Four Steps for Improved Laboratory Performance
Reducing waste, engaging employees, and more
Improving your laboratory's performance, both financially and operationally, takes a bit of work. Many owners periodically attempt to move their laboratories forward, only to see those efforts stall or fail for various reasons. Try these four basic steps to successful improved performance.
First and foremost, identify waste and reduce or eliminate it. Waste encompasses elements of the process that require time, effort, and cost but do not add value. Typically, 80% to 90% of the total steps within any given process are waste from the standpoint of the end customer.1 That translates to 92% to 95% of cycle time being wasted time.2 Waste appears in many forms throughout the laboratory, but because most are not trained to identify it, it is considered "the cost of doing business." Most discussions about waste center around eight areas that can be remembered with the acronym DOWNTIME:
• Defects: Products or information that do not meet the customer's specifications and thus require reworks or remakes.
• Overproduction: Producing more than is required, or in the case of the office, producing information that nobody needs.
• Waiting: The time spent waiting for resources, machines, materials, or information.
• Not utilizing employees (brainpower): Failure to tap into the experience and collective knowledge acquired by performing the job over a long period of time.
• Transport: The movement of cases, paperwork, tooling, and materials throughout the laboratory.
• Inventory: Excess raw material, work-in-process cases, and paperwork that are not being consumed or processed on a daily basis.
• Motion: Excess walking, bending, reaching, and searching to perform the work.
• Excess processing: Performing unnecessary steps such as remakes, multiple inspections, and repeated data entry.
Once the waste has been identified, the underlying causes can be addressed. Root causes for waste are many. At the top of the list in a laboratory are ineffective work practices, large batch production, poor communication, confusing workflow, and insufficient training programs. For example, waste involving defects is often rooted in incomplete or inaccurate laboratory slips, or too much subjectivity ("bad impression," "poor margin," or "darker shade"). Another root-cause example is the waste of transport, where poor laboratory layout forces the repeated handling and movement of trays. Technicians moving cases (sorting, stacking, shuffling, moving from department to department) are performing non-value-added work, which negatively impacts productivity. A serious effort to reduce or eliminate waste begins with recognizing the areas of waste within your specific laboratory, prioritizing corrective actions, and learning the appropriate tools to make sure the wasteful practices do not return.
The second key to improving laboratory performance is getting and keeping employees engaged. Most laboratory owners work with a "top-down" philosophy, meaning they make 95% of the daily decisions. Unfortunately, that organizational model misses out on opportunities to leverage the experience and knowledge of employees. Multiple studies have shown that engaged employees are more productive and less likely to leave their company, and boost business much more than their counterparts. "Productive" is a broad term covering quality (making it right the first time), attendance (they look forward to coming to work), work performed (output per technician), and participation (problem solving, taking responsibility, pride in workmanship).
The economic benefit of engagement—its impact on retention—is substantial: Research has shown that moving from non-engagement to strong engagement decreases employees' probability of leaving the company by 87%.3 The most powerful driver of engagement is an understanding of the connection between an employee's on-the-job performance and broader organizational strategy and success. This is where personal goals and objectives for each employee should be in place every year.
The third key to improving laboratory performance is to reduce expenses. Money is spent daily on everything from payroll to tools to implants to air conditioning to outsourcing. What is not done very well is managing those expenses. That management effort can mean the difference between profit and loss. Most laboratories have a good idea about how much revenue is being generated by a given customer, but do not hold accurate information on what costs really are associated with producing those items.
Laboratories spend money in three areas: material, labor, and overhead. Effectively managing these expenses requires collecting data. The data about material costs will aid greatly in identifying lower-cost sources; provide a solid base to negotiate better pricing with current suppliers; and help you manage your cash proactively. The data about where your labor dollars (typically the largest expense) are being spent will help you make hard choices to adjust salaries, ration overtime, increase output per employee, and hire people within salary guidelines that match your business model. Finally, overhead includes the most items that are typically poorly controlled or not controlled at all. While some might call this "the cost of doing business," overhead can consume as much as 35% of your cash.
According to the National Association of Dental Laboratories (NADL), the typical laboratory earns somewhere around a 5-10% profit margin. The reader should be wondering just how much that margin could be increased if the real excess expenses were to be identified and eliminated (or at least reduced).
Analyze Product Lines
The fourth step to improve laboratory performance is to take a close look at your margins by product line (eg, dentures, crowns, all-on-X cases, repairs). Most laboratories look at profitability on a monthly basis, for the whole business. Often, the profit margin by product line (and individual product) is not well understood or documented, which means some products are paying for the losses on others. Many cases are priced based on "gut feel," yet a detailed examination of the real costs of material, labor, and overhead can reveal a shockingly low margin. The information gleaned from detailed profit-and-loss work—especially as digital dentistry changes the ratios of material, labor, and overhead costs—will help the laboratory shed unprofitable products, adjust pricing, obtain better supplier prices for materials, and focus on process improvement to improve production efficiency.
A strong-performing dental laboratory will not happen without good leadership. Lead from in front rather than pushing from behind. By applying these four improvement suggestions, you can realize improved performance and profitability at the same time.
About the Author
Bob Yenkner is the owner of Practical Process Improvement in East Hampton, Connecticut.