Moving Target
Zeroing in on business models able to adapt to a rapidly changing materials, equipment, and price-driven market
Pam Johnson
Finding itself not immune to major shifts in the economy, the dental industry continues to struggle to adapt to a new post-recession landscape. Whether serving the patient base or those who serve the patient base, all segments of the industry are impacted as the consumer reset button on spending remains depressed. American consumers, especially those in the middleclass, continue to find new ways to re-evaluate, adjust, and slim down budgets. The new economic norm is forcing companies that once appealed to the middleclass to refocus and revamp pricing structures downward or find themselves out of business.1 This reality contrasts sharply to the high end of the economic spectrum where businesses positioned to serve the wealthy are faring much better. The new economy has businesses either chasing the well off or serving the lower-end while the middle of the market fades away.
“Economics is hitting everything,” says Dr. George Tysowksy, Vice President of Technology, Ivoclar Vivadent. “Price is playing a significant role as everyone searches for the best product at the best price.” This reality is forcing laboratories to rethink their product lines and their customer base says Lou Azzara, president of Bego USA. “Today, laboratories are finding that they have to broaden their product offerings to appeal to all economic spectrums of dentistry. The economic forces impacting the market also are forcing businesses to broaden their geographic reach in order to maintain revenue stability or grow their client base.”
his reality-based mindset has also had a significant impact on the development of new indirect materials and production processes designed to serve a dentist customer base still reeling in the aftermath. Today, manufacturers of new restorative materials—or digital methods of delivering traditional materials—have locked laboratories into a symbiotic relationship with digital production machines and software to cost-effectively produce a finished, deliverable product. New developments in analog processes have slipped into obscurity as the emphasis shifts to materials and manufacturing methods that increase production speed, cost-effectiveness and accuracy, while delivering an end product that appeals to the price sensitivity of the market. “The market wants materials that can be quickly processed opposed to traditional layering ceramics,” says Jim McGuire, CDT, Director of Education and Technical Support Vident, a VITA company. “The efficiencies laboratories have realized in digital production to reduce costs involved in labor for traditional processes are driving the new materials development market.”
As the shift to digital production has matured, new business strategies have emerged as the dental laboratory industry flexes to stay ahead or, at the very least, remain on level playing ground with competitive forces. No less than a decade ago, laboratories measured competitive advantage by their financial ability to own expensive production equipment and manufacture products from materials exclusive to that production technology. This gradually changed as access to those materials and a wider range of other deliverable products opened up with the advent of non-proprietary scanning equipment and the growth of laboratory-to-laboratory production services.
Today, laboratory-to-laboratory production services have been joined by large manufacturer-operated production centers. It is this shift that Anton Woolf, CEO Argen, views as the most important innovation the laboratory industry is currently experiencing. “Everyone believes that innovation is being driven by changes in materials,” he says. “However, we believe it is not just new material and equipment developments that will sustain and continue to innovate the market,” says Woolf. “Rather, the newest innovation is in the way materials are delivered.” Through scanning technology he says laboratories now have access to the full spectrum of new digital materials on the market from laser sintered metal substructures to full contour all-ceramics and can respond to any material selection requested by a customer. “The wide range of materials available to laboratories today is far above what they can produce in-house,” says Woolf. “Large production centers will always have the capability to stay at the forefront of new innovative materials and processes and bring that full arsenal of options to the laboratory at a reduced price.”
A sentiment equally shared by Tysowsky, who thinks that future advances in new high tech materials and processes will most likely need to reside in large volume production centers because these centers are best positioned to have the flexibility and capital to react to market changes and invest in and test the latest new high-tech materials and processes in order to deliver a highly predictable end product.
However, it is not just broad-based product offerings and deep financial pockets that will influence the growth of large production centers. “Strong regulatory issues, which are out of the realm of most laboratories, will also come into play in the next 10 years as dentistry moves further in the direction of the medical device industry,” says Dr. Ingo Uckelmann, Head of Research and Development, Bego. “As we move forward, it will become less and less efficient for the average laboratory to continually invest resources into constantly evolving equipment and software solutions to remain on the leading edge of technology and stay competitive in the market.” In addition, individual laboratories will not have the IT wherewithal of larger production centers like that of Bego to develop the advanced software intelligence and engineering processes that can custom optimize individual cases from digital data files for output on the production device of choice, which impacts the accuracy, consistency, and predictability of the final restoration.
In the meantime, manufacturers race to develop a stream of new materials or improved versions of existing materials that help laboratories reduce processing time, are compatible with multiple cost-efficient processing technologies, and yet cost-effective enough to be competitive in the market whether produced in-house or processed in a production center.
For laboratories facing the realities of a price-driven, commoditized market, the explosion of new digital materials and production methods spells unprecedented choice, affords the flexibility to eliminate some of the more traditional labor-intensive, in-house production processes, and provides the freedom to serve both the high and low ends of the market. “The fact is, dentistry is being driven by bottom-line dollars and cents today,” says Colin Barnhard, BS, MDT, owner of CAB Dental Studio, a full-service laboratory located in Brooklyn, NY. “For an industry that is changing so quickly and comprised primarily of smaller players, we have to be ready to rethink and adjust our business models in the face of these new realities.”
