How to Measure Your Digital Laboratory
Follow up on digital integration with evaluation to ensure profitability
By Bob Yenkner
Peter Drucker, well-known business and management educator, is quoted as saying, “What gets measured gets improved.” Dental laboratories, regardless of size, would be smart to heed this advice. As the industry continues to evolve with increased digital methods of production, knowing if the laboratory is making the right business decisions is crucial to financial well-being.
Laboratories should identify a level of desired (and achievable) performance and then ensure that a positive trend develops. World-class principle-based programs promote the method of Continuous Improvement, which requires small, continuous steps of improvement. With that in mind, consider setting small, achievable goals on a yearly basis, as opposed to attempting to predict what you will have achieved 3-5 years from now.
Linking your vision to performance requires the use of selected Key Performance Indicators (KPIs). Several measures are required; one or two do not provide an accurate picture of the business. Many laboratories look only at revenues and units shipped, but that is not sufficient information to determine whether the business is profitable. KPIs are both financial and nonfinancial measures used to quantify objectives to reflect strategic performance of the organization.
Answer three questions to help guide your thinking:
1. How are you measured today?
2. On what basis should you be measured?
3. How do your objectives align with the planned objectives?
The answers to those questions allow KPIs to meet the needs of each individual laboratory.
Unfortunately, many KPIs are financially based and do not translate well into daily operations. For example, if you ask one of your technicians what the profit margin was today, you would get a blank look saying, “What are you talking about?” Yet, when you utilize a KPI such as remake rate, the technician knows that the quality of his or her work directly impacts the profitability of the laboratory. Keys to success with KPIs include keeping them to a minimum; making sure they are linked; providing the individual with execution authority to impact the KPI; and ensuring they are achievable.
Laboratories often request examples of typical KPIs, and the author’s response is that each business has its own needs, especially at the corporate and laboratory level, so what may be useful to one laboratory may not be helpful to the next one. However, a few to get started could include monthly revenue by product, profit margin by product, remake rate (external and internal), output per technician, expenses monthly, inventory (components and pucks), on-time delivery, and overtime.
Whatever measurements are used, they must be visible and understood by all. Remember to keep your measurements displayed in a prominent location in your laboratory. Keeping them visible and current will keep your employees “in the loop” and increase their awareness of how their performance will directly impact the numbers. If some of these measures contain sensitive information that you do not wish to be common knowledge, display this information using graphs or trend lines to get the point across without explicit detail.
Measurements are an exercise on paper unless they are reviewed regularly and corrective action (if required) is taken to get the laboratory back on track. At least once a year, review the set of measures for suitability, viability, and applicability to your business plans. Having the wrong measures is probably worse than having no measures at all. How else will you know whether you are achieving your goals?
Dental laboratories come in all shapes, sizes, and types. Utilizing KPIs will help track your progress, identify problems, and lead you to solutions that will keep you on track.
Bob Yenkner is the owner of Practical Process Improvements (PPI) in East Hampton, Connecticut.