Inventory Management Handbook

Inventory Management for Optical Practices

One of the keys to running a successful practice is having well-controlled inventory.

A large practice displaying 750 frames can easily have $50,000, $60,000 or $70,000+ tied up in frame and sunglass inventory – much more if drawers and cupboards are filled with back up stock. It’s a fine balancing act to have enough stock on display to present an appealing range, while ensuring good stock turn and an effective clearance strategy that minimises aged and depreciating stock.

ProVision Business Coaches are experts in inventory management, and are able to support practices through a comprehensive review process. This helps ensure that you have stock that appeals to your specific customer, and at the right quantities. A range review may also provide a range plan, layout, buying process and aged stock strategy.

The following guide will support you with the basics of practice inventory management – from considering your patient demographic and visual merchandising, to buying plans and dealing with aged stock.

Your Business Coach can help you perform a comprehensive review of your practice inventory management including merchandising plan, pricing strategy, product layout plans and pricing mix.

To find out if you have gaps in your current Inventory Management approach, download and complete the Practice Inventory Health Check. click here

After completing the Health Check, reach out to ProVision to take the next step with your inventory strategy.

Comprehensive Members

Please contact your ProVision Business Coach

Essentials Members

Contact ProVision Relationship Executive Margarida Faustino

mfaustino@provision.com.au

Inventory Fundamentals

SELECT

A RANGE THAT REFLECTS YOUR CHANGING PATIENT NEEDS

Determine Your Patient Demographic

It is critical that your frame ranges reflect your patient demographic. But how do you make sure you know who your patient is? And does your product offering reflect your demographic, or are there gaps and opportunities?

To begin, check your local patient demographic by visiting the Australian Bureau of Statistics at www.censusdata.abs.gov.au.

With a little searching, you’ll find data analyses of your local area that consider factors such as gender split, age bands and average income. This is a worthwhile exercise even if your practice has been in the same location for many years: over time, populations age, industry changes impact local workforces and gentrification can alter the social and economic fabric of an area. And through these changes, you need to ensure your product offering remains relevant to your local patients.

Review Your Product Of fer

Analysing your frames sold in relation to your frames displayed is critical to future decision-making around brands. It’s where you ‘join the dots’ from patient demographic information to your practices’ product range.

CONSIDER THIS

If half your display space is dedicated to men’s frame ranging, but only 20% of your sales come from this demographic, is there a need to reduce the display space allocated? Or are there only 1 or 2 ranges selling - with potential to introduce different ranges to increase sales of men’s product?

This thinking should extend to the proportion of space allocated to kids’ frames, sunglasses, and any unique needs your practice has. Also take time to consider geographic factors – for example, if you’re in an industrial area, you may need an appropriate display of prescription safety eyewear.

“Effective visual merchandising showcases your product and creates a unique brand for your business.”

KATE HALL

Provision National Retail Operations Manager

Visual Merchandising

SHOWCASE YOUR PRODUCTS AND MAXIMISE SALES

Visual Merchandising is about presenting your retail space in a way that showcases your product and maximises your sales. Strategically presenting products in your retail space also helps to create a unique identity for your business.

Has your research from the previous section revealed a need to review your visual merchandising? Effective frame merchandising can help you maximise sales by:

Presenting products in a way that is logical and easily understood

Simplifying the decision-making or selection process for patients

Including patient messaging through branding, signage, or graphics

Segmenting product to aid the patient-selection process

Grouping products to encourage multiple purchases

Featuring new products or promote product offers to patients

Conveying messages to help patients connect or identify with your product

Product Layout Considerations

Consider how you currently display frames versus how you could potentially display your frames. Would changing your display method increase sales or purchases of ‘second pairs’?

Product Layout Ideas

BY BRAND

Each pole is dedicated to 1 brand - this is the most common layout across the industry.

COLOUR BLOCKING

Displaying product by colour, from light to dark.

PRICE POINTING

Displaying by price from lowest-to-highest, left-to-right.

CROSS CATEGORY DISPLAYS

Merchandising sunglasses with frames (usually by brand).

FEATURE BAYS OR PROMOTIONAL AREAS

Highlight a campaign, new range, or offer (use a highly visible bay or display area in store).

CROSS PRODUCT DISPLAYS

Combine feature bays for premium products, and colour blocking for generic products. This can result in a visually striking look.

“Setting the right price for your product is key to the sustainability and profitability of your practice.”

ROB BOELEN ProVision Merchandise Manager

Pricing Strategy

Most practices, however, are currently using a ‘bottom-up’ approach to retail pricing, and this is our recommended system for most scenarios. Bottom-up pricing allows a practice to begin with a cost-price before applying a blanket formula (based on margin expectation) to determine the final price.

The bottom-up approach produces many individual retail price points and does not always reflect the market value of each frame – as such, the formula-derived prices will sometimes need to be adjusted to reflect a more realistic price in line with other optical retailers. Despite often requiring manual intervention, there are significant benefits to bottom-up pricing:

Easier for patients to compare frame prices and assess comparative value

Higher margins on some frames by moving to the nearest higher-retail price point

Ability to display stock by price point, where appropriate (e.g. ‘Package Deals From $279’)

Capacity to advertise price-pointed offers, where appropriate (e.g. ‘Spend $349 and Receive…’)

Our Suggestion

Simplify your patient offering by consolidating retail price points using progressive incremental lifts ($30, $40, $50) between each price point. Consider changing current individual pricing into consolidated price points so that every frame in your practice reflects some (or all) of the following price points.

One approach to retail pricing is something called ‘top-down’ - an appropriate price is determined in-line with competitor pricing, after which cost is subtracted to determine retail margin.

