A BALANCING ACT: Lens Inventory & Reordering

By Rick Tinson

When planning lens inventory for a laboratory, care must be taken to maximize your fill rate while staying within your inventory budget. Smart planning to minimize the volume of “shorts” will lower your in-bound freight bill and maximize your service levels. A lab that can increase their fill rate from 80 to 90 percent will improve their service level and stockroom efficiency. Shorts are part of the lab business, but most lenses are purchased via regular stocking reorders, where opportunities for savings are significant. The stockroom is a non-value-added area of your business. The keys to a successful stockroom are accuracy, efficiency, and minimal additional cost.

Reordering Plan

Many wholesale labs that deal with multiple lens distributors habitually reorder every day from every manufacturer that they purchase from. In most cases, two orders are sent…the shorts and the stocking reorder. So labs tend to have a steady flow of inventory in transit, but frequently pay extra for Next Day or Second Day shipping. In practice, however, this may not be the most efficient means of re-stocking our shelves, and may be the cause of incurring hidden costs.

If you want to save money, you have to change the rules, and placing daily stocking reorders is the first rule to change. Our target is to have one-time or two-time per-week restocking orders. You may need to order twice-per-week if a typical weekly order from a manufacturer would be larger than your receiving area can handle. Ideally, you would time your reorders from your top distributors to arrive on different days of the week.

True Cost of Each Order

Costs are not all related to freight costs…the labor required to receive a shipment is measureable. Instead of paying someone to put one pair of those six-base lenses on the shelf every day of the week, what if you only had to pay someone to make one trip per week to stock five pairs at once. Remember, non-value-added steps require efficiency, so plan on using less labor to get the lenses to the shelf.

There is a fixed cost to each and every order received. You have to go through the same overhead and paperwork whether you ordered one lens or 1,000. Overhead factors include:

·          Time spent with the delivery person

·          Reconciling packing list versus lenses received

·          Reconciling packing list versus lenses ordered

·          Reconciling packing list versus invoice

We have calculated that the fixed cost of paperwork can be $2 to $5 per order received. Multiply this figure times the number of lens vendors used daily. Astoundingly, the cost of paperwork can easily run into the hundreds or thousands of dollars per month. Clearly, if we place fewer orders, we have less paperwork cost.

The second rule to break is the reliance on unnecessary overnight shipping. All stocking reorders should be shipped via less costly ground shipping methods. If it absolutely, positively, doesn’t have to be there overnight…don’t ship it overnight! There is no such thing as a free lunch…lens distributors who offer “free” shipping have just built the cost of freight into the price of the lens. Some labs are beginning to separate the cost of freight from the cost of the lenses, in order to manage each effectively.

Lens distributors may offer incentives to labs that have an efficient reorder and shipping plan. The right reordering and shipping plan saves cost on both sides of the transaction.

Lot Size Reordering

Another scheme for maximizing in-bound efficiency is to use Lot Sizes when reordering. Most semi-finished lenses come in cartons that hold multiple lenses (40 is a common number). For the most frequently used items, it would be advantageous to order in multiples of the carton size, to minimize handling of lenses. If your reorder calculations indicate that you want to order 30 lenses of a base/add, why not order 40? It is far easier to place a single full box of 40 on your shelves, rather than having to handle the 30 lenses individually to put them on the shelf. Lot size ordering is a perfect complement to weekly reorders—the larger order size means that you can take advantage of the lot size for more items. Remember, putting stock away is a non-value-added step…your lab doesn’t make money by carrying lenses from your loading dock to the shelf!

Lot size ordering only makes sense on your most frequently used items (“A” items), but can save time during receiving (you don’t have to scan each lens item individually). The dollar impact on the total inventory value turns out to be extremely small, especially compared to the ease of receiving and shelving. Your LMS should be able to support lot-size reordering on a SKU-by-SKU basis.

Reorder Size

Most labs define their desired minimum on-hand amount in terms of number of days supply, based on average daily usage. Typical U.S. wholesale labs set a target for three to five days minimum inventory on hand. If the target is too small, a low fill rate can result. If the target is too high, inventory costs increase with minimal improvement in fill rates. A balance is necessary.

Stockroom labor efficiency occurs when SKU’s are not reordered every single order. The goal is to balance the number of shelf restocking trips per item per month, the high-water mark (the greatest number of lenses you’ll have to provide space for), and the minimum safety level of stock (so you don’t run out). Based on some computer modeling that I’ve done, it can be stated:

·          Greatest shelf and order efficiency occurs if Order Size (in Days) is greater than the Minimum Inventory Level (in Days).

·          Specifically, your Order Size should be between 1.5 and 2.0 times your target Minimum Inventory level.

So if you want to carry a target of four days inventory on the shelf, configure your LMS to order six to eight days worth of inventory each time you place an order. Smaller labs should order on the high side to maximize fill rate, larger labs should order on the low side to reduce storage requirements. This scheme minimizes average amount on the shelf and the high-water mark, without lowering the minimum amount on hand. It also maximizes the efficiency of your stockroom labor by reducing the number of restocking trips per lens item. Using a smart order size is a great complement to your one time or two times per week restocking plan.

The Effect of New Lens Designs on Inventory

One of the big appeals of non-conventional PAL designs is the opportunity for labs to reduce expensive inventory requirements. Full backside PAL designs that use SV blanks can lead to significantly lower inventory. In practice, however, labs are not yet seeing the expected level of inventory decrease. Until a lab can eliminate a conventional PAL design completely, there will still be usage that requires inventory to be ordered and stocked.

In some cases, dual sided PAL’s typically either use a reduced set of SKUs, or use existing conventional lens blanks. By exploiting new designs, labs may be able to provide new designs without the incremental cost of a full conventional design.

The inventory impact of newer lens designs becomes advantageous as new material/treatment configurations become available. The flip side is that lens manufacturers have become less inclined to introduce popular but mature designs in new configurations.

As noted, your stockroom is a non-value-added area of your business. And yet, it is an area that is frequently delegated, where curious workarounds abound, and a “that’s the way we’ve always done it” attitude is common. In an ideal situation, jobs speed through your stockroom to the lab where the money is made. In a less-than-ideal situation, your stockroom is a labor black-hole, and you’re constantly scrambling to fill orders and keep jobs moving. Promote and demand a culture of accuracy and efficiency to keep your profits from eroding.

Rick Tinson is the vice president of inventory and distribution at HOYA Vision Care North America.


Lab Talk-February/March 2018