Don’t neglect the management of frame inventory; it’s one of
the most important practice management tools within the office.
First, other than diagnostic equipment, frame inventory is
usually the largest capital expense of a practice. Second, your
frames project your practice image and identity with the brands,
colors and methods you use to display them. So, it makes good
sense to manage it
efficiently. It directly impacts the way
that patients see
you, the way that
you can meet their
needs and the overall profitability of
the practice.
FIRST, THE
NUMBERS
Frame inventory levels should be based
on the number of
frames sold. Inventory when well managed should be
turned two to three
times per year; better sellers, more
often. This allows inventory to be fresh and new for all patients.
It also allows a better opportunity to coordinate the office look
with fashion changes.
For example, if 1,200 frames are sold per year, then the
most frames in inventory should be 600. There is a base level of
inventory that should be maintained to keep a good assortment
available to service the customer base, most likely between 400
to 600 frames, even if the inventory turns dictate a lower
number. If the practice has an inventory level lower than this
number, then there is a strong likelihood that some patients will
not find the frame that is right for them and will go to a different
location to get their needs met.
There is also a ceiling number that doesn’t need to be
exceeded, even if inventory turns indicate a higher number is
allowable. This number may be anywhere from 700 to 1,500
frames depending on availability of floor space, frame display
spaces, patient base served and inventory turn-around time
from manufacturers.
The purpose for controlling inventory levels is money. Excess
inventory represents dollars that do not provide a return on the
investment made in them on behalf of the practice. The same
dollars could be used in other areas where capital can generate
more business (a retinal camera, automated testing equipment,
training, marketing and advertising, etc.).
Other compelling reasons to control the inventory level include
avoiding messy clutter in the dispensary, maintaining attractive
and contemporary products, preventing inventory obsolescence and avoiding the discontinuance of older frames that might be
on your displays, or even worse, in boxes in the back cabinets.
Another negative effect of unmanaged inventory can be a drop
in capture rate; if patients decide that a more inviting environment
may best serve their needs, they leave and go elsewhere.
REDUCING INVENTORY
Frame companies do a great job of selling frames. They train
their sales representatives well, bring discount programs at various
times of the year to entice larger purchases and have beautiful
products. So, it is easy to get overloaded with inventory.
Reducing the number of frames to get levels in line with
objectives is an art and a science. It is one of the most difficult
aspects in the optical field to master. Simply stopping the
purchase of any new inventory is a short-term fix with negative
consequences: the best-selling products disappear from the
practice quickly, leaving the not-so-good products left on the
shelf. A slow and balanced approach is required to reduce
inventory to the correct levels without negatively impacting your
patients’ selection. Here’s how: 1. Identify preferred vendors and
categorize them into short or long term; 2. Develop a plan of
action; and 3. Monitor it for effectiveness.
IDENTIFY PREFERRED VENDORS
The first step in reducing inventory is to categorize your
frame vendors into two categories: long-term vendors and
short-term vendors. Short-term vendors are those vendors that
currently have some stock in your inventory, but will be
eliminated over time while long-term vendors will be your
“partners” for the future.
Here are some thoughts on how to select your long-term vendors:
- Great frames, well constructed and fashionable at the right prices
(priced to better meet your patient mix or demographics).
- A frame line that fills a niche for the practice and patients (some
niches are larger than others like rimless or eclectic).
- The company stands behind their product with good service
and fill rates.
- The company has desirable programs for the practice
(co-op, discounts, etc.).
- Sales reps are honest, business-wise and help the
practice be successful.
- The sales rep manages their board space, removing
obsolete frames and not overloading the practice with
additional inventory.
- The sales rep offers to do trunk shows and/or other marketing
and merchandising assistance (suggests a checklist).
HOW MANY VENDORS?
How many vendors should you have in your long-term plan?
It will vary by practice, but a good rule of thumb is six to
12 vendors. Determinants may include:
- The breadth of the product line (some have multiple
designer lines, others are single brands).
