The rising costs in oral healthcare – Time to reboot & reset clinics for economics (Part 4)
COVID-19 is having an unprecedented impact on the global economy, including that of the dental industry. Most dental clinics are shut and a few are offering only the emergency services. Dr Bhavdeep Ahuja will analyse "the rising costs in the oral health care services and how to reboot and restart the dental clinics" in his 5 part series. "Control the Inventory and Control the Profits" - is the fourth article of the series.
(Author Disclaimer: This article of mine is targeted at small to medium level dental practitioners and new practitioners who deal in a limited level OPD and have small to medium-sized premises. No disrespect, whatsoever to those who are having big spacious interiors, jam-packed OPD’s and big numbers (financial) associated with their name. I would like to re-iterate here that the distinguishing factor is the number of patients and size of the practice and not the skill set of any individual which can be highly inequitable. The only reason for dishing out this disclaimer is that highly successful running dental clinics won’t find the content of the article identifiable and suitable for adaptation in their enormous practices, but, if willing to, can read on and send your feedback to me)
The most prudent upcoming challenge in the post-COVID-19 era is the increase in the cost of oral health services which can limit the patient access to health care as limited resources lead to rationing and delaying and denial of care to people in need. We are in the Lockdown almost all over the world due to a pandemic called ‘Coronavirus’ aka the COVID-19. Of course, the human race has been known to overcome all such challenges in the past. One aspect is, however, getting absolutely clear; practising Dentistry in future (Post-COVID-19 era) is never going to be the same as the Pre-COVID-19 era. Dentistry was already cited as one of the costliest professions in India, by most of the ‘poor’ (and also by some rich, as well) Indian patients; believe me, this bar is all set to go higher and further milestones are going to be breached in near future as and when we resume the regular operations of dentistry, anytime 1-3 months from now. The rampant exploitation of natural resources brought us face to face with animals that harbour these novel viruses (in this case, presumably, a bat). Eminent public health researcher Dr Peter Daszak and his team have estimated that there are as many as 5,000 coronavirus strains globally waiting to be discovered in bats. We may possibly be looking at a future where pandemics and epidemics become a part of life and health takes the centre stage in public policy and even, election campaigning, dare I say that. We will have to learn to live with the virus is the new eternal but bitter truth. I might be sounding silly here, but, health care would finally seem to take precedence over all other key issues and is slowly but surely and steadily going to get its legitimate due, very soon. As dentists and more importantly, as health care professionals we have to play our part in preparing our patients for this new reality. It was said a few years back that the World War III will not be fought with weapons; isn’t that ‘prophecy’ coming true in this COVID-19 era when thousands (rather, lacs) of people all over the world are dying for without any fault of theirs.
Part 4 begins...
Inventory control means stocking an adequate number and kind of materials so that the materials are available whenever required and whenever required. This has to be done at an optimal outlay of financial and human resources. High inventory leads to high cost by blocking the finances; large storage space; huge handling and administration charges; obsolescence and spoilage etc. On the contrary, low inventories may lead to frequent stock-outs and high shortage costs. Balancing the cost of carrying high inventories and the cost of shortage is done through a system of scientific inventory control.
The two primary functions of inventory control are:
- To provide maximum service consistent with maximum efficiency and
- Optimum investment and to provide a cushion between forecasted and actual demand for material.
The broad aims and objectives of inventory management are to:
- Maintain availability of materials whenever and wherever required in optimal quantity
- Minimize the ineffective stock
- Optimize the various costs associated with inventories
Considerations for Effective Inventory Management
- Assessing the requirement of inventory which lists quantity in stocks as well as in transit.
- Liquidity of financial recourses: The constraints of funding require supplies to be purchased whenever the budgetary allocations are made. This causes unnecessary inventory build-up in our clinic.
- Lead time is an important consideration for our clinic which has official red tape to cross before final purchases are made, paid and inspected/evaluated.
- Private dealers/manufacturers most of the time lobby hard to push outdated machinery materials or equipment which has lost relevance — this has to be scrutinized lest we should fall prey to such bargain buys.
Inventory control procedures should isolate those items that require precise control from those that do not. For this purpose, items are classified into groups on the basis of a number of criteria. The commonest classification used is:
- ABC analysis
- VED analysis
- SDE analysis
ABC Analysis: also known as ‘Always Better Control’. ABC analysis does not depend on the unit cost of the items but only on its annual usage and not on their importance because all items are important. Inventory is classified into 3 categories- A, B and C.
- A items have high annual usage in terms of money investment
- B items are average
- C items have a low value of usage
The ABC principle states that:
- 10% of the materials would consume 70% of resources
- 20% of the materials would consume 20% of resources
- 70% of the materials would consume 10% of resources
|Category||Per cent of items||Per cent of investment|
|A||10 – 15||70 – 80|
|B||20 – 25||15 – 25|
|C||60 – 70||5 – 15|
The items which are small in number but consume a large amount of resources are known as “A” items. Items, which are intermediate in number and consume an intermediate amount of resources are known as “B” items. “C” items are very large in number but consume a significantly low amount of resources.
The following guidelines will help the material managers/dentists;
“A” items need tight control; rigid estimates of requirement, strict and close watch, low safety stocks and management to be done at the top level.
