inventory?
Items used in the course of providing veterinary medical and SX services.
What does ‘Just in time’ refer to?
Receiving a product just as needed vs storing the product
What is a benefit of just in time inventory?
Low holding costs
What is another benefit of just in time inventory?
No expired product
What is a disadvantage of just in time inventory?
High ordering costs
What issue can arise with just in time inventory?
Stock outs and back orders
Ordering costs
Labor related expenses such as employee compensation including benefits and taxes paid to employees to preform the various duties.
Holding costs
Costs invested in keeping the inventory on premise while waiting to use or sell
Examples of holding costs
Personal property tax
Insurance
Pharmacy licensing/DEA fees
Utilities
Loss due to exp/waste
OSHA regulations
Examples of ordering costs
Benefits and taxes paid to employees
Ordering
Receiving
Unpacking
Maging payment and records
Holding costs range
8% - 15% of true costs
Combined ordering and holding costs account for approx how much of total true costs?
25% - 35%
DVM costs
If DVMs in the practice are paid on production with inventory included, allocation of a portion of their pay is considered an actual cost of inventory
What does the markup on an item have to be to break even?
35%
Getting inventory under control
- Print code or products list
- Reprint the list
- Create a list of unconsolidated products
- Count inventory
- Begin to enter/receive inventory
Print your code/product list
Delete or inactivate items no longer in use
Review classifications and make necessary updates
Review for duplicate products
Review medical consumables
Reprint the lists
He’s making his list and checking it twice
Consolidating inventory
Produce a report of a particular category
Compare qty of each brand purchased, sold, exp
ID top 2 items and produce a report showing profit of each
Produce a second report showing loss associated with other items
Discuss with the team what products will remain
Control functions
Preparing and distributing written policies and procedures, creating and maintaining security and safety protocol, and regular monitoring of the system via accounts and accountability. Needs to be flexible to change.
A perpetual inventory system
A control system that can provide an accurate idea of inventory quantities at any time period when items are received, they are immediately added to the inventory records and when items are used or sold, they are removed from the inventory records.
Periodic inventory system
Uses data from manual product counts at the end of every financial period
Internal controls
All measures, systems, and protocols used to prevent errors, waste and fraud
inventory variance evaluation equation
((Beginning + ordered) ÷ received qty) - qty sold
Process for inventory variance evaluation
Equation answer should match physical count. If it does not, the difference is the variance
Variance
Any variance is an indication of weakness or problem
Acceptable variance
1-4% variance in high turn items can be acceptable
Inventory count and evaluation example
Forecasting function
The inventory system should include the ability to signal when an item needs to be reordered to avoid an outage
Forecasting functions considerations
Re-order timing should account for the estimated delay between ordering and receiving.
Lead time
Delay between ordering and receiving
Formula for calculating re&order points
Avg daily use × lead time = re-order point
Higher lead times mean
Higher re-order level
Re-order qty
Amount of product to order once the re-order point has been reached
Re-order qty equation
Avg daily use × turnover goals in days = re-order qty
Considerations for calculating re-order qty
Round up to take into consideration potential growth expectations or supply and demand challenges
Turn over goals
Try to match the vendor’s billing cycle to attempt to sell the product before the practice has to actually pay for the product
Selling functions
Elements of an inventory system that deal with profit
Selling function examples
Price setting
Tracking profit margin
Compare inventory and supply to revenue
Gross profit
Gross profit
The difference between the price of a product to the client and the total cost of that product to the practice
Red tag system
Back up system example
- tag is placed in the bottle that signifies when that product needs reorder
2 important organization techniques
Zoning
Central supply
Zoning system
Zoning your inventory throughout your hospital (and mobile truck) is like creating a map.
How to create a zoning system
- Create list of supplies and location
- Create stocking list with minimum reorder points
- Assign staff to certain items or location
Central supply system aka
Ration based inventory
Central supply system
Supplies and inventories are stored in a main highly secured area and systematically rationed out to other areas of the practice and smaller quantities.
Use mainly in large practices.
Central supply system rules
Create locations for primary and secondary storage
Limit access to 1 or 2 people
Safeguard primary storage with lock
Moving a product from one place to another requires sigh out log
No one person should have control over assets and movement of asset
Selective inventory control
Profit-based management system that prioritizes inventory based on value and importance
Pareto’s 80/20 rule
20% of the items account for 80% of the sales revenue.