Adaptive Business Strategies
In this new economic environment, the traditional laboratory business model has come under threat. Long-range strategic planning, long-term objectives and other tenets of good business planning principles of the past have become untenable. By the time the situation has been analyzed and researched, the numbers crunched, and business plans made and revised, the realities on the ground have rendered the well thought out game plan useless. Competitive advantage has become a moving target that requires adaptability and timing to strike when the opportunity presents.
It’s a business lesson that Barnhard has learned to accept. Spoiled by the high-spending patients of the early 2000s and almost brought to the brink of destruction by Hurricane Sandy in 2012, today Barnhard views business advantage with a new realism. “Because of the current economic climate, I don’t work off a fee schedule anymore and I will not say no to any customer,” says Barnhard. “When a dentist calls up, I ask them what they want and the price range they are looking for. Whether they want a $100 crown or costly and complex implant case, I’m prepared to deliver that case.” It wasn’t always this way for Barnhard, who kept all production in-house, including designing and milling his own zirconia and 3D printing wax copings for casting or pressing. When he lost it all in the storm, he re-evaluated how he had been running his laboratory, where the real value lay in his enterprise, and completely revamped his business model. He pared down his staff from 10 to four, explored new out-of-state markets, and used his Dental Wings scanner to outsource all his production needs from non-, semi-precious, or high noble metal copings accessed from Bego USA to full contour zirconia, lithium disilicate, and milled titanium implant bars. “Of course I would love to fabricate $250 crowns all day,” says Barnhard. “But that is not today’s economic reality. People today don’t have the money and the big full arch cases I used to do in large quantities are just not out there.” For Barnhard it is less important to keep production in-house than it is to remain flexible and reactionary by relying on commercial production centers for immediate access to new materials as they come to market and gain traction. “Now we produce the same amount of work, have less overhead, and have increased our profit margin by 25% to 30%.”
Shifting the financial and economic burden onto the shoulders of the production centers frees Barnhard to connect with his current customer base, seek out new clientele, and access any product and material they demand. The centers own, operate, and maintain the high-tech equipment, as well as manage materials inventory, and it is their responsibility to react to new demands and changes in the market. It is also their responsibility to produce what Barnhard needs, when he needs it, at a quality level he demands, and at a cost that allows him to charge a price the market demands yet gives him a profit margin that is sustainable for his business. “Production centers are my business partners,” says Barnhard.
It’s a business model that laboratory owner Leon Hermanides, CDT believes makes sense for small laboratories trying to remain competitive in a volatile market. Located outside Seattle, WA, he operates Protea Dental Studio, an 11-employee high-standards, patient-first business that was nearly brought to its knees by the reduced insurance reimbursement rates enacted by the Washington Dental Service in April 2011. The only way his business remained viable and still profitable was by creating an outsourced milled IPS e.max® product for his posterior crowns. “As devastating as this insurance compensation adjustment was for dentistry in this area, it helped me understand how vulnerable small businesses in this industry are. Success is not a guarantee anymore,” he says. With work from local clients declining, Hermanides is building a national profile for his business. “The only way my business will survive is if I free myself from the bench and take advantage of materials and manufacturing my vendors offer.”
The strategy of pushing the manufacture of non-value products to production centers has also not been lost on larger, more volume-based businesses that have already made a transition to a complete in-house digital workflow and have jettisoned entire departments that are no longer relevant. “We don’t wax and cast here at all except for our attachment cases,” says Daxton Grubb, president of R-Dent Dental Laboratory, Inc., a 43-employee laboratory located in Memphis, TN. “So it makes practical business sense to outsource all our non-, semi-, and high noble copings to Argen.” Not only does the business strategy for outsourcing metal frameworks keep metal-based prescriptions from disrupting the internal digital workflow, says Grubb, it also means not having to buy and inventory expensive alloy.
Steve Dearien, owner of Sundance Dental Solutions, a 40-employee laboratory in AZ, also keeps a majority of production in-house, electing to outsource only his titanium abutments. However, the realities of a new economy are hitting home as he analyzes his business. “We just completed running the numbers for the month of February,” says Dearien. “In 2011 we had 120 active statements a month and ended the year just short of $4 million. This year I had 249 active statements for the same revenue in sales.” To maintain the high value customer service business model he has built, the expansion of his customer base has required adding more staff to properly accommodate the increase. Customer service on the front end combined with the expanded value proposition of business management CE he offers clients and their staff have allowed him to maintain a higher than average price list for the products he sells. A licensed business coach, Dearien believes the CE he offers is a value add that takes the bite out of the extra $10 or $20 a unit his clients pay. “We’ve personalized the service enough that they don’t feel as price conscious.” Nevertheless, he is realistic about how the economy and technology have impacted and commoditized the market. “It is clear, if I look at this industry objectively and watch those with deep pockets, that this industry is headed to a different place,” says Dearien.
