Inventory Management at Scale

27min
Season 1
Listen directly on:

Nicole Clausen, an Inventory Consultant, joins us to share some of her wisdom. She tells us about her brand-new software, Inventory Ally, which is the perfect starting point for inventory optimization.
Nicole also shares what motivated her to start doing inventory management, real-life examples of clients whom she has helped to dramatically improve the structure of their businesses, and ways that corporate groups can leverage buying power without compromising dynamics within the veterinary team.

Topics discussed:

  • The wide range of practices that Nicole works with to improve their strategies;
  • How the cost of goods varies according to the type of practice;
  • A common mistake people make with regard to the cost of goods;
  • Why the creation of a standardized system is important for inventory management;
  • The problem of mischarges in veterinary practices;
  • KPI’s that Nicole looks at when optimizing inventory management of a practice;
  • What an inventory turnover ratio is, and what it indicates about the state of your inventory;
  • Nicole shares an example of a client who she helped to reduce her adjustment from $20,000 to $500 per quarter;
  • Benefits of Inventory Ally;
  • Ways that groups can leverage their buying power;

Helpful links:

Speakers

Transcript

Ryan Leech, Director of Sales
Ryan Leech

Welcome back to Consolidate That. Ivan, an interesting start to the day that we’ve had already. I’m glad we weren’t recording before, so people didn’t hear your crazy conversations. But big news in my life, I just got contacts so if anyone ever sees me, make sure your hair is done and you’re clean-shaven, because I can now fully see your faces whenever we meet. Before, you all used to be blobs. Now, I’m excited.

Ivan-Zak
Dr. Ivan Zak

Are you doing that before the trip to Ukraine?

Ryan Leech, Director of Sales
Ryan Leech

Yes. I have my trip to Ukraine, I wanted to really see the sights as clearly as possible. If you ever meet me, and I’m blinking a lot, just know it’s because I have contacts now. Things are going big for me. We have a more interesting thing today, because we have a really cool guest who is going to be teaching us a lot of really important stuff that I know very little about. Ivan, why don’t you introduce our guest?

Ivan-Zak
Dr. Ivan Zak

We have a very exciting guest today. Her name is Nicole Clausen. Her experience comes from Banfield Pet Hospital, and Best Friends Animal Hospital as the client service representative. Then she switched the industry and worked a little bit in the construction as the project administrator. Then she went back to Banfield. Soon, she created a Veterinary Inventory Strategy Network. This is how we met, Nicole, and it was very interesting to see how you formed a network of, and a thought leadership in the topic in the veterinary domain that is, I would say, rather bland to some people. You have to be really passionate about it.

I have huge respect to you for liking the area that not everybody is passionate about. I usually talk about ophthalmologists and dermatologists that way. God bless them. I could never do it. That’s why I’m really happy that people with those competencies exist. Thank you for forming the Inventory Strategy Network.
Then that progressed into forming a new company, Veterinary Care Logistics, which I think is quite a logical conclusion of – I was waiting for this and this entrepreneurial start to actually create a software company out of this. The product of this company is Inventory Ally. This is everything to do with inventory management, cost management, and things like that. Nicole, welcome to the show. Thank you for joining us.

Nicole Clausen
Nicole Clausen

Thank you so much for having me.

Ivan-Zak
Dr. Ivan Zak

I want to go back to the passion about inventory. Can you give us a quick start off? Why is this something that you started to pay attention more in the clinics? Obviously, you were exposed to different workflows in different hospitals through your career in veterinary domain, and how this whole thing started?

Nicole Clausen
Nicole Clausen

Sure. It got started a number of years ago. When I very first started in vet med, I was in high school. It was just my first job. I received so little training as my first job. I think I got one day as a training, as a CSR, and was shoved out to the wolves. That just was a precursor for the rest of my career in vet med.

Then, when I started managing inventory, I was literally trained with, “When a shaker bottle and it feels low, you order it.” Then she left the practice two days later. I was like, “What? There has to be a better way.” I am a numbers person. I’m a data person. I was like, “There has to be a system that we can establish.” I really worked to create that.

Since 2017, I have helped hundreds of veterinary practices across the country, from one doctor, rural practice, to a 100-plus doctor practices in metropolitan areas. I found that they all struggle with very common challenges. There’s so little training and education, that you have so many individuals who are just like, internal chaos, they can’t take a day off, they can’t relax, and I just wanted to be able to be a support system and bring that relief to them. Then also, teach them that knowledge and strategy to really improve their hospitals.

