By Chad Fleming, OD, FAAO
Nov. 7, 2018
Good frame inventory management can mean the difference between a profitable and unprofitable practice. Here’s how my practice uses a consignment model–rather than traditionally purchased inventory– at our four locations to ensure profitability.
Make Consignment Deals with Frame Vendors
When I pitch frame vendors to allow us to buy on a consignment basis, in which we pay only for what sells, I use a “floor model,” or “Rx-able frame boards,” approach. The way it works is a company commits to the model, and I give them 50-150 frame board spots at each practice location, and they supply the frames. We have 2,500 frames in stock across our four offices at any given time.
Each frame company we buy from is given specific instructions to pick only best sellers, and then to give us all the colors and sizes available for each of those best sellers. I don’t want staff to ever have to special-order frames. There are usually four frames per model number to get all colors and sizes. If the frame model has more than six combinations of color and size, we don’t want it.
Then, as frames are sold, they are ordered from the frame company with a patient name on them and drop-shipped to the appropriate lab. The “floor model” frame then goes right back on the board….no shipping costs in this transaction, and the frame can be sold to the next patient. We have alleviated the problem of a frame not being on the board because someone earlier that day purchased it.
Consignment = Great Savings
We used to spend $200-$300 per location in shipping costs using traditional frame board management. We have alleviated 90 percent of those costs with our model. When you order frames with a patient name on them, many of the frame companies do not charge shipping.
The “floor model” keeps the overhead low because, not only are you keeping cash for yourself by only buying frames when you sell, but it’s also favorable on taxes because the frame inventory you pay taxes on is zero.
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Profitability has gone up for us because we are reducing inventory-management costs, and because we request that reps only come in once every six months. They can manage from afar and exchange models that are discontinuing. Also, costs are low because if a company’s frames are not moving, I don’t have thousands of dollars locked up in inventory. I can just call the company to come pick up their frames.
No frame companies ordinarily do this; it is one of the biggest frustrations with purchasing frames. If you decide the frame line is not doing well, and you want to replace it, the rep will not return the frames without at least an equal purchase, so you end up sitting on the frames or having to sell them at a reduced price to get rid of them. When a company finds out you are not interested in purchasing from it anymore, the frame rep is often difficult to get service from, if you can ever get them to service you. The consignment model results in the company wanting their frames back, so the reps come and get them when you are done.
In the traditional inventory management approach, the cost of changing frame lines is expensive because the company with the frames, which you are trying to eliminate, usually will not take the frames back without an exchange. In the “floor model,” you are insuring yourself against that cost.
Combine Proprietary Brand with Consignment Model
We have an in-house brand, twelve84, from Rev360, which we pay a $149 monthly subscription for, and buy frames from approximately 7-8 frame companies (with 15-20 brands). We have approximately 500-900 frames on display at each location at any given time.
We try to get all patients to buy our twelve84 products because the ordering and administrative work is literally two electronic clicks and less than two minutes. Twelve84 is a bundled option, in which lenses are bundled in for pricing, and that makes the checkout experience for the patient quick. If we can sell the in-house brand, we can help three times more patients in the same amount of time because we do not have to go through the administration nightmares of managed vision plans.
Managed vision plans require multiple entry and submission of orders to labs and the MVP web site, whereas, the in-house brand does not require submitting managed vision plans, so the administrative process of entering, submitting orders and reordering frames for stock, receiving EOB, reconciling EOB and posting insurance are all eliminated.
Preserve Selection & Offer Products that Resonate
The selection has been awesome, according to our patients, because we are selling frames from companies whose designers are both U.S.-based and international. For example, earlier this year at Vision Expo East, I connected with an independent European frame company that is expanding quickly in the U.S. We used to buy solely from the “big” frame companies that everyone knows, and many of the frames looked the same.
Much of the production on well-known frame brands is done in the same factories internationally, and then stamped with a designer’s name, so they tend to look the same. The large companies are working with a select factory, which produces similar products.
It’s more expensive to work with multiple frame companies. However, the consignment model allows for buying from multiple frame companies without the risk of opening multiple company accounts, and then never being able to return all purchases for stock you don’t like, or don’t sell.
Generic-looking, brand-name products are unappealing to many Millennials, who are less concerned about brand names, and would prefer a product that is more unique, or which comes from a company that is known to give back to the world. The consignment model allows us to provide those kinds of products to them.