Business Management

As the current economic downturn continues to challenge both small and large businesses, it is important to look at your ordering practices and evaluate their cost effectiveness.  Whereas many are used to ordering supplies, be it for consumption or production, in bulk to use over the course of time, this can be challenging as their will be large bills to pay.  Perhaps it is better to match supply expense with accounts receivable and payable to ensure there is adequate cash flow to keep current on your bills to avoid late charges or risk damaging your business’ credit rating.

I work in healthcare, outpatient therapy to be specific.  We have noticed a decline in visits due to our patients having difficulty affording the co-pays they owe for each therapy session.  We see between one hundred twenty and one hundred thirty new patients a month in one clinic alone, and each patient needs a chart.  In the past, several cases of chart folders, dividers and stickers were ordered at one time, and then not ordered again for several months.  This left the balance sheet with a large bill to be paid at once, then nothing for several months.  Although through the matching principle the cost for the charts used for any given month could be reconciled, the provider of the charts still required payment in full.  The same goes for the bills of many of our other supplies, both those that were chargeable to the patients and those that were considered an expense of providing a service. 

In order to better manage the expenses, we began ordering the amount we determined was needed for the month.  This first applied to charts, and soon expanded to chemicals, electrodes and exercise bands.  We then pared down the linens to what was needed on a daily basis.  Historically we would have about $350 worth of linens just sitting around on the shelves at all times as overstock.  The same with office supplies, chemicals, etc.  Then we began to order based on the need of an appropriately established time frame.  Several things began to happen.

First, our usage of linens and other supplies began to decrease.  Call it psychological, but when there are not vast quantities of stock of a particular item, staff tends to use it more judiciously.  They tend to conserve and think about the quantity they truly need to use, especially as the month draws to a close and the supply gets low.

Secondly, the cost of the supplies trended closer to the amount of revenue generated.  Looking at the overall budget and balance sheet, the revenue and cash available began to more closely resemble the expenses for the supplies we used.  Although there is a lag time of one to two months, as volume and revenue increased, accounts receivable increased for collection of those revenues, and accounts payable increased for the supplies used.  Much like in a household, I am now able to match my expenses to the cash I am bringing in to keep things in line.

Finally, the entire staff began to take a more critical look at what expenses were incurred for treatment compared to the reimbursement for the treatment.  As they made an effort to control costs, they actually became more efficient with their treatment and our patients’ length of recovery decreased slightly.

For the smaller business, the volume discounts and cost of shipping must be factored in, but if the expenses can more closely resemble the revenue generated, a business should see a cost savings and more accurate budget by employing these methods.

Article Source:http://www.articlesbase.com/management-articles/managing-the-books-through-judicious-ordering-1304843.html