That’s where my passion for education and teaching, but also to just help them and be there for them, married. It’s really been an amazing journey that really helps me to create effective inventory strategies that really allow them to excel and provide the gold standard of care in their practices.

Ryan Leech, Director of Sales
Ryan Leech

That’s amazing. I’m always amazed when there’s startups in the areas that you would never think about. This one is not no one would think about. It’s such a huge part of veterinary business. I can’t even think of which profession, it’s not in veterinary, I’ve done two vet schools, there’s nothing in vet school about inventory management. I don’t think it’s in the technician curriculum. I just don’t know where they teach that. The inventory management needs to be present there.

Then on top of this, I do want to be a little more specific for consolidators, because of the audience of this podcast, is that this is one of the main growth levers that they articulate to their investors and to the clinics that they acquired that they will establish an inventory process that will lower the costs to a certain percentage, which is very interesting to me. What is your goal when you are talking to a newbie clinic that never even thought about an inventory management process? What is that target of the costs?

Switching to this type of consolidation, how do you take these processes that you learned in individual hospitals and take it at scale? I do want to start with the KPI. What is your target for a newbie-newbie clinic?

Nicole Clausen
Nicole Clausen

Sure. That’s a really great question, and one that comes up a lot. With cost of goods and thinking about cost of goods sold, it’s hard to just put one number to it. Because oftentimes, cost of goods is just an arbitrary number that’s randomly assigned. And we don’t think about the unique hospital situation, because if you think about it, if you have a general practice, they are likely, should be about maybe the 18% to 20% mark.

If you have an emergency, or a specialty practice, their product and service mix is going to be so different so you are going to have a practice where they perform a lot more services and procedures than they do sell inventory. We naturally would want their cost of goods to be a lot lower. On the flip side, if we have a mixed animal, large animal practice, their cost of goods are naturally going to be higher, especially if they are routinely reselling things to farms, ranches, etc, because you can have a large animal product that has a 10% markup.

If a small animal has mark of a 150% to 200%, but a large animal only has a 10% markup, their cost of goods are just naturally going to be higher. What we really want to do is think about cost of goods for that unique practice, or at least a group of practices and what their demographics are, and their product and service mix.

I think one mistake that people look at is that cost of goods, or lowering cost of goods, is just spending less, because that’s not necessarily the case. We want to think about cost of goods and inventory ordering as the replenishment process, so that you are replenishing the inventory that you’ve consumed in a just-in-time format, to really sustain future revenue creation. You want to make sure that you’re not ordering too much, or too little. We really want to create those replenishment systems that are based on consumption and usage, not just, “Oh, hey. We should just order 15%.”

Ryan Leech, Director of Sales
Ryan Leech

Okay. I will have to be the first to admit that my inventory knowledge comes mostly just from the PIMS side. As people that listen know, I have a PIMS background and that was a common question, “How do you guys work with inventory?” Oh, first in, first out. What are these numbers looking like? How do you improve these things?” Every PIMS that’s out there strives to improve inventory. But how do you go about actually doing that? I mean, what are the things that – some of your top tips that you have for groups versus individual clinics that would be important for them to, like you said, not just lower cost of goods sold, but have a more actionable steps of first in, first out, or just in time? Or what are some of the things that matter to you?

Nicole Clausen
Nicole Clausen

Yeah. That’s a really good question. I think, first and foremost, it is remembering that the goals of inventory management, on one side we want to improve the profitability of the practice. On the other side, we want to make sure that we are ordering appropriately, so that we are caring for our patients to the best of our abilities. That just doesn’t mean spending less.

My recommendations, first and foremost, is to create a standardized system that is scalable to every hospital, that you can easily train somebody to that system to know exactly what to order and when. We don’t want to run into this situation where we’re shaking a bottle and it feels low. We don’t want to run to the situation where somebody is looking at, physically looking at every single item in the practice, because that’s not efficient, and it wastes a lot of time. We want to start there.

Once we get this baseline inventory system set up, then we can really optimize it by looking at mischarges. I mean, we’re talking tens of thousands of dollars in mischarges per veterinarian per year. That’s really going to impact our cost of goods. We want to make sure that we don’t have theft, or misuse, diversion going on. We want to make sure – really, there’s just so many different systems that you can set up. I think really, the first thing is just understanding A, “How much are we going to order? When are we going to order it? How do we make sure that we don’t run out?”