“B” items need moderate control, Purchase based on the rigid requirement, reasonably strict watch, moderate safety stocks and management at the middle level.
“C” items need ordinary control, usage estimates of requirements, control by the storekeeper, high safety stocks and management done at a lower level.
Methodology for ABC analysis
- Work out the annual consumption cost of each item.
- The list of items should be arranged in descending value of their cost.
- The cumulative cost of the items is worked out on this list. The cumulative cost of the first item will represent its annual cost, whereas, the cumulative cost of the second item will be its annual cost plus the cumulative cost of the item above it. The cumulative cost of the last item will be the total annual expenditure.
- Mark the figure close to 70% of the total expenditure. All the items up to this figure will be “A” category items.
- The next figure to mark will be close to 90% of the total expenditure. The items between the two figures i.e. after category A and up to the figure close to 90% will be B category.
- The remaining items will be C category, which constitutes around 65%- 70% of the items.
The purpose of ABC analysis is to enable the dentist to exercise selective control when he is confronted with large number of items. It is also helpful to rationalize the number of order and reduce the overall inventory. The main limitation of ABC analysis is that it is based on the monetary value of items.
VED Analysis: This analysis is based on the critical value of an item and its effect on the functioning of the institution. Criticality implies the intrinsic value of material in achieving the organization’s objectives. The analysis is based on the critical value and shortage cost of an item.
Items are classified into three categories
- V stands for vital items. These items should be controlled by top management.
- E stands for essential items. These items should be controlled by middle-level management.
- D stands for desirable items. These items may be controlled at lower level management.
- Vital Items: Those items whose shortage cannot be tolerated even for a shorter period and without which the clinic cannot function. Such materials should always be available in sufficient quantity to ensure their regular availability. These items are controlled by top management.
- Essential Items: Those items whose shortage can be tolerated for a short period only. But if not available for a long time, will adversely affect patient care. Middle-level managers should control these items.
- Desirable Items: Those items whose shortage will not adversely affect the functioning of the clinic even if not available for a longer period. But such items may consume sizeable resources.
VED analysis is thus, based on subjective analysis.
The findings of ABC and VED analysis could be coupled together and further grouping is done to evolve a priority system of management of stores.
Category 1 includes all the vital and expensive materials.
Category 3 includes all unimportant materials, which are neither vital nor expensive.
Materials in Category 2 are of intermediate category.
This is the ideal inventory model
Make categories 1st 2nd and 3rd by drawing tables below
It all depends upon one another as:
This is based on the availability position of items in the market and the position may vary from time to time.
- S – Items which are scarce in the market. These are to be controlled by top management.
- D – Items that are difficult to obtain.
- E – Items that are easily available.
Other Analysis like
- HML Analysis – High, medium, low. These all are based on consumption.
- GOLF Analysis – Government, Ordinary, Local, Foreign. These all are based on the source of supply from where the materials are procured.
- FSN Analysis – Fast-moving, slow-moving and non-moving. These all are based on issues from stores.
- SOS Analysis – Seasonal and off seasonal items.
Basic factors asked in the determination in inventory policy are what to order, when to order and how much to order. It depends upon requirement, lead-time, cost factor, financial availabilities and storage, patient service, provider relations, marketing conditions.
Inventory Reduction Tips
We can reduce inventory by following:
- Fixing up the maximum limit of inventory in term of value.
- By giving responsibility to one person who is at top management.
- Meticulous material planning.
- By reducing lead time.
- A well designed and defined inventory control system.
- Strict control over obsolete slow-moving and non-moving items.
- Computerize the inventory control system.
- By improving the buyer-seller relationship, selecting the right source of supply in terms of location, quantity and quality etc.
- Surprise check from the top management can play a very important role in proper inventory of materials. Employees will always remain self-conscious on their parts and will perform their duties efficiently.
(To be Continued ...in Part 5 - the finale)
Dr Bhavdeep Singh Ahuja graduated in 1998 from Punjabi University, Patiala. He has specialized in Implants from BioHorizons Inc. USA in 2004-05 & in Advanced Course from LACE-ICOI, USA in 2006. Apart from Dentistry, he holds a Triple M.B.A. in Hospital Management, Finance/Human Resources (dual) & Marketing from three premier Institutes/Universities of India viz. the IIMM Pune, IGNOU Delhi & Annamalai University, Chennai respectively. He also holds Post Graduate Diploma’s in Medical Law & Ethics (NLSIU - Premier LAW School of India), Clinical Research, Cyber Law, IPR's (Intellectual Property Rights), Disaster Management, Financial Management, Bioinformatics amongst many more from different Universities. He is a Certified Health Care Waste Manager from IGNOU & is qualified in Consumer Law as well. He is an academically oriented dentist & has more than 75 Original Scientific Publications to his credit in many International & National journals. He lectures all over India extensively on the topics of Practice Management, Medical Law, Ethics and Consent and Finance for Dentists and he is writing a series on all these topics in multiple journals simultaneously. He has been the Past Editor-in-Chief, L.E.D. E-Journal & PAGE 3 OLA-D E-Newsletter, the twin Publications of IDA Ludhiana Branch. Presently, he is into his 21st year of Clinical Private Practice in Ludhiana, Punjab.