Pharmacy owners deal with suppliers and stock every day, managing prices, orders and stock levels.
Beyond that, what does active stock management mean in your pharmacy?
Why is it important? Active stock management is a key factor in driving your pharmacy’s operational performance which in turn leads to better financial performance. Ultimately a growing pharmacy should be achieving good growth in gross profit dollars from sales and increasing revenue from professional services. Actively managing stock is a big part of this equation.
You don’t want your pharmacy looking empty and, at the opposite end, you also do not want to have too much clutter where patients are falling over the isles and can’t squeeze a pram in.
We are all familiar with a certain big green shed. I’d ask you to think about how you feel when you walk into these stores? Fully stocked shelves help move stock by increasing the propensity for people to buy.
Setting a benchmark stock intensity can aid in your purchasing program. Monitoring it can help to ensure you are presenting your pharmacy at its best to your customers. Stock intensity is the measure of stock per m2.
Whilst stock intensity should be strong, the balancing act is to ensure you have lots of the RIGHT stock. This is where monitoring stock turn fits into your suite of management tools. Your stock turn represents how quickly or how often you are turning stock.
If too high, then you may experience out of stocks and lose sales. If too low, it may be an indicator that you don’t have the right stock on the floor, with the end result that you have money tied up in stock.
You should be constantly reviewing your sales report for stock turn to see what’s moving and what isn’t moving. You can get as granular as you like on this, based on department, based on product or right down to the SKU level.
You can manage this effectively in two ways. You can work with your POS provider to set up alerts if this feature is available. Alternatively, you can allocate departments to senior staff and ask them to review stock turns regularly within their departments.
Gross Margin Return on Space (GMROS)
For those who want to dive in deeper. Using GMROS you can also assess the shelf space being used by particular items. The GP$ that are generated by a department can be related the space it occupies and you can determine the return per lineal metre.
In this way, you can compare the performance of one department against another. To lift GMROS you can take a number of steps – increase marketing of the product, increase the retail price, buy better. Or you can reduce the stock on hand or reduce the space such that the stock and space don’t impact the sales levels, i.e. same return for less investment.
Putting it all together
Poor stock turns across departments should be an alarm bell to review your stock holdings. Stock intensity should be maintained overall and from there, it is a matter of targeting those departments you wish to be strong in, based on your customer base and pharmacy offering.
For each department you can review selling price, buy price, brands, non-brands, store positioning, shelf space, supplier support and marketing. And don’t forget product knowledge for your retail and pharmacy assistants - a key product support tool!
Exception reporting of key measures should be put into place. It should be part of the team’s job to bring the areas of concern that may exist across the pharmacy floor. There should be a coordinated approach to merchandising the store, always ensuring that there is a connection with the overall pharmacy offer.
Both stock and space are significant investments in resources. The nature of your investment here also impacts your investment in staff. Taking active steps to drive gross profit in this way is worth the effort.
For more information
To learn more about active stock management in your pharmacy, please reach out to your local RSM adviser today.