Ivan-Zak
Dr. Ivan Zak

If I understand you correctly, then the whole 20% cost as the blanket across the industry, sounds like a garbage metric. It’s not really representative of how much you need and how much you’re spending. Setting that metric to your clinics, let’s say I’m a consolidator, or a regional manager consolidator and I want to keep everybody on the same percentage of costs, that’s not representative of how they should run their business.

Nicole Clausen
Nicole Clausen

Correct. That is accurate. Because, think about it. I don’t know how many times that I have had somebody call me, send me an email and they’re like, “Hey, my budget is 13% of what I spent last week.” Here you have this person who is literally almost in tears because they’re like, “We need lab sponges. We need suture. We need a really important injectable for surgery, but I can’t purchase it because we didn’t have the revenue last week.”

That’s not the way to think about it. We really want to think about it in terms of, “Okay, I need to replenish what I’ve used because if we don’t have the inventory available, not only are we losing revenue, it’s a miss in customer service, because if we’re out of something, it just basically looks horrible on the practice. And it creates a lot of internal struggle and chaos for my inventory manager.”

Ivan-Zak
Dr. Ivan Zak

I love this. We’re going to just scrap a bunch of things and invent new things right on the podcast here. Let’s say, because that’s the thesis. We’re going to improve inventory management, we’re going to improve marketing, and we’re going to manage labor, which I have a complete – we should have a different podcast on that one. Because I think the whole labor percentage metrics is also irrelevant these days, because there’s no people. You better be not looking at that as a percentage of your revenue, but where are the people and how much it costs to bring them in and all of the things.

On inventory, you said the magic words, and I love it, just in time. That comes from my favorite lean. Basically, from what I understand, you’re more concerned about how much of the shelf life certain products have. Do you have things when you need them? That’s the more important. What are those KPIs then, that we should be paying more attention to, to run our business? Let’s forget about the costs, costs needed to calculate your whatever, profit use of subtracted. Rather than look at that and manage that percentage from what I’m hearing from you, you need to manage where’s the waste happening? If we go back to lean and buy just-in-time, you eliminate waste along the process, or the value stream? What are those metrics? What should we measure to be more precise about our inventory management?

Nicole Clausen
Nicole Clausen

Like you mentioned, I like to think about cost of goods and managing them in an ecosystem with other key performance indicators. When I’m thinking about inventory, I of course, like to look at my cost of goods. Also, I like to look at it not just as a static number, but also year over year and my change in cost of goods. I know if my cost of goods went up 5% over the last 12 months, that’s really good information for me. Same thing if it’s trending downward. That’s really helpful.

I also like to look at the value of your inventory on hand. When you look at the value of your inventory on hand, that number immediately tells me if you have too much in stock, you have way too much on your shelf. I like to look at that number. I also like to look at your inventory turnover ratio. That is the number of times a product comes in and leaves the practice within a given here.

That number helps me to determine how efficient your inventory is coming in and leaving your practice, and if it’s just sitting on the shelf, because that could tie up a ton of cash when you just have your shelves full of products. The other thing that I like to do is I like to look at – now this isn’t a traditional KPI, but I like to look at your average adjustments that you make over a given time period. If your team is doing cycle counts, or they’re doing counts, I like to see how much you’re adjusting out of your inventory every single month, or every quarter.

I have this client that I worked with, and before we started working together, she would have at least $20,000 in adjustments every single quarter. After developing the strategies and helping her implement some systems, she got that down to less than $500 a quarter. That’s a big way that we’re either seeing mischarges, or seeing theft. It really helps us to identify a lot of things that aren’t going right.

Ryan Leech, Director of Sales
Ryan Leech

I know that you’ve got your business that has your – your product is the Inventory Ally. Are you taking a lot of these things that we’re talking about, that you’ve trained people on through consulting, and have you taken those and made them into something that can be downloaded, built, logged into, subscribed to? Tell me a little bit about Inventory Ally, and how that’s taken some of this knowledge and applying it to clinics.

Nicole Clausen
Nicole Clausen

Sure. Inventory Ally, I’m so excited about it, because it is literally the first of its kind software in the veterinary space. It is not a PIMS system. It is a true inventory management system that can be used in addition to your PIMS. It really helps to automate a cycle count schedule, so that you A, help understand and know what’s on your shelf at any given time, based upon your key important items.

One of the things about the PIMS that’s frustrating and really disheartening, frankly, for me to see, is these inventory managers will spend tons of time trying to keep it accurate and the numbers are always in the negative. It’s never correct. It’s just so hard to see them put in all this effort with no reward. What Inventory Ally does is, it uses machine learning, and some algorithms basically, to understand and learn buying patterns. We’ll use your order history to create an exact list of everything to order each week.