- The amount of time you are able to devote to each line for
sales calls, inventory counts, verifying billings and returns.
- The total number of frames in your inventory plans. It makes
sense that you may have more vendors for 1,200 frames on
display than if your plan is 500.
- The diversity of the patient base to be served by the practice,
including (economic, sociological and age) factors.
- Some “boutique” practices may have more to meet the
eclectic needs of their patients. For example if you market
your practice with the Unique Selling Proposition (USP) of
“The largest selection of high-fashion frames in the area,”
then you will need to back up the claim with the “goods.”
- Once you have determined the number of vendors and scope
of product offered, make sure you have made the best choices
for your patients by doing periodic satisfaction surveys. It is
important to ask the patients if they had the choices available
to meet their needs and desires. This is especially important
for any patient that decides to go elsewhere.
SHORT-TERM VENDORS
Maintain good relationships with your short-term vendors, but
let them know you need to reduce your inventory. You expect
the reps to be honest with you, so you should be honest with the
reps. Let them know they won’t be part of your long-term plans
at this time, but it is possible that they will be back in after your inventory is in control. Frame lines change, reps change, new
designer licenses are added all the time, so it is very possible that
some of the lines that are “out” now will be “in” next year
and vice versa. In the meantime, you should come to an
agreement with these reps on how to best reduce and eliminate
their product from your boards.
The best way is to sell the inventory off and not re-order,
but if you have some frames that won’t sell you may want
to exchange them for others that do. Maintaining a good
relationship with the short-term vendor will enhance the
opportunity for their cooperation and assistance.
There are also some vendors with “swap” programs that will
take your inventory from lines you are eliminating and replace
the frames with their product. While this doesn’t reduce your
inventory, it might make it easier to manage the process. Verify
the vendors’ policies on returns and exchanges to control any
costs that might be involved. If costs can be minimized or
eliminated, then it will make these options more attractive to
the practice when balanced against the costs of ineffective
inventory. Do the math—see if the restocking fee is easier than
the time and effort or discount that will be required to get rid of
those excess and what seems like non-saleable frames.
ALLOCATING BOARD SPACE — LONG TERM VENDORS
Now that you have selected your long-term vendors, the next task
is allocating board space. For this example, let’s say we have 700
spaces, all spaces are full to divide between 10 vendors and we
currently have 1,000 frames in stock. Here is a sample allocation:
| Vendor |
Frame %
For future |
# of Frames
for future |
# of Frames in
current inventory |
Number to reduce
from inventory |
| A |
18%
|
126
|
188
|
77
|
| B |
15%
|
105
|
174
|
79
|
| C |
15%
|
105
|
110
|
5
|
| D |
12%
|
84
|
122
|
48
|
| E |
10%
|
70
|
83
|
13
|
| F |
8%
|
56
|
60
|
4
|
| G |
6%
|
42
|
58
|
26
|
| H |
6%
|
42
|
85
|
43
|
| I |
5%
|
35
|
38
|
3
|
| J |
5%
|
35
|
47
|
12
|
| Total |
100% |
700 |
965 |
265 |
PLAN OF ACTION
Next, set up a plan to reach the goal. Let’s say this practice sells
1,400 frames per year, so 700 frames in stock would give it two
turns of inventory per year. At that rate, the practice is selling 117
frames per month. Let’s start by setting up meetings with the 10
long-term vendors and let them know our plan for their frame
line and ask them for their assistance in getting to the correct
number and styles of frames in inventory. Let’s further state we
want to reach the correct number by reducing approximately 1/3
of the frames using a sales-per-month program. That would
mean selling off about 39 frames per month.
At that rate with 300 excess frames, it will take us 7.7 months
to get there. So, let’s set a goal of reaching 700 frames in 10
months (30 frames per month) to give us a little leeway. If we try
to reduce our inventory much faster than this pace, we tend to
sell off the great selling products while showing the frames that
don’t move so well and thus impact our patients’ satisfaction
with our services.
