Best Inventory Management Practices for Veterinarians in 2024

By Jenny Alonge, DVM, FFCP

Inventory is the second largest expense in a veterinary practice, after labor costs, and can account for 20% or more of gross revenue. Inventory is not only a key profit center, but also influences patient care and impacts client relationships, and can therefore significantly affect your bottom line if not well-managed. Implementing a more efficient inventory process allows you to free up cash and shelf space, save staff time, and reduce losses from expired products, theft, and damage. Here, we provide tips to help you navigate the inventory process to optimize patient care and maximize profits.

Assign an Inventory Team

Ideally, you should assign one trustworthy person who is highly organized, knowledgeable about veterinary drugs and products, and fiscally responsible to manage your practice inventory. In addition, your inventory manager should have help to unpack and organize products. A second involved person will help prevent mistakes, decrease embezzlement risk, and be a backup if your inventory manager is sick, goes on vacation, or quits. 

Analyze Your Inventory

Color code your products to determine the stocking level each requires:

• Red — Red products are your high-priority stock that represent the top 20% of items you sell or use and 80% of your revenue. These typically include products crucial to patient care, emergency medications, and your most frequently sold items. You should count red products daily or at least every other day to ensure you never run out. 
• Yellow — Yellow products are sold regularly but less frequently than red products, tend to drive less practice revenue, and typically account for about 30% of stock. You could shift some yellow product sales to your online pharmacy. You should count yellow products every one to two weeks.
• Green — Green products are are dispensed infrequently, easy to reorder, and can be restocked in only a few days, so are not critical. Green products typically account for about 50% of a practice’s inventory and can be carried solely online, if you have an on-line pharmacy, to eliminate the cost of keeping them in-clinic. You should count your green products once a month.

Decide What Products You Should Carry

Carrying every parasiticide, multiple different nonsteroidal anti-inflammatories, numerous therapeutic shampoos, and multiple eye solutions is neither cost effective nor feasible. Choose products that you and your team prefer, and stock only those items. Can you switch to a generic for certain products? What about stocking once daily antibiotics instead of those given three times a day? Decide what works for you, your team, and your clients. Schedule quarterly team meetings to discuss new products and to decide whether a new product is useful on its own or could replace a product you currently carry.

Monitor Expiration Dates

Using expired products is unacceptable, but minimizing expiration waste is important. Determine which products have a short shelf life, place older products on shelves in front of newer ones, and regularly check expiration dates. Some suppliers may have policies that let you return outdated products for credit. 

Consolidate Your Orders

Price shopping to find the best deal for every product is time-consuming. Instead, order multiple products from the same supplier to get bundling discounts and look into whether spending more money with one supplier would lead to better service and pricing. Consolidated orders also decrease the time your staff spends ordering, restocking, and paying invoices. Also, consider ordering drugs you use frequently in your practice in bulk or ordering individually from 503A pharmacies versus bulk orders from 503B manufacturers. 

Establish Reorder Points

Buying in bulk makes sense for frequently used products, but isn’t the most cost-effective option for seldom-used products and can lead to waste. Establish a set limit from usage data and your supplier’s delivery time that triggers reordering that product. To avoid surplus stock and expiration waste, keep about a two to three week product supply on hand.

Determine Your Inventory Turnover Rate

The inventory turnover rate is how often 100% of your inventory is replaced because of sales. Contributing factors include storage space constraints, available time for inventory management, and the practice owner’s specific concerns. Most small animal veterinary practices that carry sufficient inventory levels turn over their inventory six to eight times each year, but inefficient inventory management can result in higher turnover rates. 

Schedule a Key Vendor Day

Schedule a specific day each month to meet with your key vendors to avoid random, unscheduled drop-in visits that may disrupt your entire day. At these visits, discuss new products and discounts being offered. 

Use Practice Management Software to Help Track Your Inventory

Inventory management software can help reduce labor costs and improve inventory tracking by:

• Suggesting order quantities
• Tracking inventory dispensed by prescription and medical procedures
• Providing checkpoints against physical inventory counts
• Producing daily, monthly, and annual gap reports to highlight opportunities for efficiency
• Provide expiration reports to help reduce waste

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