How to better manage your frame inventory

April 15, 2007

Las Vegas Inventory management is the one area where most ophthalmology practices have trouble.

Las Vegas-Inventory management is the one area where most ophthalmology practices have trouble.

Inventory is a large capital expense that, if handled improperly, can have a great impact on cash flow for the practice, according to Katherine M. McNelis, COA, NCLC, ABOC, addressing the importance of inventory management in her presentation "The Fundamentals of Frame Inventory Management for the Ophthalmology Dispensary" at the annual meeting of the American Academy of Ophthalmology. An optician with Dynamic Ophthalmic Training in Philadelphia, she has more than 30 years experience in dispensing eyewear.

McNelis said that, years ago, practices spent around $10,000 to $15,000 on inventory. Today, inventory expenses could top $50,000 to $70,000. Without an optical budget, however, a practice easily can run into trouble.

"Inventory bloating-it's the best description of what can go wrong," she said. "You start out with 500 frames, and the next time you count them it's 1,000. That's bloating, and you don't know how it happened."

The goal, she said, is to be consistent and stay within a budget. Adjustments can be made for seasonal needs-adding extra frames for back to school in the fall or extra sunwear in the spring-but, ideally, stay within 40 to 50 frames of the initial inventory goal. By law, practices must conduct an annual physical inventory. This inventory count is a good control on fraud and abuse, McNelis said. The best way to keep track of inventory is by bar-coding frames and computerizing the inventory record.

"You should be able to tell me how many frames are in that office down to the last frame," she said. "That's called inventory control."

When setting up a budget-or even revitalizing inventory-a good practice is to survey the practice's patient base by sex, age, and managed-care contracts. The survey can be as simple as keeping a log of every prescription coming out of the office during 2 weeks.

"It's a snapshot of what's going on in your office," McNelis said. "In 2 weeks, you'll have a good demographic on which to base your inventory." Other resources for a demographic study are local radio stations, newspapers, television stations, direct-mail vendors, or even city hall. Mailing lists from those sources can provide median income levels, family sizes, sex, and age.

"You don't want to judge a group of people by their income level, but planning your inventory around it is important," McNelis said. "Make sure no matter what the median income level that you have everything available."

According to McNelis, the best demographic group is females aged 36 to 50 years, because they tend to have the highest income levels and are willing to spend. The over-50 crowd tends to be on fixed income, and the 20- to 35-year-olds tend not to have much discretionary income.

Show off your best

When planning inventory, McNelis recommended that every office should have one or two higher-priced frames and use them as a merchandising tool. McNelis said she puts aside $500 per quarter into a budget to buy these higher-end frames, then spotlights them in a high-profile case. By having a merchandising budget, inventory is not damaged if those frames don't sell.

Mid-range frames, which run $35 to $74 wholesale, make up the majority of inventory. These frames have a way of looking similar to one another, however. Having a mix of frames and using creative marketing will prevent the office from looking like a mall-based retail optical company, where the majority of stock is mid-range frames that tend to look the same.

"It's very important to position yourself differently from that," McNelis said. "The mall is open on Sunday, and they make them in an hour."