Firstly let’s look at what they do, put simply, Retailers retail and Pharmacists dispense.
In the past two years, the margins in the Dispensary has been reduced considerably due to government policy, reference pricing, increase in generics due to patents expiring etc. and more and more pharmacists have turned to finding their margin in the front of house stock rather than in the dispensary. The area where best margin is now achieved is the retail/front of pharmacy area.
In the past number of months it has been apparent to us that there are more and more pharmacy owners who undertake a stocktake because their Accountant tells them that there is one required.
But what do Accountants want with this valuation of stock?
We will quickly run through what you should be getting from your accountant.
The purpose of the stocktake is to get a closing value of stock at a certain period of time. This stock value is then used in conjunction with your purchases, sales, credits and any other internal stock movements so as to compare your Scanning Margin versus your Actual Margin. Or, your accountant may just give you one overall margin for your premises (but this is of little use to you as a good margin lies in the detail and stock losses will not be specific to a particular area).
Your scanning margin is the margin that you decide you can charge for certain stock departments which your Electronic Point of Sales (EPOS, your till system) will tell you that you have.
For example, you may have a 33% margin on your Baby Department and then a 30% margin on your Fragrance department. But what If you have a problem with stock loss, shrinkage, staff theft, customer theft, inaccurate deliveries, stock being priced incorrectly and sold at an incorrect price?
Will you have a 30% margin on Baby department? No.
Scanning Margin is what you should be getting.
Actual Margin is what you are actually getting based on the Actual closing stock figure.
Your accountant should use the stocktake figures for each department to calculate the margin based on “Actual” closing stock figures. So if the Baby Department is then having an Actual margin of 31% against a scanning margin of 33% you have a loss in stock and a loss in sales revenues. Needless to say, this is not good.
If you undertake a stocktake once per year (which appears to be the case in over 80% of pharmacies) and then it takes 3 months (depending on the efficiency of your accountant) to get your year-end accounts, you then see that your operation is not performing in accordance with scanning margins.
What can you do to rectify this situation?
There is nothing that you can do. You have just been performing below scanning margin for the past year and didn’t even know it.
Information is knowledge, knowledge allows you to make informed decisions about your business and to operate your business more effectively and profitably.
So back to our original question, what do Retailers do?
Full stocktakes 2-4 times per year
Combined with management accounts 2-4 times per year
Regular updating of product prices and barcodes
New products added to their stock file and assigned to the correct departments
Why? So as to identify poor performing departments and make changes if required.
What’s measured is managed, and if something is amiss in your business then you need to know about it. Once you know, you will have confidence in your margins and can operate a more effective and profitable business going forward.
If a premises operates a live-stock system where purchases/deliveries are input directly into the EPOS then you can usually get the above information at the touch of a button. This, combined with a cycle counting system and variance analysis, ensures that stock losses are at a minimum. However, for a Live Stock system to succeed, you need to have excellent:
Discipline to keep all deliveries, products and prices updated on arrival to pharmacy
Staff procedures to ensure that all staff are aware of the importance of stock control
Knowledge of your EPOS
There is always some department which is performing below expectations. As a business owner, wouldn’t you like to know which department that is?