Like all businesses, dental practices have an industry standard when it comes to overhead and expenses. For the purposes of this column, all expenses in the dental practice will be referred to as "overhead." Our analysis determined the average overhead for general practice is 68 percent, oral surgery is 58 percent, orthodontics is 57 percent, periodontics is 57 percent, endodontics is 42 percent, pediatric dentistry is 56 percent and prosthodontics is 71 percent (owing to the higher laboratory costs).
Overhead is a major factor in the net profit or bottom line of any practice. One of the key elements of overhead management is inventory control. While we may have preset ideas of how to address overhead, let us look outside of the box for a moment to gain a fresh perspective on the matter.
 |
JUST IN TIME INVENTORY
|
|---|
In the 1980s, Just in Time, a new Japanese management system that advocated ordering parts or inventory as they are needed, created a stir worldwide because it did away with conventional ideas about overhead. One of the most prominent companies to adopt the Just in Time method of ordering inventory was Toyota. For example, Toyota does not have endless numbers of cars assembled and sitting waiting for someone to purchase. Instead, Toyota can fabricate most cars upon placement of the order in approximately four hours. They do not have one plant with all of the parts and components of the car, but rather outside plants that deliver the parts and components immediately upon notification. In some cases, parts and components can be delivered to a main plant in less than one hour and a car assembled in the following three hours. This is not the process for a custom or special car, but rather a routine process the company uses.
Just in Time ordering or Just in Time inventory is founded on the idea of waiting until the last possible minute to acquire what is needed. Implementing this system saves significant resources by not tying up capital in inventory that sits on the shelf, and ordering just the amount you need to fill existing needs. Naturally, Just in Time ordering will not work in dental offices without certain modifications. A dentist would not want impression material arriving 60 seconds prior to the need to take impressions. On the other hand, Just in Time ordering for inventory can be modified to the needs of a dental practice by retaining only a 30-day supply of what is needed in the practice.
Most dental companies today, including the two largest distributors, can supply dental practices with almost any item usually in just a few days. Given that most offices already need more storage space, it is not necessary to purchase large quantities of inventory to simply have it sit on shelves. There are also bulk-ordering programs in which you do not have to pay for or take possession of the inventory all at once.
Implementing a Just in Time method of ordering has a number of advantages:
- – The practice will not have to allocate significant sums of money up front to pay for extensive inventory. This allows for a greater cash flow, other investments or simply increasing monthly net profit.
- – By not having to store large amounts of inventory, the practice is able to eliminate a cramped, uncomfortable environment.
- – Many dentists have found that ordering a large quantity of supplies often does not work out because they decide to change to another supplier or material after using only a portion of the original materials purchased. Consequently, a great deal of inventory goes unused. Most practices have significant amounts of supplies already in the office that will be unused because the dentist has decided to focus on a different product.
- – Just in Time inventory or ordering also helps the office staff understand which supplies and materials it uses, at what speed, and in which quantities. A classic example might be a composite kit. In any composite kit, the 80/20 rule applies, because 20 percent of the composite shades will be used 80 percent of the time. The others will sit unnoticed in storage indefinitely, even though the expiration date has passed long ago.
- – The process for Just in Time ordering and inventory creates a discipline for the staff member assigned to the ordering process. This team member must successfully work with the desired sales representative or company to achieve the goal of maintaining a 30-day supply of necessary items.
The process for Just in Time ordering of inventory will help a practice to create an effective step-by-step system. This discipline is extremely beneficial because the practice develops a standard process or flow in ordering and achieves all of the above-mentioned benefits. The practice may not necessarily decrease its overall inventory costs, but rather spread them out and be better positioned to best manage its finances.
The process for Just in Time ordering of inventory will help a practice to create an effective step-by-step system.
This method makes much more sense than attending dental shows and making impulse decisions on purchasing without thinking about how many different orders have been placed. Talk to the sales representatives about how the products have to be ordered, how long delivery takes, how they are to be paid for (I strongly recommend the use of credit cards that allow you to accrue airline miles) and what the shelf life is.
|
SUMMARY
|
|---|
As dentistry continues to evolve, the best management systems of the business world need to be incorporated into each practice. As always, my goal in these columns is to bring and modify the best business principles available to readers of The Journal of the American Dental Association. Just in Time ordering and inventory control is one of the best, as evidenced by the fact that top-performing companies worldwide have adopted it.
TOP
JUST IN TIME INVENTORY
SUMMARY
