Lab 2 Lab: Why Outsourcing is Win-win
Posted Apr 28, 2011 in Management
Business owners in our industry are getting by with a little help from their friends these days. For decades, many laboratories have been sending their cast frameworks to other labs. Now the abundance of new restorative systems and the shortage of skilled technicians are driving the demand for outsourcing services. Laboratory owners who are taking in work from other labs see it as an integral part of their businesses. On the flip side, those who are sending work out to other labs can test the waters of new technology before making a large capital investment.
Given the fervor with which new restorative systems are being introduced to the dental laboratory marketplace, it's understandable that nobody wants to be left out—whether it's because they want to remain progressive, satisfy client demand or use the new technology to grow their businesses. But that's often a problem for laboratories, especially smaller operations, that can't afford the high price tag. That's where outsourcing comes in.
"Outsourcing gives any laboratory the capability of capitalizing on the revenue it would be losing to others who are offering these premium restorations. Even a one- to two-person laboratory might expect to increase its revenue by as much as $20,000 by offering a wider selection of premium services," says David Lesh, who is banking on the concept of outsourcing with the opening of Dale Dental in January 2000—a laboratory solely serving laboratory—not dentist—clients.
Not only do smaller laboratories have to consider the initial investment, but they have to be concerned about the lifecycle of that product, especially given the speed at which technology has been evolving. "If I buy a $30,000 system today, there may be something new to replace it next year. Then what am I going to do with the old technology? It might very well be outdated before it's paid off," says Debra Zerbe, a 20-year industry veteran and owner of Precision Dental Lab, Inc., a seven-person lab in Wilmington, Delaware. She sends her Procera and In-Ceram substructures to be fabricated at another lab.
The key factor is volume. If you're not selling and fabricating enough restorations, the technology might not be worth your investment; in fact, manufacturers can sometimes help you determine the number of units you need to pay off the equipment within a certain time frame.
Of course, if you don't offer the product, you're never going to build the necessary demand to increase volume. This is why many laboratories use subcontracting as a "bridge" between creating demand for the product and actually making the investment—and many laboratories who do the work for them see this as their niche. "An outsource service helps labs get involved with new technologies with the ultimate goal of creating customer demand and feeling more comfortable with the investment. Once they do that, we'll lose them as customers, but that's what it's all about," says Paul Giovannone, owner of 72-person Biogenic Dental Laboratories in Utica, New York, who attributes 15% of his volume to the work he receives from other labs.
Case in point: Chris Morris, owner of ADL Dental Laboratory in Louisville, Kentucky, was subcontracting laser partial denture and C&B repairs for six months. He had been thinking about purchasing a laser welder but wanted to be sure he could easily add the services to his product line before making the purchase. Eventually, he bought the equipment. "The number of cases grew to the point where it justified the cost, even when I factored in the learning curve. We were not working to full capacity and—since we do not layoff employees—the time was right to add another product," says Morris.
Interestingly, some laboratories decide not to purchase the system once they've created demand because subcontracting has been so successful—from the ease of the working relationship to the quality of the work. For example, Arlington Dental Lab in Indianapolis, Indiana, began sending out In-Ceram substructures about six years ago to test the demand among its clients. When it became clear that they had enough volume—today it's about 10% of their caseload—to justify the expense, the partners still opted not to buy.
"Having the system in-house would take my partner or me away from building porcelain to do the substructures—and we're getting such high quality from the laboratory that is fabricating them for us that we don't feel we could do it any better ourselves," says Mike Williams, co-owner of the 11-employee laboratory. "We may be paying a little more, but we're saving time."
New technology becomes more affordable to the laboratory that is taking in work as well, by helping to offset the expense of the equipment and maximizing its profitability. "When you're spending thousands of dollars on equipment, it makes sense to subsidize the work you're getting from dentist-clients by selling copings to other laboratories. In the end, cases from laboratories almost pay for the equipment and then your dentist-client work is the profit," says Richard Pavlak, owner of Porcelain-Plus, Cranford, New Jersey, whose In-Ceram work from other laboratories accounts for approximately 15% of his total volume.
