How to Improve the Profitability of Your Pharmacy with Optimal Purchasing Management
After analyzing a good number of different pharmacies, including those compliance packaging pharmacy types, I have verified that their success depends directly on good purchasing management and stock control.
Many agree with the following statement: “to sell well, you need to buy well and efficiently manage stocks”.
Have you ever stopped to think about how it is possible that two pharmacies, which sell the same thing, have such different gross margins? Why is one more profitable than the other? Why do you have more cash? Why does pharmacist have more time to spend with their customers? Why is the pharmacy better valued by them?
Below you will find the answers to these questions:-
Advantages of purchasing planning
There are many competitive advantages that these pharmacies achieve with good purchasing planning:
They improve sales because they have more satisfied customers: they minimize shortages, they offer an attractive assortment at a competitive selling price, they get training for their employees to improve professional advice, they are very efficient with orders or with advice towards an equivalent item in stock.
They increase the percentage gross margin. A 2% improvement in the gross margin of a pharmacy that sells $900,000 can represent an improvement of $18,000/year. It is not uncommon to find pharmacies with gross margins close to 35%.
They pursue the optimal stock (the one that avoids shortages with the minimum investment in cash). A pharmacy that sells $900,000 a year, if it manages to go from 60 days of average stock to 45, means an increase in the balance of the bank’s current account by $37,500. This is how they compensate for part of the one-month payment delay.
They review and eliminate unprofitable or dead stocks: They avoid speculative purchases that generate dead stocks and losses when liquidating them. I invite you to get the list of dead stocks and find out their amount. This way you will know how much cash you have immobilized on the shelves and how much money you have lost, even if it is not reflected in the operating account yet.
Less personnel expenses: They define the processes well to save time in the back office and dedicate it to the clients.
Less financial expenses: they negotiate payment deferrals with suppliers and reduce financial surcharges or overdrafts in credit policies.
More cash: increase the working capital, increase payment days.
More time: by mastering the computer program, they save time on routine tasks: order preparation, negotiating with suppliers, inventories, stock control.
But…. If you buy cheaply and don’t manage your stocks correctly (items that haven’t moved, about to expire or are dirty due to the passage of time, etc.), sales will suffer and profitability will plummet when you decide to liquidate them.
Let me share with you some of the techniques used by the most profitable pharmacies when managing their purchases. Surely, I left some and I encourage you to add them in the blog comments in order to improve this article.
Techniques used by the most profitable pharmacies when managing their purchases:
They know very well the situation of the pharmacy because they have carried out an internal and external Diagnosis.
They have designed a marketing plan and the necessary strategies to achieve their objectives.
They know the software perfectly and know how to get the most out of it. Especially the purchasing and stock management modules.
They analyze the history of sales and profitability by supplier, by category, by linear and by item. They are classified using the ABCD method.
They have established optimal management indicators that alert them to deviations with the aim of taking the appropriate corrective measures. In particular: level of service, order ratio, turnover coefficients, average stock, margins by category, family, shelf and item, profitability of the shelf.
They carry out exhaustive monitoring and control of the best-selling items classified as “A” (approximately 20% of items that represent 80% of sales). They buy them directly from laboratories or through “transfers” to wholesalers.
They carry out permanent inventories every three months of the most sold or most expensive items and a general inventory per year.
They have invested a lot of time in developing the procedures and training their team in purchasing and inventory management. The mission is to choose the assortment that meets the needs of customers, reduce it as much as possible without giving faults and keep only the best suppliers.
They have been trained in the techniques of negotiating with suppliers. Price is essential. However, this is not the only variable they rely on when making a decision. The time they dedicate to placing orders, the service received, sales support and after-sales service are variables that they translate into euros and quantify whether they are going to increase or decrease their purchase costs.
They prepare the negotiation: they define the objectives, review the sales history, are attentive to the needs of their clients, take the initiative when quoting the suppliers, listen to the offers, only deal with products with high turnover and record the offer conditions.
Later, away from the counters and the hustle and bustle of the pharmacy, they analyze and compare the proposals without haste. They not only look at the price but also look at the services they offer to boost sales, decide who to buy from and how much to buy, and communicate this to the supplier by email. In case of doubt, they also consult their team.
They then inform the team of the agreementand the priorities in dispensing.
Depending on the type of pharmacy (populous, rural or urban) they work with more or fewer laboratories per category, but for an urban pharmacy that bills less than $900,000, they usually work with:
2 wholesalers for daily replacement,
2 generic laboratories and they change them depending on the commercial conditions offered,
2 for skin
1-2 for babies
1-2 oral hygiene
1-2 body hygiene
2-3 laboratory/brand health products
They are very aware of the offers promoted by wholesalers and take advantage of them.
They monitor the agreements with the suppliers: prices on the delivery notes, incidents, evolution of sales, rotations, margins… and ask the supplier for collaboration to improve deficiencies: return of items that do not rotate, replacement of stolen items or in poor condition, animation of sales, they request financial compensation for introducing their products on the shelf…
Every year, they renegotiate the economic conditions with all suppliers.
If you control your environment, define a good strategy and develop your team, you will be closer to the optimum in profitability.
An efficient strategy in the management of purchases and stocks brings you many benefits that will compensate for part of the profitability and cash lost after more than 10 years of cuts in Health.
Hi, my name’s Gina Long. I'm a successful businesswoman and love to stay healthy. I consider health and wealth to be an essential part of my makeup. In this blog, I talk about these things that are essential to me and hopefully my readers.