For Hermanides, that different place is a welcome haven for the smallest businesses in the industry. “The future of this industry is not in our hands but in our brains. The more we can wrap our heads around that philosophy, the more likely we are to adopt the changes we need to move forward.”
References
1. Schwartz ND. The Middleclass is Steadily Eroding. Just Ask the Business World. The New York Times. Updated February 2, 2014. Accessed February 27, 2014. https://www.nytimes.com/2014/02/03/business/the-middle-class-is-steadily-eroding-just-ask-the-business-world.html?_r=0.
2. Key Group, 2012 US Dental Lab Market Assessment Report.
New Materials Weigh In
“Faster, easier, and simpler is where new material development is headed,” says George Tysowsky. “These materials need to be such that they can be used by the masses both clinically and technically.” This is a trend that he believes will persist well into the future as the ease of CAD/CAM fabrication continues to simplify crown production.
Production simplification and efficiency spurred companies such as 3M and Vident to develop new nano-
composite and hybrid-ceramic full contour materials—Lava™ Ultimate and VITA Enamic®—that can be milled in short time in either the practice or laboratory setting and require no post-mill processing other than polishing. “When you have a material that costs only $30 and needs no post-mill processing, then you have a material that is very appealing to practitioners milling chairside and the corporate sides of dentistry,” says Steve Dearien, owner of Sundance Dental Solutions.
For Daxton Grubb, president of R-Dent Dental Laboratory, Inc., that product line niche is rush cases. “We are using Ultimate for inlays/onlays and as a substitute for customers who want a rush IPS ® case,” says Grubb.
Processing simplicity and economics also has manufacturers producing new shaded zirconia blocks that speed production time by eliminating the time-consuming process of dipping milled zirconia restorations in shade liquids to achieve an optimal base or stainable final color. “It makes good business sense for laboratories like mine to mill pre-shaded zirconia when we are producing 1100 full contour crowns a month,” says Grubb, who appreciates Zahn’s Zirlux® five-shade blank system, which reduces the need to inventory many multiples of shaded blanks.
In a step intended to eliminate all need for laboratories to inventory multiple pre-shaded blanks and to further streamline and shorten manufacturing time, Kuraray recently introduced the KATANA™ Zirconia M/L milling blank. The puck contains four pre-colored enamel, dentin, and cervical color gradients that once milled results in a full contour restoration that requires no analog dipping, staining and drying prior to sintering.
Material researchers have also been working on increasing the translucency as well as the optic qualities of zirconia while not losing the strength advantages of the material. “You can’t take existing materials and try to modify them because the result would be a material with less strength,” says Tysowsky. “Long-term developments are focusing on increasing the translucency without sacrificing the strength value advantage of the material to make them more adaptive from single unit applications to bridge and hybrid applications.” Tosoh, a leading manufacturer of zirconia powder for the manufacture of milling blanks, introduced an ultra high translucent ZPEX® Smile powder. Jay Thomas, Tosoh Product Manager Ceramics, explains that this new high translucency powder is only slightly lower in strength and optimal for anterior applications. “ZPEX Smile is 600 MPa and will also come in three shades, which are still under development. The Smile Shades when combined in various formulations will result in the entire 16 VITA shade guide shades.” Some manufacturers such as Heany Industries not only manufacture high translucent blocks with the material but also can offer milling pucks in the various Vita shades using the Tosoh ZPEX powders.
Manufacturers have also been searching for new materials that would loosen the decade strangle hold lithium disilicate has had on the market. Three companies have introduced, or will soon be introducing, their versions of a lithium silicate material—Glidewell Obsidian™, VITA Suprinity®, and Dentsply Celtra™ Duo. Both Suprinity and Celtra Duo are millable ziroconia-reinforced ceramic materials.
The unique attribute of the new Celtra Duo block, says Udo Schusser, Director Research and Development, Dentsply, is the ratio of glass to crystal particles in the material. “The very small crystal size of Celtra allows for translucency while providing 420 MPa strength to mill full contour anterior or posterior restorations.”
Although VITA’s lithium silicate block won’t be on the market until the third quarter of this year, McGuire claims the next generation of this block could be fully crystallized to eliminate the time-consuming crystallization process, and still result in a restoration with a flexural strength of above 400 MPa.
However, not all new developments revolve around the all-ceramics market. The new economy has also increased demand for low-gold content and non-precious alloys for the 40%2 of the restorative market still prescribing metal-based restorations. For digital production-model laboratories, Amann Girrbach’s new millable Sintron® chrome-cobalt and the opening of large production centers using high-tech SLM technologies to produce laser-sintered metal copings and frameworks has allowed laboratories to mill non-precious substructures in-house or eliminate the labor-intensive analog in-house process by sourcing out metal parts.
