Inventory Is not an asset

Imagine staring at the balance sheet for your business.

Almost every company--public or private--that follows modern convention would list inventory as an asset. Why? Companies just like yours look at their inventory number as money in the bank, when it’s really an expense. It’s not as asset, at least not yet.

If you viewed your company’s finances the way you see your own checkbook, you would see inventory for what it is—money that’s been spent without a return. Yes, the inventory’s been paid for, with labor, raw materials and hard-earned cash, but it hasn’t been sold, and you haven’t been paid for it.

Cash out, but no cash in.

Imagine if medical device manufacturers and hospitals managed inventory with a “checkbook” mentality instead of a “balance sheet” mentality.  

Everything would be different--inventory processes, business activities and even the way leaders viewed their assets. Manufacturers would only build what is needed, working diligently to turn inventory into revenue more quickly.  Hospitals would purchase products in smaller quantities, more frequently, and make sure that none was wasted.

Some facts to ponder:

·      Most medical device manufacturers hold 10 – 12 months of inventory on their books at any time.

·      Medical device manufacturers routinely lose about 3%-5% of their field inventory each year, accepting this exorbitant write-off % as “the cost of doing business.”

·      Hospitals throw away millions of dollars of unused and expired inventory each year, and fail to get reimbursed for millions more due to faulty charge capture processes.

The days of absorbing the waste and expense of current methods are over.   Our nation’s healthcare system simply can’t afford to cover up broken processes with extra inventory.

When the system isn’t working, it’s time to see things different. Let’s change the way we think about inventory. Inventory is an expense to be minimized, not an asset to be stockpiled.

Which of your peers have already shifted their perspective? See how you stack up.

Contact us to learn more of about best practices in healthcare supply chain and inventory management.