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Managing inventory important for a successful optical shop
Developing an efficient inventory control system is one of several steps that can help maximize a private optical shop’s potential. Part 2 of three parts.
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Part 1 [ Increasing ‘capture rate’ key to successful optical shop ]
Part 3 [ Managing controllable expenses can stabilize your bottom line, ensure profit ]
A computerized inventory management system can eliminate headaches and keep your optical shop’s bottom line from looking like a rollercoaster, according to successful optical shop managers.
When frames are sold, a system should be in place to restock the shelves with similarly priced products, according to Carolyn Salvato, director of optical consulting at BSM Consulting Group.
Far too often, sales representatives will seize the opportunity to fill an empty space with a more expensive frame, she said. These changes can add up quickly.
“The majority of losses that you’re going to find in most private practice opticals is in the inventory,” Ms. Salvato said. “The cost of this investment is often not closely managed.”
When Ms. Salvato consults with a new or existing optical shop, the first thing she does is help create structure by placing controls on the inventory. She then helps the practice assess the frame selection to make sure it matches the demographics of the practice. Finally, a replenishment plan and budget are set in motion.
Controlling inventory
“In a retail environment, such as LensCrafters or Wal-Mart, when a frame is sold, it’s typed into the system, which then goes to the corporate office, and they immediately send you the same frame,” Ms. Salvato explained. “Common practice in the private sector is to sell off the board and replenish only when the reps come in, which we then are buying to fill space, without tracking or managing the dollars. So often a wholesale frame of $30 is sold and is replaced with a $60 wholesale frame.”
That differential goes back to the original sale as a cost and forces inventory dollars to fluctuate tremendously, she added.
It is also important to separate optical and contact lenses, Ms. Salvato said.
“The contact lens benchmarks are very different from optical and if included in the profit-and-loss could skew how well your optical is actually doing,” she explained. “It is recommended to develop a separate P&L for the contact lens business.”
Computerized control
It is almost necessary nowadays to have some kind of inventory management software, according to Ms. Salvato.
“It doesn’t have to be elaborate, but if you do it by hand it leaves a lot of room for error,” she said.
If your practice management system does not already have software for inventory control, some frame manufacturers have simple point-of-sale systems that start at about $2,000 without hardware. Modules that go along with your practice management system can cost up to $20,000, Ms. Salvato said.
If your practice has several locations, like Minnesota Eye Consultants’ 10 shops, it is a good idea for them to communicate. The inventories at each of the locations will vary, but the inventory should be managed under one program, she said.
Frameboard management
Ms. Salvato showed Minnesota Eye Consultants how to implement a frame board management system to control inventory.
“Each office now has a certain number of frames, and each vendor has a certain number of slots,” said Candace S. Simerson, COE, president and chief operating officer of Minnesota Eye Consultants. “We were able to deplete our excess inventory of about 1,000 frames.”
The inventory control process and frame board management system also helped the business reduce its number of vendors from about 70 to 12.
“You can’t negotiate good terms and pricing if you have so many different vendors,” Ms. Simerson said. “With a smaller number of vendors we can build a stronger relationship with them.”
Frame sales formula
Projecting the number of frames you should inventory is based on the number of prescriptions you write annually, Ms. Salvato explained.
“For instance, if your practice writes 5,000 scripts a year, your goal is to capture around 60% of those prescriptions,” Ms. Salvato said. “This equates to about 3,000 eyeglass orders each year. In an ophthalmology practice, not all of those captured will purchase new frames. The benchmark is around 75% who will purchase a new frame, equating to about 2,250 frame sales annually.”
To determine the appropriate number of frames to inventory, take those 2,250 new frame sales and divide that number by three – three times being the recommended annual turn ratio for an ophthalmic dispensary — and a practice with this volume would want to stock about 750 units, she said.
“Typically, most practices will have 500 to 800 frames, depending on how large the practice is,” Ms. Salvato said.
Nailing demographics
It is also recommended to perform a demographic study to find the age and gender of most of your patients.
“If 80% of your patients are 55 and older, most of the selection should match this demographic, avoiding a large selection of younger, trendier styles,” she said. “Sometimes we lose focus on that and want to have products that are trendy and fun but appeal more to a younger demographic. You don’t want the products your staff only buys because they’re paying for them at cost. Make sure the inventory is compatible with the patient base.”
At Minnesota Eye Consultants, Ms. Simerson assigned one person to analyze vendor statements to ensure they have the right pricing and that the correct inventory is being stocked.
Robert S. Gold, MD, who has an optical shop in his pediatric ophthalmology practice in Florida, said, “Everyone in the office has to buy into the idea that you’re a full-service eye care business, and not only do we do eye exams and surgery, but eyeglasses are part of helping patients see better.”
Location, location, location
“Typically, the optical shop is located somewhere near the checkout area,” Ms. Salvato said. “But you should have good visibility from the front desk area, so patients can easily go over while they wait and look at glasses prior to their exam.”
Be sure not to overlook that patients may not realize that the optical shop services are available to them.
“You have to really point it out that you have this service available to your patients,” Ms. Salvato said, even if the shop is clearly visible.
“There are other measures you can take, such as having patients pick up their prescriptions in the optical shop, but a lot of patients get offended by that, and sometimes logistically it doesn’t work out well within the practice,” she said.
Dr. Gold said his practice has two locations, each with different optical shops. One, about 600 sq ft, is located at the entrance of the office. The other shop is half that size and is located in the clinical area, so patients walk close to the shop before they leave.
“It takes an extra minute to walk someone out and introduce them, but that’s the type of service we like to give our patients,” he said.
For Your Information:
- Carolyn Salvato can be reached at BSM Consulting Group, 916 Southwood Blvd., Suite 2C, Incline Village, NV 89451; 775-832-0600; fax: 775-832-0664. Web site: www.bsmconsulting.com
- Candace S. Simerson, COE, can be reached at Minnesota Eye Consultants, P.A. Park Avenue Medical Building, Suite 106, 710 East 24th St., Minneapolis, MN 55404; 612-813-3619; fax: 612-813-3663.
- Robert S. Gold, MD, OSN Pediatrics/Strabismus Section Editor, can be reached at 225 W. State Road 434, Suite 111, Longwood, FL 32750; 407-767-6411; fax: 407-767-8160.
- Daniele Cruz is an OSN Staff Writer who covers all aspects of ophthalmology.