In Vegas, everybody’s gotta watch everybody else. Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift boxes are watching the pit boxes. The casino manager is watching the shift bosses. I’m watching the casino manager. And the eye-in-the-sky is watching us all. ACE ROTHSTEIN, Casino (1995)
I am interrupting my blogs on Leadership this month to discuss the issue of inventory security. I recently had an experience that made me think of this and moved me to address it.
As part of our service, when setting up Grasshopper Mouse™ for a customer we analyze their purchases for the last 12 months, arrive at recommended Min/Max levels for each item (Max would be 1 month’s -worth of product, Min would be about ½ of that), review the data with the customer, then, upload all the data to the customer’s account.
In this case, I was working with the staff to gather the data. When I received the data, there was a big red flag. The customer has two offices. In the less busy of the 2 offices, during a 3-month period, they purchased 500 boxes of gloves. (Their next most frequent purchases were 18 boxes of masks/month, and 7 boxes [350 carpules] of anesthetic/ month. 228 of the 257 products used, the volume was 1 unit per month).
I pointed this out to the staff, and was told that the operations manager would be taking over working with us on getting the system going. After a few conversations with the OM, she told me that she had decided that she didn’t want to be bothered with hassling with the system. She told me that the staff wasn’t sharp enough to manage the system, and asked for the contract to be cancelled and their money to be refunded.
As I discussed this with two professionals I know in the finance industry, their immediate reaction was that there was most probably inventory theft involved. I agreed to the refund, but strongly recommended to the Doctor that they conduct an audit of their inventory.
You will tell me that there certainly are many, many legitimate reasons for the discrepancy in purchases, and I agree with you 100%. Even so, for the sake of learning, let’s play like there really was a case of theft here.
Every one of us has seen cases in the news, in bulletin boards, and newsletters of fraud, theft, and embezzlement in dental practices.
You, as good business people, know that there must be safeguards on a number things in your office. You are careful to limit access to your prescription pads. Your controlled substances are under lock & key. You have safeguards setup to protect you from embezzlement. Yet, in spite of this, there is hardly a month goes by when we don’t hear of something like these happening. In each case, it was a trusted employee; and, perhaps, this stung more than the actual financial loss.
We all like to think that we are great judges of character. Certainly, you’re very careful about the people to whom you entrust the management of our practice assets. Yet, these things still happen.
Obviously, you can’t have the same security measures that Abe Rothstein points out. Who wants to live like that?
Inventory theft? How bad could that be? Well, with eBay and other ways to sell products and equipment online it could be very bad. What happens is somebody is using a teaspoon to send your assets out the backdoor fast than you can bring it in the front door with a coal shovel.
There are other kinds of dishonesty that can hit your wallet just as bad, if not worse than outright theft. This is not an apocryphal story! I have a dentist who is a good friend and is a beta tester of our inventory control system who moved his practice to a new location a few short years ago. He told me that they found over $20,000 (TWENTY THOUSAND DOLLARS!) in expired impression material that they had to put in the dumpster. Did he feel like a dope? You bet. Was he upset? Uh, huh. “How”, do you ask, “did this happen?”
The staff member that was responsible for ordering supplies was sweet on a dental rep. Whenever this rep needed sales to make his sales goals; he would talk her into loading-up on impression material.
How did she get away with it to the tune of over $20K? Easy. The doctor trusted her and, who thinks about this sort of thing happening? I mean, inventory?! Yup. And, when you think about it, she could just have easily sold the stuff on eBay and nobody would have been the wiser.
Now, don’t be so quick to criticize the dentist. He knows now, but, while he can’t go back, he’s learned a very important lesson. Many of us have learned costly lessons in our life, but, the best we can most often do is to move on and do better tomorrow.
In the meantime, how can you avoid this kind of thing happening?
Theft is considered a Carrying Cost. People don’t realize that it’s also a Hidden Cost. How so? Remember, like it or not, time is money. Your time is worth something. Your staff’s time is worth something. Here are some Hidden Costs attached to inventory theft:
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Tracking and auditing inventory.
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The highest paid person in the practice needing to take time to personally supervise all facets of inventory control, including purchasing.
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Time & effort spent on tracking down credits and short-shipped orders.
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While putting in secure storage would be a Carrying Cost, the time spent controlling and monitoring it would be a Hidden Cost.
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Tracking down who ordered un-needed or unusual purchases.
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Auditing inventory and equipment on a regular basis using a manual counting procedure.
The only effective way to reduce these costs and concerns is to have a better than adequate inventory control system. This system should:
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Give you an accurate snapshot whenever you need it of what your inventory levels, value, and spend – all without having to go to the filing cabinet and pulling invoices and doing a spot inventory.
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Tie inventory transactions to the person who makes the transaction.
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Keep track of any deliberate deletions of inventory or transactions.
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Recommend changes in inventory levels based upon the practices usage.
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Purchase according to need.
No inventory control system is going to completely protect you from a determined thief; just as no number of locks and bars will keep one out of your valuables. But, just as with any asset in your practice, inventory bears careful control to help you avoid losing any of your practice’s value to theft, as well as to poor management.
Next month: back to Leadership.