Instead of thinking about having your inventory manager going around and checking every single thing in the practice, now they have an exact list of exactly what to count. Then from there, the system will recommend exactly what to order. Now you have this path, this system that is easily transferable. If somebody wins a lottery, if they go on vacation, you can train the rest of your team to be able to effectively manage inventory. By doing this, we can get you knowing exactly what to order and when, so that you can start to optimize other areas in the practice, like mischarges and other opportunities with operations.

Ivan-Zak
Dr. Ivan Zak

Is that something that should be partnered with consulting and with spending time with you and talking about it? Or is it something that people can just hop on there and implement into their systems independently?

Nicole Clausen
Nicole Clausen

You can absolutely use this independently. We’ve been testing it in hospitals. We’ve already seen a drop in stock outs. We’ve already seen a drop in the time spent managing inventory every week. We’ve seen a drop in cost of goods. But if you have a practice that has a particularly high inventory costs, coupling it with consulting –

Ryan Leech, Director of Sales
Ryan Leech

Therapy.

Nicole Clausen
Nicole Clausen

Right. Will really help move the needle much more quickly. Because so much of inventory, I find we have a lot of bad habits. We need this behavior change component. We need to really dig into all these other areas to really move the needle. I had one gal, she came to me, we started working together. She had a 32% cost of goods. I dropped her down to 17%. Her whole team got a raise. She was able to sell her practice, because she wanted to retire. There’s so much opportunity when we free up these high cost of goods. Inventory Ally is an amazing program that you can just get started on the ground running. But we can take that to the next level with consulting and some of the other analyses that I can perform.

Ivan-Zak
Dr. Ivan Zak

The usual challenge with consolidators is having multiple PIMS. Then, if you want to centrally regulate the cogs, then no matter how wonderful the inventory system, or inventory management system and the PIMS, which all of them claim that there is. I’m sure, Ryan, you were selling Hippo that way, and it’s the best.

Ryan Leech, Director of Sales
Ryan Leech

The greatest thing I’ve ever seen.

Ivan-Zak
Dr. Ivan Zak

Yeah, exactly. To me, and that’s probably a softball to you, Nicole. It sounds like, if it works independently from PIMS, the biggest challenge of consolidators, they don’t want to change the PIMS, because it’s a huge disrupter after acquisition. This is one of those tools, which will allow you not to change those PIMS, because to centralize the process using Inventory Ally, you can just use one process, one program, despite of the variety of PIMS that they have, is that correct?

Nicole Clausen
Nicole Clausen

Yes. You can use it separately from PIMS. You don’t need to do this. You don’t have to worry about changing your PIMS. You don’t have to worry about, because they all work differently. They all function differently. Just in my role, I have to know how they all work. It’s just one of those great things. With Inventory Ally, you don’t have to worry about the PIMS and you can really just focus on using the software to help you create a system without having to worry about all the little nuances of your traditional PIMS.

Ryan Leech, Director of Sales
Ryan Leech

Now, as groups are looking to be doing some buying, and if we think about, our focus of the podcast is on the consolidation aspect, what do you recommend for folks that are wanting to reduce their overall cogs by leveraging their buying power? What things do you recommend in that? How do you help guide people?

Nicole Clausen
Nicole Clausen

Leveraging your buying power is one of those things that groups don’t always take advantage of, because if you look at your top products, let’s say, your top 20 products, your top 20 movers and shakers, you can then leverage that buying power, but only if you understand and get everyone on the same page, as far as buying it from a particular distributor. That is a ton of buying power that you have. You can leverage purchasing those top products from a specific distributor, or vendor, or manufacturer to really negotiate that price. That will help your cost of goods immensely when we’re lowering the cost that we have to pay for that item. That’s some important things that you can do to leverage that power.

The first step really is, what are those important products to your hospital? That’s one of the things that I can do is I can perform an ABC analysis and audit of your inventory, of your practice that helps identify those top 20% of your products. Because if we look at the 80-20 rule, the top 20% of your products make up 80% of your revenue. Those are the products that we want to drive the cost down and use your buying power to leverage and negotiate that.

