7 Cost-Cutting Tips
Posted Apr 28, 2011 in Management
By investing in an open CAD/CAM system, David Nunnally, owner, Derby Dental Lab in Louisville, Kentucky, has reduced his zirconia material costs by $227,500 a year. He and other lab owners share strategies for tightening their belts.
When it comes to cutting back in this tough economy, slashing labor costs is the most common strategy respondents to LMT's recent How's Business e-survey are using. From layoffs, forced vacations, across-the-board pay reductions to cutting overtime, reducing or eliminating benefits like 401(k) match and bonuses, laboratory owners are being forced to make some difficult decisions.
A common theme: owners and employees alike are willing to make sacrifices. "I've reduced my salary by 30% so I don't have to cut hours or lay off any of my loyal and talented employees," says one respondent. Another says, "My employees volunteered to delay pay increases to lessen my stress and preserve their jobs."
Respondents are also looking beyond labor costs, carefully reviewing their numbers and finding ways to trim excess fat. Here are seven strategies they're using:
1. Open up. An open architecture CAD/CAM system gives you the freedom to send files to any outsource manufacturer so you can offer a variety of products. In addition, unlike a closed CAD/CAM system which locks you into buying material from the manufacturer, an open system allows you to purchase materials from any source, which can help keep material costs down. For example, David Nunnally, owner of Derby Dental Lab in Louisville, Kentucky, recently invested in two 3Shape scanners and two Digital Dental milling machines. Compared to the lab's closed system, the open system brought Nunnally's per-unit zirconia cost from $30 to under $10, and per-unit wax coping cost from $4 to 50 cents. "In material costs alone, we save $875 per day, $4,375 per week, $227,500 per year which means my ROI will be less than 12 months," says Nunnally, who also notes that the lab made the switch without sacrificing strength or esthetics.
2. Control inventory costs. Our survey respondents are keeping a much tighter reign on their inventories and not stocking a lot of extra materials, especially when it comes to high-priced metals and implant components. On the other hand, not all respondents agree that less is more, saying the money they save by buying in bulk--especially for frequently used items like acrylic or ones that have a long shelf life like teeth--is worth paying up front. Other strategies include combining multiple orders into one to lower shipping costs, taking the time to shop around for the best prices and requesting bids from various manufacturers/suppliers before placing orders.
3. Get impressed. One lab owner from Michigan will soon be pressing full contour e.max crowns in house instead of outsourcing milled zirconia copings. "My profit margin on a pressed restoration is much higher than on an outsourced coping," she says. "Plus, since I can wax quickly and do it in house, my turnaround time is faster, too."
4. Go lean. Last year, Unique Dental Group implemented W.E. Deming's manufacturing concepts--a production management philosophy that helps streamline workflow and eliminate waste and bottlenecks. "It's been an efficient system for controlling costs, keeping morale high and producing high quality work," says Patricia Godwin, CEO of the 31-employee, Salt Lake City, Utah operation. After taking a comprehensive look at laboratory processes, the staff made a series of changes, including working in teams rather than independently, having daily "huddles" to discuss the day's work and any potential problems, doing more cross training, taking personal responsibility for quality control on every case and focusing on time management. The change has been dramatic. Cases are often finished before the deadline, remake rates are down, overtime costs have dropped by an astonishing 76.9% and, thanks to its new efficiency, the laboratory was able to convert to a four-day workweek which helps save nearly $7,000 a year in utility costs.
5. Partner up. Perdue Dental Laboratory is maximizing its buying power by co-oping with other area labs to purchase products in bulk. Often partnering with the C&B lab with whom it works on combination cases, the labs can save between 5% and 10% on orders of plaster, stone and teeth. "I'm not going to take a vacation on the money I save, but every little bit helps," says Brad White, CDT, owner of the two-person Sarasota, Florida laboratory that specializes in removables. About a year ago, White also forged another unlikely partnership: he moved into a new building owned by a direct competitor to share space and common expenses. "I'm paying the same amount of rent as before, but we've gained about 40% in terms of common areas, like the kitchen, dining area and an extra bathroom," says White, who splits the utilities with the other owner, Larry Brown, CDT, Brown Dental Prosthetics. "We also save about 15% by buying office supplies together. For instance, instead of us buying just a few reams of paper, we'll buy a case to share." So how can these competitors coexist? They have a "gentlemen's agreement" not to compete on their established accounts and, so far, the arrangement is working beautifully. The two staffs get along and even play pranks on each other--like sounding an air horn in the middle of the workday.
6. Go green. Three months ago, Axel Calderon, MDT, owner of one-person Designer Dental Studio in Smithtown, New York, converted to a digital billing system. The laboratory had been using QuickBooks accounting software for about a year to generate paper invoices, but since it had a QuickBooks merchant credit card account, it was able to use its digital invoicing service for free. By going digital, Calderon has streamlined his billing system, saving time as well as the costs of paper, ink and postage. Now, as cases come in, he simply enters the information into the software and, when the case is finished, he e-mails a digital invoice to his clients. The e-mail provides a link that allows the dentist to pay via credit card; the card is automatically processed and Calderon's records are simultaneously updated.
7. Renegotiate. From shipping costs to service contracts, ask your providers if you're getting the best rate possible. "In these times, they all want to keep the business they have and you might be surprised at what they'll do," says Doug Baker, vice president of group operations for National Dentex Corp. For instance, when Baker compared the cost of a local pick up and delivery service to hiring a driver and buying a car, he found he could spend less money each year than what the lab was currently paying. "I called the owner, he dropped his prices $1 on every package touched and we saved over $5,000 a year with that one phone call," says Baker. Similarly, Leon Hermanides, president of Protea Dental Studio, Inc. in Redmond, Washington, renegotiated his rent with his landlord by offering to extend the term of his lease from two years to five. The result? He's saving $450 a month.
Seven More Ways to Tighten Your Belt
1. Maintain older equipment rather than purchasing new units.
2. Use internal marketing/printing resources rather than outside vendors.
3. Eliminate outside services such as cleaning and linen services.
4. Reroute and combine pick-up-and-delivery service to make it as efficient as possible.
5. Use less investment by simultaneously waxing and casting as many copings as you can, regardless of the due date.
6. Trim solid models better to reduce their weight and the shipping costs.
7. Opt for a shorter workweek. If you're not ready to completely switch from five days to four as Unique Dental Group has done, try implementing a four-day week once a month or a couple times each quarter.
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