Bouncing Back

Gradually, dentists’ orders for Corrales’ service grew. Today, 2 ½ years later, he handles two same-day smile cases a week, spending about 4 hours on each patient. Profits from his new company, CadSmiles, have long since made up for his 2⁰⁰⁸ losses, and adding digital technology has helped boost business at his laboratory as well. “This same-day-smile service is pure profit,” he says. “I don’t use my equipment; my only overhead is the gas I use driving to the dentist’s office. And if I have to go out of town, the dentist covers my traveling expenses.”

Blazing New Paths

Corrales’ achievement illustrates the type of new business strategy needed to survive what industry observers claim is the most calamitous era in the history of the dental laboratory industry. For one, the recession has cut deeply into cost-conscious consumers’ demand for dental services. According to the Levin Group Inc., an international dental practice-management consulting firm, between 2006 and 2010, general dentists saw a 17.8% decline in business. Moreover, cosmetic treatments have dropped by at least 25%.

For dental laboratory owners, problems from the slackening demand for dental services are compounded by the growth of offshore trade’s capture of an ever-greater share of the US marketplace. The National Association of Dental Laboratories (NADL) reports that in 2006, offshore manufacturers made 17% of the crown and bridge units in the US market; by 2010, offshore laboratories had captured 38% of the market.¹ Decreasing demand in this country and increasing competition from abroad have eroded the US laboratory industry. Citing US Labor Department statistics, NADL executive director, Bennett Napier, notes that during the past 36 months, both the number of commercial dental laboratories and dental laboratory workers have declined 22%.

Laboratory owners intent on remaining viable are dispensing with traditional business models of old, which are best characterized as a reactive: ‘What are our plans for next year? Whatever orders we receive.’

Survivors like Corrales emphasized taking control of their companies’ growth by adding new services, revamping their product lines to focus on profitability, incorporating new technology to boost efficiencies, reduce turnaround time, and better compete with offshore manufacturers, thus adapting marketing strategies to educate dentists about their new capabilities, and closely tracking dentists’—and their patients’—evolving needs.

“Sometimes,” observes Napier, “you meet laboratory owners at industry meetings or continuing education seminars and hear some say things like, ‘I don’t have to change; I’ve got my client base, and I’m going to keep doing everything the same.’ Unfortunately, these laboratories may be among the 22% that have closed their doors in the past three years.” Their complacency, he adds, often can be attributed to a mindset of, ‘What worked before, will work now.’ But, he makes clear, the Great Recession has nailed down a new reality—dentists have no choice but to change laboratories when they need to satisfy money-strapped patients’ demands for lower-priced products.

Responding successfully to the changing marketplace requires running a laboratory like a business, Napier stresses. But that does not mean dispensing with the core values of service and quality, longstanding hallmarks of the laboratory industry. However, it does involve monitoring all products and processes for optimal efficiency and productivity. “Successful laboratories today are growing market share by responding much more quickly to opportunities and challenges based on the metrics they have in place,” Napier says. “For example, if they hit a niche [as in the case of Corrales], then they can hone that niche and secure more clients based on that experience. For a laboratory that is not regularly analyzing its infrastructure, production cycles, turnaround times, what material has proved most profitable and so on, it could be too late by the time they figure out why they lost a client.”

Business-Focused Business Models

For Leon Hermanides, CDT, owner of Protea Dental Studio in Redmond, Washington, monitoring his company’s metrics led to his 2⁰⁰⁹ decision to trim his product line. He noticed he kept losing money on refractory veneers and zirconia restorations. “Refractory veneers have a higher fracture rate in the mouth than most restorations,” he explains. “A year after a dentist had seated the veneer, it might break, and we’d have no control over that. It might have been a bonding issue or so many other things that could happen because it’s so technique-sensitive, but it might well have had nothing to do with us.” The company often either ended up paying for a new restoration or it lost a client. Add to that the lost production time and materials in cases gone wrong, and Hermanides decided he had ample reasons to eliminate the product.

Though the company did not have high failures with zirconia restorations, Hermanides explains that concern in the marketplace about chipping and fractures with the material convinced him that eliminating the product would head off potential problems. “When I looked across my business at the profitability of product lines, those were my two most expensive items,” he says.