Ryan Leech, Director of Sales
Ryan Leech

I think something important of what you’re saying there is that by having the actionable data, what they’re able to do is not have the corporate groups dictate what the veterinarian needs to be using. They don’t need to be dictating what medicines they’re prescribing, what surgery equipment, things like that, that they’re using. By having a unified system, perhaps they can see what is being used, and then use that to leverage their buying power. Because I think some of the groups will go at it the opposite way. They’ll say, “I need to go to Elanco, and I’m going to buy all of the things that they prescribe, or that they have offered for this group and dictate that down to the groups.”
I think from what you’re saying there, if you have an insight into what all your different practices are using, and what the doctors are preferring, you can still get some of the power from leveraging your buying. We’re big on trying to keep the vet medicine in the hands of the veterinarians. I think knowing your inventory allows you to do that.

Nicole Clausen
Nicole Clausen

Absolutely. I think we need to be making data informed decisions. Sometimes, I feel it’s easier to make emotional decisions, think we’re making logical decisions, when really, especially when it comes down to inventory, we need to be making data informed decisions. I think that veterinarians, they are a little wary about coming into a group, when they think they’re going to have to use a formula, or they have to prescribe this one specific thing. If we take those top 20% of products, and we leverage that, we don’t necessarily have to say, “You have to use this one.” We can really not only keep the profitability in mind, but we can also take care of our team in that respect.

Ivan-Zak
Dr. Ivan Zak

I’m actually surprised that people are managing their inventory based on the last week revenue. That’s a bit crazy. Because if you need stuff, you need stuff, “This week, we’re not doing surgeries, because we can’t get the sponges, because we didn’t make money last week.” How do you tell that to the owner?

Nicole Clausen
Nicole Clausen

Yeah. It blows my mind. Every time I hear that, I just internally cringe. I’m like, there’s such a better way to create a budget, is to actually forecast our revenue, forecast our costs, not just saying, “Oh, yeah. Let’s just spend 13% of what we did last week.” Well, what happens if last week was a super slow week, and this week, it’s like, we’re seeing every patient from three counties over? We want to make sure that we can provide for our patients in the way that we need to, because that’s frankly, what we’re here for. Without inventory, we can’t care for our patients.

Ivan-Zak
Dr. Ivan Zak

That’s crazy. We’re running out of time. Nicole, where can people find information about Inventory Ally and get their hands on the demo? Or just have a look at it to consider it, where do we find you?

Nicole Clausen
Nicole Clausen

Sure. You can go to inventoryally.com. Right now, you can sign up for the waitlist. We’re getting ready to launch here very soon. If you’re on the waitlist, you’ll be the first to know when it releases. You’ll get some behind the scenes scoop and information and you can always schedule a demo with me. I’m always happy to show you around the software. You can go to inventoryally.com to find out more.

Ivan-Zak
Dr. Ivan Zak

That’s awesome. We end the show usually with the same couple of questions. Before we jump into that, I have a question for Ryan. Nicole mentioned something, if something happens with the employee, like they win the lottery. Ryan, if you win a lottery tomorrow, would you leave me from VIS?

Ryan Leech, Director of Sales
Ryan Leech

Oh, I think the audio is breaking out here.

Ivan-Zak
Dr. Ivan Zak

Okay. We’ll discuss that later one-on-one. Nicole, the two questions that we ask; the first one is, what is the book, the TED Talk, or the YouTube video that you heard, or read, or listened recently that you would recommend our listeners to?

Nicole Clausen
Nicole Clausen

I recently read Radical Candor. I love that book. Highly, highly recommend that. If you’ve already read that, read Traction. Those are my go-to’s.

Ivan-Zak
Dr. Ivan Zak

That was probably my top three. It’s excellent.

Ryan Leech, Director of Sales
Ryan Leech

We need to start selling ads for Traction.

Ivan-Zak
Dr. Ivan Zak

I know. I know. In training, yeah, just get certified and implement that. Okay, and the second question that we have, do you know anybody in the industry that you would recommend to come to this show that has a good message for consolidators of little tips and tricks and techniques that we can promote to consolidators out there?

Nicole Clausen
Nicole Clausen

I’m not sure if he’s already been on the show, but Clint with Lucca Data Security, he is doing some really cool stuff with cybersecurity.

Ryan Leech, Director of Sales
Ryan Leech

Thank you so much, Nicole. That’s great. We’ll have to make sure that we read those books and reach out to Clint. I know there’s a ton of other useful things. We always find such great guests for the show. Kudos to our team for reaching out to all these amazing people that we can never cover everything. I really appreciate you pulling back the veil on inventory for myself and for others that were mystified by what was going on in those back closets. Thank you so much for being on the show. As always, we appreciate it and hope you have a great rest of the day.

Nicole Clausen
Nicole Clausen

Thank you. Thanks so much for having me.