Our plan of action will vary by vendor; for example Vendor C
only needs to reduce by five frames but Vendor B needs to reduce
by 79 frames over the 10-month period. It will be important to set
monthly goals by vendor as well as overall goals. For the 79 frames
that need to be reduced from Vendor B, some frames can be sold
at 50 percent off when purchased as a second pair within 60 days of
the primary purchase, some can be marked down for a special sale
for this month, those that are “dogs” should just be returned and
take the restocking fee.
Also create a cross reference list characterizing the
inventory by patient and wants e.g.,
men, women, rimless, safety, titanium,
memory metals, kids and so on. It
suggests the practice understands how
many of what gender, age group and
patient identity the practice has.
MONITOR THE RESULTS
It will also be extremely important to
“inspect what you expect.” Take a
physical count of the frames at the end
of each month to make sure your
numbers are reducing by about the
30 per month expected. Also use 10
percent of the overstock per month by
vendor as individual goals. It is easy for
the numbers to go down for a couple of months and then bump back up if you are not vigilant. Track the
numbers every month.
The number of frames sold by the practice will be dictated
by patient flow and business activities of the practice. The
number of excess frames in inventory will not affect the number
of frames sold, so should not have any long-term effect on the
frame sales people or the frame company. The end result will
be the practice will still sell about 117 frames per month,
unless new marketing and advertising methods are used, etc.,
to grow the practice. Part two of this series, Managing Frame
Inventory, will address the complementary program that looks at
the use of brands, luxury, classic and general purpose frames and
their marketing as elements of inventory management.
It is also important to remember the cost to the practice of
excess inventory; assuming there is no obsolescence of product
that is sitting in drawers or boxes (which is rarely the case), there
is still the cost of the frames to the practice. In this instance the
300 excess frames at an average cost of $65 would equal
$19,500.00. This money could be used in other areas. If the
practice has a $20,000 line of credit or loan, the money would
reduce interest charges to the practice by about $1,200 per year.
MANAGING INVENTORY AT THE CORRECT LEVEL
Once you have achieved the correct inventory level, there are
methods to keep it at a good level and keep your frame vendors
motivated to help you succeed. Al Villavecchia of Alfred J.
Villavecchia Buying Group and previously the owner of a third
generation family optical shop recommends tracking the number
of frames sold by vendor and using the sales figures to
re-allocate board space every six to 12 months.
 So if Vendor A had 20 percent of the board space but sold 17
percent of the units, the new allocation for Vendor A would
drop to 17 percent of the board space. If Vendor D had 10
percent of the board space but sold 12 percent of the units, the
board space for Vendor D would expand to 12 percent.
Reallocation opportunities will keep the vendors’ interests
aligned with the interests of the practice. If they have a product
that is not moving, they will be motivated to replace it with
something that does move. Some averaging can be used here to
assign reallocation rates—for example using a three-month
running average so that no precipitous change is made.
The ability to change frame lines and styles in a timely fashion
is an additional benefit of maintaining the correct inventory level.
When you are not overloaded with frames and particularly, weak
sellers, it is much easier to keep your styles fresh and adopt
attractive new lines. How often does fashion change, what
and when are patients bombarded with the style changes for
clothing, accessories, sunwear, etc.? It’s seasonal, so being able to
shift at least twice a year is critical. Visit a high-end department
store and look at the number of times the display changes
within a particular brand. Patients are used to seeing style change
and expect the same from their eyewear.
CONCLUSION
Continued monitoring of the board space is necessary. If
you don’t “inspect what you expect” it is nearly a certainty
the frame inventory will get out of control again. Reducing
inventory is a difficult process, so be vigilant to avoid a
repeat. In today’s business world it makes sense to be as
streamlined and profitable as possible. |