I Am Poor Quality Veterinary Medicine
I recently attended a 45-minute horror-story-of-a-lecture held by one of the big 3 corporate vet groups. It was all about how to go grow your profit and was delivered by three of their finest internal business consultants.
The underlying theme for the lecture was the “magic formula” we are all probably familiar with, but just in case was placed on the overhead slide show:
TURNOVER – COST = PROFIT
So far, so good. Then it all went south. Based on this sound and proven principle of business, the consultants proceeded to state that Joint Venture Partners should not bother themselves with concerns of cost because the only way towards an overflowing chalice of profit was to concentrate on building turnover.
Indeed, it was followed up with the statement “your next pound is your most profitable pound” (insert nausea emoji here).
Whilst there is no doubt much merit in focusing efforts on tactics to increase turnover, OVERLOOK COSTS AT YOUR PERIL.
This is a view that is far too binary for the modern-day business. For many a management consultant, reducing costs = cutting costs, the classic nineties and noughties modus operandi when deploying a team of these young ladies and gentlemen into the boardroom of a failing FTSE 100 company.
But there is much more to cost reduction than simply cutting costs.
There’s a malign and insidious cost that doesn’t have its own column in a P and L. It can sneak in under the radar and masquerade as many other costs; it will often get dispersed and swallowed up by them rendering their exact nature indistinguishable from all the usual costs.
What is this spectre of a cost? It’s simply the cost of poor quality.
Sadly, the cost of poor quality is often overlooked and yet is a major opportunity for a business to not only reduce its cost base without classically “cost cutting” but to also improve the quality of its service.
What do we mean by cost of poor quality? It’s really anything that results in a cost to the business for doing something poorly, badly, incorrectly etc.
For example, you may look at Cost of Sales (COS) and see that it’s £X for the last month. You may also say, well that’s the cost of the drugs etc we sold to clients so we can’t do anything about that. But what if a small percentage of that drugs bill was due to incorrectly prescribed medicines such as the wrong size bottle or wrong strength of tablet and had to be replaced, free-of-charge, by the practice?
Worse still, what would be the “cost” to the practice for, say, prescribing a cat a course of dog Metacam leading to renal failure, intensive care on a drip for several days, possible death and some considerable negative word-of-mouth about the practice? This will go beyond simply the cost of goods sold and some of this cost will be part of salaries, possibly overtime, overheads, and the more intangible loss of goodwill. There is no single line for this in the P and L.
Another example would be a complex surgery performed by a newly qualified vet, pressured into doing the surgery because more experienced staff were unavailable, perhaps due to illness or poor planning. The surgery goes badly requiring additional time under anaesthesia, more assistants scrubbing in, more consumables including a blood transfusion, extra intensive care therapy, more follow-up visits by the client, more medication etc. Now some of this cost may be passed on to the owner, but almost certainly a large proportion of it (including the intangibles) will be swallowed by the practice for this avoidable situation. Once again, there’s no line for this in the P and L.
Situations like this probably happen more often than you think, maybe on a smaller scale, but doubtless more frequently than we’d all like to admit. And every little bit adds up!
What we’re really describing here is the cost of poor quality processes. Sometimes we need to take a step back and look objectively at how we work in order to improve the way we work. This can be especially difficult in our hectic working lives but investing time in improving the quality of our work will result in significant improvements both on paper and in the less tangible, but no less important, aspects of our business.
So the next time you glance over the costs column on your P and L, don’t think about cost cutting but how you might go about cost improving by reducing those nasty hidden costs of poor quality.