Counting a practice's costliest items most often
How ABC counting tells a medical practice which medicines and consumables to count most often, and what to do when a count differs from the books.
By Achekam · · 4 min read · For Healthcare businesses in South Africa, Nigeria, Kenya
A practice's stock room holds two very different kinds of item. On one shelf, boxes of gloves, swabs, tongue depressors and syringes: cheap, used constantly, replaced without much thought. On another, a few vials of a biologic, a box of long-acting injectables, an expensive dressing, a set of implants: few in number, each worth a great deal, and painful to lose.
Yet many practices count both the same way, once a year in a weekend stocktake that everyone dreads. By the time a missing vial is noticed, months have passed and nobody can say what happened. ABC counting fixes that by spending counting effort where the money is. This article explains how it works for a clinic, dispensary or practice in South Africa, Nigeria or Kenya, and how to set items and locations up so the counts land in the books.
Small counts, often
AccountingTools defines cycle counting as counting a small amount of inventory each day, with the aim of counting the entire inventory over a period of time. Instead of closing the dispensary for a full stocktake, someone counts a handful of items each day or each week, in a planned rotation.
For a practice, the benefits are practical. Each count is short, it can happen between patients, and a discrepancy is found while the people involved still remember the week in question.
Ranking items by value
The question is which items to count most often. AccountingTools describes ABC analysis cycle counting, in which high-value A items are counted more often than moderate-value B items and low-value C items.
To rank your stock, list every item with its cost and how much of it you use or hold, and work out the value tied up in each. Sort the list from highest to lowest value. Then draw two lines:
- A items: the few at the top that account for most of the value. In a practice these are often biologics, specialist injectables, implants and expensive dressings.
- B items: the middle band, such as common prescription medicines held in moderate quantities.
- C items: the long tail of low-value consumables.
Where exactly to draw the lines is a judgement. Most practices find that a short list of items carries most of the value, and that is the list to watch.
Add a second test for a few items: risk. A scheduled medicine with a modest value may still deserve A-class attention because of the consequences if it goes missing.
How often to count each class
A workable timetable for a practice:
| Class | What it holds | Suggested counting rhythm |
|---|---|---|
| A | High-value and high-risk items | Weekly or monthly |
| B | Moderate-value items | Quarterly |
| C | Low-value consumables | Once or twice a year |
Spread the counts so that every item is reached within the year, and so no single day's count is long. The AccountingTools article on cycle counting explains the method, including ABC counting, and what to do with the results.
When a count differs from the books
AccountingTools explains that errors found in cycle counts should lead to an adjustment of the inventory records and an investigation into the reason for each error. Both halves matter.
For an A item, the investigation should be thorough. A missing vial might be:
- dispensed or administered but never recorded against a patient;
- received short from the supplier, with the full quantity booked in;
- moved to a consulting room or another branch without a record;
- expired and discarded without a write-off;
- taken.
Write down what you found for each difference. A pattern, such as the same item short every month or shortfalls only on one person's shifts, matters more than any single count.
What accurate records do for the audit
AccountingTools notes that if outside auditors can rely on inventory records kept accurate by cycle counting, they may scale back their audit procedures and reduce their fees. For a practice whose financial statements are audited, a documented counting programme, with adjustments and investigations recorded, is evidence the auditor can use rather than recreate.
Setting up items and locations in Achekam
Counts only help if the books know what should be on the shelf.
Items. Achekam's Item Master, in the Accounting menu, lists and creates products on the server with SKU, name, category, selling and cost price, opening quantity and VAT treatment. It needs the Point of Sale, Warehousing or Wholesale add-on. Recording a cost price for every medicine and consumable is what makes the value ranking possible. Getting dispensary items set up correctly in the first place is covered in setting up dispensary items before the first sale.
Locations. With the Warehousing add-on, a business keeps stock locations, such as stores, bins and vans, on the server, with the quantity on hand at each. A practice can set up the main dispensary, the emergency trolley, each consulting room's cupboard and a second branch as separate locations, so an A item is counted where it actually sits. How cycle counts behave when one item sits in several bins is discussed in when cycle counts make a parts department's records worse.
Counts. With the Warehousing add-on, a stock count sets a location's quantity to what was counted and records the difference as an adjustment. The adjustment is the start of the investigation, not the end of it: note the reason you find against each one.
Achekam does not rank items into A, B and C classes or schedule counts for you. Keep the ranked list and the counting calendar as a short document, and review it each year as prices and usage change.
Start with the top of the list
Write out your item list with cost prices, rank it, and pick the ten most valuable items. Count those ten this week, location by location, and compare the results with the books. Whatever you find will tell you how often they need counting from now on.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