80% of the costs exist in 20% of the items
80% of the profit can be predicted to come from 20% of the product sold
Selective inventory control theory suggests
Investing the most time managing those products in the top 20%
Minimize the number of times orders are placed per week. Ideal goal = order your top 20% of items once a month.
BI
Value of drugs and medical supplies on hand at the beginning of the year
EI
Value of drugs and medical supplies on hand at the end of the year
DMSP
Some total of drugs and medical supplies purchased (in dollars) made over the course of the year
Average inventory on hand
(BI + EI) ÷ 2
Inventory turnover ratio
DSMP ÷ AI
AI
Average inventory on hand
Higher turn over ratio means
Tighter inventory control
Average turn over should be
Around 6 times per year
ALSD
Average shelf life of inventory in days
ALSD def
A useful calculation in determining the efficiency of inventory management
ASLD equation
365 ÷ annual ITR = ASLD
ITR
Inventory turnover ratio
Example of ASLD
Inventory turns per year goal
8 - 12
Mark up
Multiplying acquisition cost by specific factor. Common in veterinary medicine historically.
100% mark up
Doubles the acquisition cost
200% markup
Triples the acquisition cost
Break even mark up
40%
Margin def
Predetermines the amount of profit desired and adds that to the acquisition cost
Margin considerations
Can be a useful strategy where there are large differences and resulting price based on the size of the patient.
Margin pricing decreases the rate at which the price increases for the client when compared to markup pricing.
Margin v markup
Margin is sales minus the cost of goods sold
The amount by which the cost of a product is increased in order to derive the selling price
Break Even analysis
to determine when your business will be able to cover all of its expenses and begin to make a profit
Break Even point
The amount of Revenue that covers all fixed and variable costs, without generating either profit or loss
Break Even sales price equation + profit formula
SP = FC + VC + P
SP
Sales price
FC
Fixed costs
Unit cost, estimated ordering and holding costs
VC
Variable costs
DVM production percent and associated payroll costs and taxes
P
Profit
Practices aim for 12%
Ideally the top 10% of inventory items should be ordered
Monthly
To maintain tight internal controls, the role of inventory purchaser should always be separate from the role of
Inventory receiver and inventory documentary and tracker
Equipment budget
Includes maintenance of existing equipment and purchase cost of new equipment.
5 Considerations for purchasing new equipment
- Is the equipment new to the practice or replacing existing equipment?
- How will the equipment be paid for?
- What will the client be charged, and where is the break-even?
- Cash is typically the smartest, most economical way to purchase
- Perform a break even analysis prior to purchase
Break Even analysis
used to determine when your business will be able to recover all of its expenses and begin to make a profit
Break even analysis for equipment equation
(price of equipment and any support or maintenance) ÷ ( client invoice cost - cost to actually produce the service) = # of times the service must be performed to break even
Tax Act of 2003
Has improved benefits for small business owners
Tax Act of 2003 section 179
Significantly increased the amount of eligible property that can be written off in the first year ($139,000 in 2012)
Tax Act of 2003 section 168 k
Gives an additional deduction of 50% of the remaining balance of the equipment purchased that is above the $139,000
Example of potential equipment write-offs in the first year
Cost = $150,000
Section 179 subtract $139,000 = $11,000
Section 168K subtract 50% = $5500
MARCS depreciation subtract $1,100
Remaining balance = $4,400
MARCS
Modified accelerated cost recovery system
The tax act of 2003 provided what increased benefits to small business owners
Significantly increase the amount of eligible property that can be written off in the first year
Gave an additional deduction of 50% of the remaining balance of the equipment purchase that is above $139,000
The remainder of the purchases can also be depreciated on a straight line depreciation schedule
Practices should plan to reinvest around what percent of gross revenue for replacing or acquiring equipment annually?
1%
When is equipment considered Capital inventory
If it is in usable condition
POMR
Problem oriented medical records
Most common medical records format
POMR
POMR format
Defined database > the problem/master list > the plan > the progress section
SOAP format is used in which section of POMR
Progress section
SOAP
Subjective
Objective
Assessment
Plan
Subjective
Most critical information for support staff. These details include the reason for the visit, history, and client observations
Objective
Information collected via physical exam, Diagnostics, and interpretation. This section is factual
Assessment
The conclusion reached from the data collected from the subjective and objective sections. Multiple or tentative diagnoses can be documented here with the use of rule-ins or rule outs.
Plan
Developed according to the assessment and includes any treatment, surgery, medication, intended diagnostics, or intended Communications with the owner.
