One major responsibility of the optical manager is to closely monitor frame inventory levels. An excessive frame inventory ties up finances that could be better utilized in other areas of the business, yet too little inventory results in an unimpressive dispensary. There is often a fine line between the two and there are many theories on how best to calculate the appropriate number of frames to carry, based upon both the size of your practice, and your patient flow. The National Academy of Opticianry and 20/20 magazine have CE courses available that discuss this in depth.
However, often simply taking a close, objective look at your dispensary can be the best way to make this determination. When frames are sold, you should have an adequate number of overstock frames to pull from to fill these slots; or, do you have empty spaces on your boards for several days? Do the frame boards and shelves look overcrowded, or sadly lacking in variety? Do you have hundreds of surplus frames sitting in boxes or drawers, or do you simply have just enough overstock to ensure you never have empty spaces? These are the sorts of questions to ask yourself. Consignment lines such are a great solution to this predicament; they enable an adequate supply of overstock, but you are only charged for those pieces sold so you are not tying up finances in excess inventory. Not only can you not sell empty spaces, but empty spaces also reduce the impact of your displays and imply neglect and lack of attention to detail.
Our dispensaries must always give patients the impression that they are the first patient of the day, even if they are the last. Continually fill and clean up displays to maintain a professional presentation. Re-merchandising displays from time to time will keep the dispensary fresh. This highlights new product and encourages patients to continually return to check out what's new. You know how when you go to Costco things are hardly ever in the same place twice and you find yourself exploring every aisle to find what you need? How often do you end up making additional purchases of items you just happened to come across? That's their merchandising strategy, and what an effective one it is. The same strategy can be incorporated into your dispensary, only on a smaller scale, and will yield similar results.
Maintaining tight control over frame board inventory involves many things including:
- Personally meeting with frame representatives to make purchasing decisions. I have never been a fan of assigning a number of board spaces and letting the rep decide which frames to bring in. You know your patients, the demographics of your practice, and the frame styles that are going to perform the best;
- Establishing good relationships with frame representatives you can trust to inform you of both discontinued, and phased out, frames;
- Following up and tracking credits on returned frames to ensure accurate credits are applied to your account;
- Performing regular inventory counts to watch for inaccuracies, and to keep track of shrinkage (missing frames);
- Monitoring the performance of each manufacturer, on an annual basis, and adjusting board space allotment, accordingly (turn ratios).
In terms of performing frame board inventory, devise a system that works for you. My dispensary is on a 6 month cycle: each month my staff performs a frame count of a handful of our frame lines, so that every 6 months every frame line is accounted for. This avoids having to conduct a count of all frame lines at one time, and yet provides regular tracking. On June 30th and December 31st each year, I formulate a report showing inventory numbers and the change that has occurred since the last count. It also records shrinkage - enabling the tracking of stolen frames and highlights poor inventory control methods. This report helps in monitoring purchasing, sales, and inventory growth, or decline.
February is the time to generate a turn ratio report; representatives should, by now, have year-end numbers. This shows how well each frame line is performing. Have your sales representatives provide net unit sales for the previous year; this factors in purchases and returns. Generate a report of your frame lines and their turn ratios: The turn ratio is calculated as follows:
Net units purchased during the year from that manufacturer / Number of frames in stock from that manufacturer on December 31st
There are 58 pieces from a particular manufacturer on display and last year you netted 130 pieces.
Turn ratio = 130/58 = 2.24
A turn ratio of greater than 2.0 for a mid-priced frame line is, in my opinion, acceptable for my dispensary of just over 1000 frames. However, a high end frame line with a turn ratio of around 1.5, to me, still indicates a good performer and contributor to optical sales. A low turn ratio can indicate excessive board space is being given to that frame line, or it can simply mean the line is a poor performer. This doesn't mean immediately calling the rep, canceling your next appointment, and marking down the product to sell through! It simply indicates the line needs attention; why is it not performing well? Is it not an appropriate style for your practice? Is it too high end, or, for that matter, too low end? Remember, low priced frames can imply low quality, especially if your practice is based in an affluent area. Are the frames just poorly merchandised in your dispensary? Observe it's performance over the next year and meet with the rep to express your concern over its poor performance. The rep wants the frames to sell just as much as you do. Oftentimes, they will have ideas to help highlight the line better - trunk shows, frame displays, POP merchandise, etc.. If the line continues to perform poorly after these steps have been taken, it can be an indicator that it is not a good fit for your practice.
Similarly, an extremely high turn ratio, greater than 3.5, can indicate too little board space is being given to that line. It is important to not react just based on the turn ratios, however. For example, I carry over 300 hundred frames from a particular consignment line, of which, on average, I sell about 300 units each year. As a turn ratio this produces a low result; despite this, a line that is selling 300 frames per year is obviously a good performer.
One important thing to mention with regards to turn reports relates to new lines introduced to your dispensary: net units sold, its first year, will include the initial buy in and won't accurately reflect its performance. To analyze its performance, the original buy in quantity should be deducted from the total net units purchased for the year.
Initial buy in: 40
Total units purchased over the year: 60
Total frames on board: 40
Turn ratio = 20/40 = 0.5
This report does serve as a helpful tool in frame board management. Interpretation of turn ratios is somewhat subjective, and your practice owner will probably have their own expectations.
Closely monitoring and managing these details results in a dispensary that is much more profitable for the practice, and provides the patient with the most popular selection of frames. This is a crucial role of the optical manager, and enables you to provide the practice owner with crucial data to monitor profit and loss.