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Inside Dental Technology
October 2014
Volume 5, Issue 10

Strategic Outsourcing

A concept promoting business growth and competitive advantage

The tactical business strategy used by dental laboratories to gain a competitive edge by sourcing out production of non-core, digitally produced materials and products began nearly 15 years ago. Today, the business of outsourcing production of restorative solutions, in whole or in part, has become a strategic necessity for many laboratory businesses. Over the past decade, the core product line of a majority of dental laboratories has shifted from metal-based to milled all-ceramic—and widened even further to a range of more complex offerings that require advanced automated manufacturing equipment, materials, and processes to produce. For many laboratories, this rapid expansion is outpacing in-house production capabilities. To fulfill customer orders, these laboratories find themselves tapping into the resources of large production centers that possess the capital and flexibility to react to shifts in the market. It is a strategy that has helped level the playing field for smaller businesses in the industry, while offering larger entities a relief valve for production overload or instant access to new in-demand products without making a capital investment in equipment and labor.

As the outsourcing business model continues to mature, laboratory owners’ concerns about loss of control and the transfer of ownership of non-value business processes to a third-party service provider have largely disappeared. Today, they are adjusting their business models to capitalize on the advantages that sourcing out product offers and that, in turn, has begun to change the traditional in-house production business model.

Business Advantages

Shifting the financial burden of production to digital service providers not only allows laboratories to offload some of the more traditional labor-intensive processes (as well as to afford access to new materials and production capabilities), but it also eliminates the need to capitalize the expense of inventorying milling and material supplies. “When you consider the cost of inventorying multiple sizes and shades of just one milling material such as a millable PMMA or pre-shaded Zirconia in anticipation of reacting to incoming prescriptions, the upfront expense of purchasing and carrying that inventory can be an extreme burden for labs,” said Jeff Lowthorp, Director of Business Development for Argen Corp. “So for laboratories wanting to compete with the full spectrum of product lines being offered by larger laboratories, utilizing the services of a centralized production facility becomes a necessity.”

This strategy allows laboratories of all sizes to become more reactive to the market and offers the opportunity to service all the needs of customers without investing in equipment or materials. “The industry is moving toward a service business model versus the traditional production model,” said Robert Gottlander, DDS, Vice President Global Prosthetic Solutions for Henry Schein. “The ability to access at will the broad spectrum of products currently on the market gives business owners the flexibility to review with customers all their needs and take the opportunity to capture missing market share by accessing products that they may not have the capability of producing in-house.”

That is a point that Calvin Shim, Managing Director of Creodent Milling Center, believes is an important consideration when deciding what products should be fabricated in-house and which would be best sent to a specialist third-party vendor. “When you consider the cost of employing skilled labor on top of the equipment and equipment maintenance expenses associated with in-house production for high-value products such as milled custom abutments versus sending that model or digital file to a milling center, the cost savings and profit margins afforded by outsourcing can be very appealing.”

Especially when that custom abutment order can be bundled with an order for the finished full-contour crown or coping and temporary. As the digital possibilities continue to open up new opportunities to respond to clients’ needs and expectations, the technical skills and technology mindset needed to execute the complexity of the designs and deliver the precision required of the final product become more exacting and challenging. And, warns Shim, some products such as milled custom implant abutments require FDA 510K clearance, an expensive and time-consuming undertaking for most laboratory operations producing product in-house.

Kristina Donehew-Tamilio, Marketing Manager Lab Services for Straumann, has found that beyond the small laboratory operations that do not own the scanning equipment necessary to create digital CAD files, even some of the larger and midsize laboratories that find themselves at maximum capacity or lack the expertise to carry out the more time-consuming CAD designs for more complex implant bar cases rely on the convenience of the technical staff of third-party production centers to design and mill the final product.