Problem list sections
Major
Minor
Medication table
SOMR
Source oriented medical records
SOMR def
Data is entered in the medical record and then proved by the information source and then organized chronologically by date of patient encounter
SOMR information source examples
Client oral hx
Physical exam findings
Imaging studies
Lab results
SOMRs can be effective if well organized
Depending on the organizational skills of the doctor, the date to date hx may be very disjointed,
What can increase the probability of the doctor capturing the necessary data?
Checklists
Combinations of SOMR and POMR
Probably the most effective way to organize the medical record from the Private Practice perspective
SOMR + POMR combo includes
Major problem list
VXNS hx
Exam uses the SOAP format with major problems using POMR
The State Veterinary Practice Act defines minimum medical record documentation for each state. What other entities Define minimal requirements of Veterinary Medical records?
The abma principles of Veterinary Medical ethics and AAHA
Practice technology goals for managers
Develop effective, automated information and processing systems that can evolve with the practice growth and that will be able to take advantage of new technology as it is developed
If bringing on new technology, what is the minimum on site training recommended?
1/2 day
Steps to go paperless
Purchase and implement the new hardware throughout the practice
Implement the new software for 6-12 months
Begin Final Phase of going paperless
Software and Hardware purchases will show greater return on investment than any other Capital expense in veterinary medicine to do an increased efficiency in every Department. true or false?
True
Are Hardware and software are both examples of information systems?
True
Strategic planning
Long term written action plan to define and achieve future business goals
Business life cycle phases
Intro
Growth
Maturity
Decline
Business life cycle intro
Vision, innovation, and energy. Typically before doors are open for business
Business life cycle growth
Efficiency, discipline, and talent development are critical
Business life cycle maturity
Manage risks, problem solve, search for continuous opportunity for growth
Business life cycle decline
Decreased demand for services. Revisiting the Strategic plan for revitalizing the practice is vital
4 phases of strategic planning
- Formulation
- Development
- Implementation
- Evaluation
Strategic planning formulation
- Develop mission, vision, values
- SWOT analysis
- Gap analysis
SWOT analysis
Strengths, weaknesses, opportunities, and threats.
Gap analysis
Compare current performance with potential or desired performance and leads to the development phase of the Strategic plan
Gap analysis questions
- What services are offered now and what will be desired in the future
- What skills, knowledge, ability does the team need?
- What is the employee retention rate and are there true career opportunities
Development of strategic planning
Use the results of the mission, vision, and values, the swot, and the Gap to create a plan to achieve the desired goals.
When developing strategic plan consider
Team members
Clients
Patients
Budget
Strategic planning development phase outcome
To create a strategy that has a strategic fit where the practices activities interact with and support the strategy and each one optimizes the other to reach the goal
Implementation phase of strategic planning
Allocate resources to right initiatives, communicate to team and train
System thinking
Where consideration is given to how each department affects another
Implementation of strategic plans include
Systems thinking
Plan of action
Progress check points
Creating a plan of action
How specific objectives success will be measured
How will the objectives be obtained?
Time frame?
Strategic planning evaluation
Consider a balance scorecard
Balance scorecard
Illustrates state of the practice
Balance scorecard parts
Client satisfaction
Financial status
Learning and development progress
Benefits of a balance scorecard
Scorecard metrics can show the side effects of your strategy and it’s successful implementation, as well as whether the changes have affected other areas of the business
Organizational design
The methodology that identifies aspects of workflow, procedures, roles, and systems and aligns them to fit current business realities and goals
What does organizational design do?
Clearly defines roles within the practice and should Empower a team members do to clear responsibilities, clear goals, and effective communication
Considerations when exploring organizational development
How team helps
Managing training
Leveraging staff
Hierarchy interference with relationship centered care
Clearly defined job responsibilities
Learning organization
Characterized by the ability to adapt to change and respond quickly to environmental/consumer changes
Areas to evaluate consider where change might be indicated or training
Client Services
patient care
team development
Revenue centers
Common reasons for failure of organizational development
Change not supported by leaders
Message didn’t resonate with team
Changes forcefully not collaborative
Lack of clear communication
Change doesn’t alighn with mission/vision
Which of the four phases of strategic planning is focused on how the practice will get from point A to point B?
Development
Leadership fatigue can be experienced by both owners and managers and usually results from a lack of communication, lack of delineation of job duties, and feeling that they are constantly haggling with the team to carry out policies and procedures. Which element of the Strategic plan addresses this dynamic?
Organizational design
How long can it take to prepare a team member for a leadership position?
12-36 months