Help with the labor shortage
When you're investing in a new product or system, you also have to factor in the cost of labor and, in many cases, that may mean hiring another technician to handle the additional work. But in today's labor pool, everyone knows that hiring a new employee isn't easy. "When you combine the shortage of skilled dental technicians with the rapid pace of new technology, it makes it extremely difficult for many laboratories to staff and train at the necessary level to handle these new restorations," says Scott Clark, vice president, Dental Arts Laboratories, Peoria, Illinois, which provides a range of outsourcing services to other laboratories. "Many laboratory owners are finding it's wiser to outsource the framework or coping and then finish the case with their own personal touch."
The labor shortage as well as wanting a less stressful environment are the reasons Universal Dental Arts in Denver, Colorado sends approximately 5% of its work to other laboratories. "My technicians do exactly the same number of units every day, which allows a consistently high quality product. If we get busier than that or experience employee turnover, then I select the cases that I want to subcontract to one of my dental laboratory friends," says Dennis McFerrin, owner of the 15-person operation. "Having them handle the fluctuation in volume is more expensive but there's less stress and it gives me and my employees an opportunity to have a better life without turning away business."
Laboratories as clients
Many laboratory owners and managers enjoy working with other labs because there is a sense of camaraderie. "We share a common working relationship. As a technical team, we have the common experience to design and fabricate cases that stay within the limits of the material, coordinate proper design specifications and ensure successful results," says Clark.
Some say laboratories also seem to share a concern for quality. "Our retention rate for laboratory clients is two and a half times better than for dentists because laboratories are looking for quality and, because we're a mail order lab, we often come into contact with dentists who are shopping for price," says Mark Jackson, vice president and general manager of Precision Ceramics, Montclair, California, who attributes 30% of his workload to cases he receives from other labs. "If you can prove to another laboratory owner that you can consistently offer a quality product, and you can do it for him on time, then you usually have his loyalty."
Jackson also points out that working with other labs can be a learning experience because it opens up communication with your peers and it's an opportunity to see each other's work. "Getting in work from other labs has improved our quality because I've learned little tricks from our laboratory-clients," he says. "For example, one laboratory sent exquisite model work; I called the owner to ask what kind of stone he uses and how he makes the edges so sharp."
Because much of the subcontracting that goes on is for substructures only, another factor that makes the relationship easier is that those doing the work only have to worry about the integrity of the coping or framework. "We don't have the day-to-day concerns with occlusion, color, etc., when working with laboratories," says Allen Weinbrecht, owner of 14-person Den-Tech Dental Laboratory in Pasadena, California. "However, labs are also pickier and more scrutinizing of each case than most doctors because they have to put their name on it."
Another challenge inherent in the outsourcing relationship is the time constraint; labs need a faster turnaround than dentists because once they get the case back, they have to finish it and get it back to their clients by the promised deadline. And, although one laboratory owner says that he has fewer collection problems with other laboratories because balances are smaller, others told LMT that labs are notoriously slow payers compared to dentists. Many require payment with the case, especially at the beginning of the relationship.
Overall, the basic qualities needed for a successful laboratory/laboratory working relationship are the same as those needed to make a laboratory/dentist relationship harmonious: a common standard of quality, mutual respect and trust. "There has to trust, and the most important thing in achieving trust is consistency," says Lesh. "Before a laboratory can aggressively market a product to its clients, the owner has to feel confident that he can rely on the subcontracting laboratory to maintain the quality of that product."
Thinking of sending work to another laboratory? Here's how to get started
Outsourcing can be an invaluable tool for building your business and showing your clients you're staying on the cutting edge, even if the price of new technology is out of your ballpark. If you've decided to get involved with a new restorative system by using the services of another laboratory, here are some areas to consider:
How do you choose a laboratory?
It's easy to do a test case with a laboratory who has been recommended or whose ad catches your eye, but you might want to delve a little further into the laboratory's business philosophy before you begin an ongoing relationship. "When you subcontract, you're basically making that other laboratory an extension of your own business. Therefore, you have to apply the same criteria to laboratories as dentists would apply to you," says Rudy Agullo of Denticon International, based in Sonora, Mexico, which receives 60% of its workload from other laboratories. "Are they dependable? Are they ethical? Your business is going to suffer if the product doesn't show up or it's not the quality you expect."