Protea’s product base now consists of IPS e.max^®, porcelain-fused-to-metal (PFM), and gold crowns—all of which feature high success rates and predictable production procedures, he points out. He adds that with the five product lines, the company struggled to realize profits of 5% to 7%. In 2011, 2 years after reducing his product list, he posted a 14% profit.

Whenever laboratories revamp their product lines, such as Hermanides,’ their future success largely depends on effectively getting the word out to current and prospective clients, says dental laboratory consultant Chuck Yenkner, president of Business Development Associates in Glastonbury, Connecticut. “Marketing is something laboratory owners traditionally haven’t been familiar with,” he says. “Historically, they’ve been much more focused on making a better product and assuming the work would then come to them. But that doesn’t work any more.”

What laboratory owners need to do, he continues, is find a marketing vehicle they’re comfortable with—direct mail, Facebook, e-mail, print advertising, meeting dentists one-on-one—and do it consistently. “Consistency is key,” he adds.

Hermanides characterizes his approach as “a very high-touch marketing strategy.” “You have to be very personable with your clients on a regular basis,” he says. “I don’t think you can effectively deliver your message through direct mail. You’re much more likely to succeed when you meet dentists at study clubs or dental meetings. We’re focusing a lot on how we can sit next to them and communicate personally.”

Communicating effectively with dentists to keep abreast of their needs is a primary pillar in the business model at Keller laboratories, Inc., in Fenton, Missouri. When Larry Weiss joined the firm more than 20 years ago, he brought to the company an extensive background in finance. The goal of sustained growth soon became an integral part of the Keller culture. “We’ve created a very extensive set of metrics, including profitability, as well as customer and team measurements,” Weiss says. “We follow them very closely, updating them monthly, and as soon as we’re not hitting our goals, we start to research to learn why we’re not. For instance, we’ll ask whether our labor costs are out of line, whether our rework is too high. It’s doing that deeper dive to get answers.” Weiss provides the example of gold crowns, a big seller until gold prices skyrocketed in recent years. Dentists and their patients began demanding lower-priced products. “Surveys tell us that dentists’ income, business, and profitability are down,” Weiss observes. “So our priority is to stay relevant to the dentists as their business model changes.” Keller responded by offering monolithic crowns, which he sells for around $109 versus $200 for gold crowns, as an alternative. Moreover, monolithic crowns provided an added advantage for Keller because they can be produced by CAD/CAM, thus making them more price competitive with crowns produced offshore.

The Technological Imperative

As was the case with Keller, dentists’ requests for lower-priced products, along with their desire to practice high-tech dentistry, prompted Jay Collins to add digital technology at his company, Cornerstone Dental Labs in Ivyland, Pennsylvania. Since last September, Collins says he has purchased 3Shape scanners and a 3-D wax printer. He adds that he is currently scrutinizing the purchase of digital milling equipment.

Prior to his recent move to digital, Cornerstone was a traditional crown-and-bridge laboratory, says Collins. The waxing, casting, and building of each restoration was done by hand. “The market really drove me to look at the technology,” he says. “I had conducted a survey among my clients to learn who’s knowledgeable and excited about the new technology.”

Survey results showed that Collins’ clientele, getting younger by the year, were very interested in the speedy turnarounds available only with high-tech equipment. One client asked whether Collins would be able to do a wax mockup of a case and get it back to the dental office in a day. “I knew I needed to get more technologically advanced for the dentists,” Collins says. “I firmly believe that within 3 to 5 years, 70% of their impressions will be digital. A laboratory that doesn’t have the ability to accept an STL file will have to rely on other vendors to design the case, make it into a model, print it, and send it back to the laboratory for the restoration. And all that only adds to the time and cost for the dentist.”

Since investing in digital technology, Collins estimates he has saved about 5% on material because the equipment prevents metal overcasting. His ability to produce restorations less expensively than available offshore competition has helped him boost profits by 7%.

