Del Norte Pharmacy of Santa Fe is part of a well-run group of 11 retail pharmacies in the South and Midwest, spanning from Texas to New Mexico. In the Fall of 2013, the group introduced Good Neighbor Pharmacy Business Coaching at the Santa Fe location. Pharmacist Brian Hunt supervises this store, along with several other locations in the group.
The cost of inventory for a retail pharmacy represents one of the largest expenses they incur, making it one of the most significant areas of financial management, operational efficiency and cash flow considerations. According to the NCPA Digest 2015, the average retail pharmacy turns their inventory approximately 11.9 times per year. After a complete diagnostic review of the business in late 2013, the business coach discovered that Del Norte Santa Fe was turning their inventory approximately 5.8 times per year—less than half the industry average.
We had no idea what appropriate amounts to order were. We knew we were ordering too much, but didn’t know where to start. By using the reports provided by my business coach, we now know the minimum and maximum amounts we should have on our shelves at all times.
Being mindful that adjusting inventory levels too quickly can cause stock-outs and affect customer loyalty, Brian and his business coach worked together to develop both a short-term and long-term inventory management plan. First, his coach highlighted the importance of staff education and engagement in maintaining proper inventory control. “When I started off, I never really considered inventory from a business perspective, and neither did my staff. With the help of my business coach, the first transition we made was training the staff about the importance of cash flow and what that means to the business—view everything we have sitting on the shelves as money that could be freed up for bonuses, raises or investments in new projects.” In addition to training and education, his coach provided guidance and exclusive reporting tools to assist Brian and his staff in determining optimal ordering quantities.
Over the next two years, Brian and his business coach continued to work on improving their inventory management. As of December 2015, Del Norte Pharmacy of Santa Fe had nearly doubled their inventory turnover to 11.86 turns per year. By efficiently maintaining the inventory at Del Norte Santa Fe, Brian freed up more than $275,000 in cash, which has been reinvested into growth and expansion of the business.
By keeping our cash high and our inventory turnover rapid, we were able to pull enough cash out of the business to build an entirely new store for our Las Vegas location, and we didn’t have to take any loans out. We paid for the entire thing using the money that we saved.
Brian is very pleased with the progress, and he continues to be an advocate for Business Coaching. “It is absolutely something that I would recommend to any other pharmacy. I hope that the program continues to grow and improve to help independent pharmacies face the increasingly volatile environment that the healthcare system has established.”