At its core, an outsourcing business strategy allows laboratories of all sizes to expand the line of products they sell and increase production capacity without the need to hire additional labor or purchase, maintain, repair, or upgrade specialized equipment. Strategic outsourcing is a business model used in many industries to access specialized knowledge and production expertise, streamline operations, and reduce costs through labor savings and by tapping into the economies of scale for materials and equipment. Sourcing out production also helps to minimize or reduce the risks of over capacity or inventory obsolescence while allowing the laboratory to focus on core competencies. Finally, it enables business operations to keep up with the market and advances in technology without putting strain on human and financial resources.

Forging the Relationship

Most important in establishing a relationship with outsource providers is assessing not only the specific expertise they possess to deliver specialized products at the quality and consistency level being demanded but also the flexibility to adapt to the changing needs of the market. “Dentists look to the laboratory as a trusted advisor on new materials and as a producer of quality products,” said Gottlander. “They are less concerned about where the restoration is made as long as what is delivered meets the necessary requirements for the case and has the quality and consistency level expectations they have come to expect from their trusted laboratory partner.”

That is why trying out different outsource providers to “test-drive” the quality of the final product is so necessary. After all, as Gottlander points out, the laboratory brand is at stake, and even though two different providers use the same milling or printing machines and the same materials, the final product from each may differ considerably.

Communication between the laboratory and outsource provider is also key to maintaining a healthy and lucrative relationship. For the laboratory needing assistance or answers to critical questions—even guidance from the digital services provider on designing a case—a technically knowledgeable support staff accessible by phone or email is of utmost importance. “It’s no different than the relationship laboratories hold as advisors to their clients, providing them support on new material indications and applications as well as new technologies,” said Lowthorp. “In the same manner as the dentist expects the laboratory to provide information and guidance on cases, the laboratory should expect the same high level of customer service, support, and guidance from their digital services provider.”

From advising on what materials to use or how best to design a case to get the optimal results to how to utilize technical equipment, a knowledgeable digital services support staff should be readily available to walk laboratories through complex cases or technical problems with equipment and software.

Shim agrees. “An outsource provider should have the expertise and technical knowledge to evaluate even the most complicated cases and communicate with customers on issues they see to ensure a case is heading in the right direction,” he said.

Maximizing Profits

Laboratories can streamline production efficiencies by thinking differently about how the final product assembly can be optimized. Splitting CAD files and sending designs for a metal coping as well as the design for a full-contour wax crown for press-to-metal restorations or splitting a CAD custom implant abutment and the full contour crown design can maximize in-house production as well as shipping costs and turn-around time.

“There are so many benefits and efficiencies that laboratories can take advantage of to maximize cost and production time,” said Lowthorp. “We are always looking for opportunities to help our customers think more digitally.” Once the new mindset has been achieved, the velocity of business can increase with a majority of the non-value production offloaded to a third-party, creating a leaner business operation that can concentrate on the relationship with the client by ensuring the precision of the CAD design, customizing that design for the individual client, and—once the order is received from the digital services production center—putting the laboratory’s signature touches on the final restorative product. This production model leaves the headaches of producing the non-value portion of the restoration to a third party and allows laboratories to focus more on the value-add aspects of business such as marketing, consulting, and meeting with potential new customers.

However, deciding what production steps to source out to increase and maximize efficiencies and profits must be measured to ensure the maximum benefits are being achieved, says Donehew-Tamilio. “There are so many options available on the market now for laboratories wanting to outsource production steps,” she said. “Laboratory owners need to really single out production steps which would save them the most in labor, inventory, and other expenses, and then measure the results over a period of time against the metrics of production in-house.”

Future Trends

As new technologies and advanced automated processes and materials launch on the market, the role of digital service providers will become increasingly critical for laboratories that want to provide these restorative services to customers. Demographics also will play an increasing role as the population of the United States is projected to hit the 439 million mark by 2050, adding some 128 million people to its current 318 million population base in the next three decades. “What these numbers tell us is that the future of dentistry in the coming decades is a positive one,” said Gottlander. “But in order to supply the amount of prosthetic work the growing population base will need, means that we have to find new ways of increasing production to meet these future demands.”

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