Find out what you can about the laboratory's reputation, and ask for references of other technicians who have been sending work. Your initial interactions with the laboratory can also be telling; when you first call to inquire about their services, do they discuss what materials you'll need to finish the case, firing temperatures, prep design, etc.? "While this is information you can also get from the system manufacturer, the lab's ability and willingness to spend time discussing these things can tell you what kind of lab you're dealing with," says Joe Jennings, CDT, director of sales and marketing of Ottawa Dental Laboratory, Ottawa, Illinois. "It's important to work with a lab that can communicate and wants to support you."
How much should you charge dentist-clients?
You should factor in the cost of the subcontracting service, your time in finishing the case and any materials you use to be sure you remain profitable. Also consider the market trend and look around to see what the units are selling for nationally; keep in mind that in many cases these are high-end restorations that should be priced accordingly.
When do you start marketing the product to dentist-clients?
Start by working with a few select clients who have either requested the new restoration or have generally shown an interest in technological advances. Market to your other accounts only once you're assured of the quality and dependability of the laboratory doing the work and confident that you have the necessary system in place at your end to complete the case to your quality standards.
Do you tell your clients?
Traditionally, laboratories have been apprehensive about letting clients know that they're sending work to another laboratory. However, most laboratories recommend being upfront, saying that if you have a good rapport with your clients, chances are there will not be any repercussions as long as they're getting good results. This is especially true when you're only outsourcing the substructure. "You don't want to mislead your clients; simply explain that you are still in control of the case and discuss the portion of it that the outsourcer is doing," advises David Lesh, president of Dale Dental, Richardson, Texas.
Is your quality control system in check?
It's up to you to be sure that the case you outsource to another laboratory follows specifications and is of an acceptable quality. Not having a high enough standard when inspecting the cases results in lost time and frustration on both ends. "If the original laboratory sends an impression or model work on to the other laboratory that is less than acceptable, the relationship is damaged right from the start," says Richard Pavlak, owner of Porcelain-Plus in Cranford, New Jersey.
Marketing lab to lab
For those laboratories who see their outsourcing service for other labs as a valuable, integral part of their business, marketing campaigns can be as comprehensive as those for their dentist-clients. If you turn to LMT's classifieds, you'll see that more and more laboratories are using classified advertising to promote their outsourcing services to a targeted audience.
Mark Jackson of Precision Ceramics, Montclair, California also exhibits at LMT's Lab Day programs, using them as an opportunity to meet potential customers face-to-face. Like many laboratories, he also does direct mail advertising and often targets special lists—such as promoting In-Ceram bridges to Procera laboratories since he knows those laboratories have an interest in cosmetic dentistry but can only do single units with the Procera system.
Many outsourcing laboratories also offer special services to laboratory-clients, such as providing marketing brochures and patient education brochures for free or at cost to help promote the service to your dentist-clients. Some also provide sample sales letters that can be customized for your laboratory.
Dale Dental in Richardson, Texas is currently working on a project to offer websites and web hosting to laboratories at no charge. "It's expensive for us to offer, but it's a leading source of marketing right now," says David Lesh, president. "It will be available to anyone—even if they're not doing business with us. It's a way of letting small labs get to know us and, if they don't use our services now, hopefully they will in the future."
Some services offered by laboratories are focused on education: for example, Jackson's implant mentor program. Laboratories can send him an implant case, and he'll do the model work and send the case back to them with all the parts and necessary instructions on how to finish the case. "I'm also available for technical support; because I've seen the case, it's usually easier for me to help the technician than it is for the manufacturer."
Biogenic Dental Laboratories in Utica, New York offers a two- or three-day laser welding course for labs who have bought or are thinking about purchasing the system. "We train them here at the laboratory and show them how we've integrated laser welding into our business prior to them making that investment," says Paul Giovannone, owner. "Our philosophy is that before they make this large investment, they need to educate themselves and be sure that it applies to their operation."
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