How To Master Inventory Management Of DME

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Author(s): 
By David Edward Marcinko, MBA, CFP, CMP

What About Potential Drawbacks?
EOQC may be a useful technique if there is an opportunity to change the current DME ordering policy of a medical practice or if the current policy is inadequate. Though it may appear that this equation would solidify purchase quantity, there are still other factors to consider.
For example, a medical practice still needs to review the likelihood of a stock shortage, the length-of-time DME is kept on hand, quantity discounts that vendors may offer and product volume within the practice. Moreover, practice goals and strategies may sometimes conflict with EOQC methodology. Measuring DME performance solely by inventory turnover is a mistake. Some practices have achieved aggressive goals in increasing inventory turns only to find their bottom line has shrunk due to increased operational costs.
While EOQC may not apply to every DME inventory situation, some practices will find it beneficial in at least some aspect of their operations. Whenever there is repetitive purchasing of DME, one should consider the proper use of EOQC.
Though EOQC is generally recommended in practices where DME demand is relatively steady, one can apply the EOQC model to items with seasonal demand variability by going to shorter time periods for the EOQC calculation. One can simply divide the year into the increments in which annualized sales are relatively constant (i.e., summer, spring, fall and winter). Then apply the EOQC model separately to each period. During the transition between seasons, DME inventories would either be run down or built up with special seasonal orders. Just ensure that usage and carrying costs are based on the same time period.

Final Thoughts
EOQC is not a panacea that solves all DME inventory cost problems or easily adds to bottom line profits. There is much to consider before adopting an EOQC policy for all DME across an entire medical business enterprise. However, it is a good SCIM tool to consider when determining the best ordering policy to use for a DME intensive medical organization.

Dr. Marcinko is a healthcare economist, certified financial planner and certified medical planner. He is also the Academic Provost for www.MedicalBusinessAdvisors.com, an online resource center providing financial education to physician clients and support for their business consultants.

Dr. Marcinko can be reached at (770) 448-0769 (phone), (775) 361-8831 (fax) or e-mail at marcinkoadvisors@msn.com.

Editor’s Note: Dr. Marcinko previously wrote “Seven Reasons To Appraise Your Practice” (see page 24, August issue) and “Key Strategies For Protecting A/R Accounts” (see page 76, May issue).




References:

Recommended Reading

1. Greene, J. Production and Inventory Control Handbook. McGraw-Hill, New York, 1996.
2. Piasecki, D. Optimizing EOQ. Solutions Magazine, Norcross, Georgia, January 2001.
3. Tersine, RJ. Principles of Inventory and Materials Management. Prentice-Hall, New Jersey, 1993.

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