Like Collins, Nick Azar, president of Nick Azar & Associates, a dental laboratory consulting firm based in Santa Clarita, California, is convinced that if laboratories cannot support dentists’ in-office digital technology, they may well lose clients. Of course, dentists are always on the lookout for laboratories they are comfortable with, he says, but the bottom line is a prime priority. “Dentists know that the digital technology delivers a predictable quality product,” he says. “The technology’s efficiency eliminates the possible need to take two or three impressions, and that cuts down on wasted material and time, which translates to savings for the doctors.”

At the same time, consultant Gregg Harris stresses that laboratory owners do not have to spend hundreds of thousands of dollars on new digital equipment to remain technologically competitive. Access to high-tech equipment is what is important. “And access comes in the form of scanner,” says Harris, president of Harris Group & Associates, a Denver-based healthcare consulting firm. “If you have someone in your office who can scan and ship a model to a center that would mill or do whatever else you need performed, you’re in the game. Too often we love to buy things to solve our problems.”

Harris also points out that people often overlook the need for redundancy. Should a company buy a digital milling system, say, and switch all of its work over to the new technology, if that machine breaks down, so does the company’s production schedule—and, potentially, future business. “Buying two machines is probably cost-prohibitive,” Harris says. “If you have a relationship with a high-tech center that has multiple machines, that eliminates that need for redundancy and capital expense.”

But Don Albensi, owner of Albensi Laboratories in Irwin, Pennsylvania, anticipates that the capital expense needed to add CAD/CAM technology to his business during the past two years will provide a long-term payback. For every restoration made at his US laboratory last summer, Albensi figures he had four produced overseas to meet the demand for lower-priced products. But the reduced labor costs and added productivity using CAD/CAM technology are helping to bring much of that work back. “I would say by this summer that for every four units we do here at Albensi Laboratories, only one will now go overseas,” Albensi notes.

Priority of Planning

When laboratory owners do. commit to purchasing new technology, the expense demands extra planning, they say. At Nakanishi Dental Lab in Bellevue, Washington, owner Dave Nakanishi, CDT, decided within the past year to step up his technological capabilities by adding a variety of new equipment. “The technologies we’re using today—CAD/CAM mills, laser sintering, wax milling, 3-D printing—are able to provide us with economies of scale,” Nakanishi says. “You have to make these restorations in volume; otherwise you can’t justify the cost and eventual obsolescence of the technology. Our business model today says we have to pay for equipment within 24 months, whereas it used to be 5 to 7 years.”

Camaraderie among dental laboratory owners has helped Nakanishi avoid shutdowns due to technological malfunctions. When overloaded with orders, he occasionally sends files to a nearby laboratory for milling. In addition, Leon Hermanides’ Protea Dental Lab has helped out with sintering jobs, and Nakanishi frequently undertakes work for other laboratories.

Peer support and networking have also proved a pivotal factor in helping Steve Killian, CDT, to devise a new business strategy for Killian Dental Ceramics in Irvine, California. As the recession deepened and his cosmetic cases continued to slide, Killian began searching for new opportunities. During meetings with dental laboratory working groups, other laboratory owners shared their recent successes in helping dentists provide All-on-4 dental implants. “We learned that there were a lot of potential cases out there to be had and that few dentists know how to handle them,” Killian says.

Consequently, Killian is currently devising an education campaign to help dentists sell the cases to patients. “We’re just beginning to get the word out. We have educational materials that include what the treatments entail, what they cost, and how to present them to patients.” Killian also plans to contact all the oral surgeons in the Irvine area and invite them to a “lunch n’ learn” at his laboratory, and make presentations at dentists’ study clubs. “I have been working very hard to educate myself about this treatment in order to help doctors become confident to educate their patients,” Killian says. “A lot of labs are sharing educational materials, and everyone’s talking about the opportunities.”

Given the upheaval the laboratory industry has faced in recent years, the cooperation among laboratory owners is notable. In fact, one might add “mutual aid” to the list of strategies laboratory owners are implementing to ensure their survival. Nakanishi sums it up as “great competitors working together.” He adds, “We need each other now more than ever.”

Reference

1. National Association of Dental Laboratories. Costs of Doing Business in 2010: Panel Survey. 2010. Tallahassee, Florida: National Association of Dental Laboratories; 2010.