“Correct stock holdings will ensure smooth and consistent cash flow and stable inventoryyour accountant and bank account will be thanking you!”

ROB BOELEN ProVision Merchandise Manager

Buying Strategy IMPLEMENT SIMPLE BUYING PROCEDURES THAT MINIMISE STOCK BUILDUP

Buying Strategy

Effective purchasing leads to successful business. Similarly, having the correct stock holdings will ensure smooth and consistent cash flow and inventory. It’s also important to have a clear returns policy with all your suppliers - this can assist with frame rotations and help you manage stock. By following this approach, your stock inventory should support display stock plus four to five weeks cover. When you become familiar with this process you can reduce your excess stock to two weeks, thereby reducing your overall cost of goods.

Preparing for Repeat Visits

Regular visits from sales reps are a great way to discover new products, but it’s important to be prepared. Run reports by SKU for that product before the rep visits - this allows you to decide which frames need to be swapped. Anything that has not sold for 6 months should be on rotation, if possible, or reduced for quick sale. Regular stock turn will reduce the risk of aged stock impacting your profit.

Replenishment System

To ensure the success of your buying strategy it is crucial to have a structured replenishment process. Replenishment needs to be completed regularly - at least monthly for all frame and sunglass lines. The best way to achieve this is by using systems such as ProVision’s ProSupply which enable you to hold ‘supply and fit’ stock. Supply and fit means you aren’t selling frames off the shelf, which drastically reduces the amount of stock you need to carry.

Haven’t got a ProSupply login?

Email us and we’ll set one up for you orders@provision.com.au

Replenishment System

It also helps to ensure that you place your orders in the first few days of the month. By doing this you should have already sold through some of the stock before your invoice is due.

Set up a ‘no backorders’ arrangement with all suppliers. This will make it easy to control your stock rather than have it filter through at different stages of the year.

A simple buying plan like the one featured below keeps managing each brand clear and simple, and ensures you control spend, prevent aged stock build up and don’t exceed your maximum desired levels of stock on-hand.

To complete the plan, you simply need to run a stock-holding report by supplier/ brand and work out how many units of each brand you need to order. Remember, you will still need to do this with supply & fit, as a supplier might be out of stock or you may have elected to sell-through the frame rather than utilize supply and fit (for example, if the frame was starting to age).

“Slow moving stock represents cash tied up in inventory - that could better be used to help the business grow.”

KATE HALL

ProVision National Retail Operations Manager

Aged Stock & Clearing Strategies

IDENTIFY AND CLEAR PRODUCTS THAT ARE TAKING UP CRITICAL RESOURCES

Most practices will, at some point, find themselves in a position where aged stock levels are a concern. Slow-moving stock represents cash tied up in inventory that could otherwise be used to help the business grow. It is important that every practice has a strategy to optimise the sell-through of all stock as it ages, ensuring availability of cash flow and an appealing, up-todate product offering.

There are many and varied reasons why a practice may have an excess of aged stock, including poor buying decisions, unrealistic prices, and slowing conversion rates. Regardless of the reason(s), it is important to act and focus on moving older stock continually through the business.

Clearing through and ensuring you have no aged stock in the practice helps to:

Recover cash for the business (increases cash flow)

Reduce stock-on-hand value and freshen product displays

Minimise the risk of product write-off and recover cost value

Improve patient perception of the practice by offering a value-add

Provide additional incremental sales between patients visits

How do I identify an aged product?

By running an aged report in your system, you will be able to identify both the age and cost value of stock items. This will determine stock eligibility for campaign inclusion by identifying slower moving models awhile also giving you a big picture snapshot of your overall inventory health. The goal is to have the greatest percentage of your stock holding at a younger age - this supports higher sell-through opportunities and reduces the risk of tying cash up in aged stock.

If the bulk of your stock holding is older than 18 months, we recommend a promotion to start addressing this concern in your practice.

Promo stock should exclude consignment stock and supply and fit display stock (as both should be current stock anyway).

How to clear old product or ranges you are no longer going to keep

Using an aged stock report, rotate any frames that are more than 12 months old (if possible) – the older the stock, the less likely it is that a supplier will be able to accept a rotation, hence the importance of regular range reviews.

Write off stock that you know you are not going to sell. If you have had the frame in-practice for 2 or more years and still not sold it, it is tying up your cash flow and stock holdings. Hopefully by this stage you will have attempted to sell the product at a discount or through a promotion.

The remaining aged stock makes up your opportunity to sell as part of your aged-stock clearance strategy.

REACTIVATION OFFER

Send a ‘complete pair for $X’ offer customers who may not have recently visited. You can identify them in your practice management system.

NO GAP RANGE

Re-price aged stock and use it to top up ‘low gap’, ‘no gap’ or pension ranges.

SALE

Host a traditional markdown sale. Call it out in-practice with bright red sale signage and make up a bay or two to house your identified frames. This can be especially effective at the end of the financial year and the traditional Boxing Day through January retail sale period.

FREE SECOND PAIR OFFER

Promote aged frames as part of a ‘spend $X, receive a free second pair’ offer.

Now that you have identified the stock to be part of your clearance plan, there are many different ways to move the product. Here are some great ‘go-tomarket’ messages to get you started!

Need more Information?

Want to get more from your inventory? Then it’s time to harness industry-best pricing and trading terms from over 30 supplier partners.

ProSupply by ProVision puts more than 30,000 frames at your fingertips. It’s your gateway to the latest stock from the biggest brands, with many SKUs available as supply-and-fit directly to your lab of choice.

Contact your ProVision Business Coach or ProVision’s Essentials Member Relationship Executive Margarida Faustino mfaustino@provision.com.au

Your ProVision Member portal optom.provision.com.au