February 2011, Volume 7, Issue 2
Published by AEGIS Communications
Bridge to Everywhere
How the globalization of dentistry impacts your lab work
In the past decade, the dental industry has undergone a metamorphosis, spurred by the shift from analog to digitally generated production processes. Now it is on the verge of another evolutionary step toward automated production, commoditization, and increased competition—one that will challenge traditional business models as the industry moves rapidly into this new phase. No longer a cottage industry built on personal connections and bound by geography, the dental industry is beginning to compete in a marketplace where goods and services are mobile, but labor is not.
Armed with technological resources, more dental laboratories are facing economic challenges by going global. These pioneer laboratory owners are investing thousands, sometimes millions, of dollars to map out sustainable business models for the future. They are tapping into new sources of lower-cost labor to acquire competitively priced services and high-quality restorative components. They are building a digitally integrated global network of laboratories to serve international dental needs and are gearing up to automate production processes completely. Digitizing case information offers them increased flexibility to access international resources and even gives them the ability to bring some manufacturing back onshore. All of these strategies are part of an effort to stay competitive in a market that is rapidly flattening oral healthcare services. "The world is changing dramatically and rapidly, and the dental laboratory industry is finding itself linked to a perfect storm of factors demanding change," says Mark Maier, MBA, MSc, CFA, president of Core 3D North America, a recently formed international network of dental laboratories. The global economy is struggling, dental insurance coverage has decreased, offshore manufacturers have created price competition, and suppliers have become involved in the manufacture of restorative components and the end product. As all of these elements converge, the result is a transformation in the way that consumers purchase products—and, in turn, the way that laboratories manufacture them.
The global economy, enhanced by technological advances that have freed commerce from locality, has created world competitors that are eager to serve North America, the largest international producer of indirect restorations. At the same time, North American laboratories are looking across the oceans to the larger potential markets emerging in economically developing countries. These new opportunities are facilitated by the advances in digital technology, revamping the way that dental professionals are buying, fabricating, and delivering products.
A Shift in Buying Patterns
How and where consumers buy products has changed dramatically, with irreversible consequences for many business models (see sidebar, The Long Tail Theory). The same purchasing trends that have permeated the general consumer market are beginning to impact the dental industry, as dentists and laboratories turn to vendors throughout the world to find the products they want at the price and level of quality they demand. The economic downturn has intensified this shift, changing how dentists purchase indirect restorative services. As a result, the relationship between the dentist and the laboratory has been altered significantly.
Financial pressures that begin with the patient carry over to the dentist and ultimately impact the laboratory. For many patients, disposable income for elective dental treatment has dried up; often, financial constraints have forced them to put off even routine dental procedures. To compound the situation, insurance reimbursement for treatments such as crowns and bridges has not increased, despite the rise in the cost of living. Not long ago, many dentists were converting to fee-for-service to take advantage of dentistry's golden years, but now they are reverting back to insurance practices to fill their chairs.
As patients guard their wallets, so must their dentists. "The tremendous economic pressure on dentists is causing them to shop around," explains Mac Perry, co-owner of Perry and Young Inc in Aurora, Colorado. "In a shrinking global economy, if your client is looking around to shop for products, it makes servicing that client difficult for the laboratory." He believes this change in purchasing patterns is affecting the traditional relationship between laboratories and their clients, with laboratories feeling the pressure to provide a competitive lower-cost product. "The more our clients become shoppers, the less they need and value that close relationship with the laboratory," Perry says.
"Dentistry is no more safe from world economic problems than any other area," says Edward A. McLaren, DDS, director of the UCLA Center for Esthetic Dentistry. "Certainly, by the time we get through this economic downturn, we're all looking for ways to cut costs. The key, of course, is how to maintain quality at a lower price—and I'm not sure anyone has answered that question effectively in dentistry."
Maier agrees that the economic shakeup of the last 2 years has had a profound impact on how dentists buy products. "The economy is not going to bounce back quickly, and so dentists are being more selective in determining price versus value," he explains. However, value is not perceived in products and materials that have become commodities. He points out that zirconia, for example, was once a high-value product for the laboratory. Over the past 5 years, the flood of centralized milling centers, zirconia suppliers, and in-house milling systems has caused the price of zirconia milling blocks to plummet, creating a commoditized product with less perceived value.
The decline in value of the posterior crown has been even more dramatic. Perry notes that 25% to 30% of posterior crown cases today are being manufactured internationally using low-cost labor or automated CAD/CAM technology. This has decreased the price to a level where domestic laboratories that use traditional fabrication processes find it difficult, if not impossible, to compete. This trend has become a growing concern for many laboratory owners who are watching their bread-and-butter cases get shipped overseas. "Most patients don't know the differences among products and providers," Perry says. "They are trusting the dentist with the quality of that product."
"Laboratories are trying to find a way to still deliver quality under these difficult conditions," McLaren says. "In dentistry, there are a number of different aspects to quality—longevity, material, esthetics, and biologic attributes. All these areas are part of what we call quality. While some of these features may be diminishing at some level, it's not a simple fix in the middle of a recession. One way to think about it is the cost of failure. Going with a less expensive laboratory or material may save money in the short run, but the cost of failure can be 1.5 times the original expense—and that's not including the patient's dissatisfaction and poor public relations. So ultimately we're losing money."
As purchasing patterns in dentistry change, Perry believes laboratories, especially smaller operations, need to adapt accordingly. "The reality is that if 50% to 60% of the work that traditionally comes into the laboratory is single crowns, laboratories can't afford that business segment to dry up," Perry says. "If they do, they won't have the economic platform to do the higher-priced specialty cases." He suggests leaving bench artistry behind for lower-value cases and concentrating on service and turnaround as ways to meet their clients' needs and keep those cases in-house. For example, by investing in digital scanning technology, laboratories can scan cases, order restorative parts, assemble the manufactured parts in-house, and distribute the final product to the customer in a time- and cost-efficient manner. A digital file or split files can be transmitted to different production centers across the United States, Canada, Europe, South America, and Asia for the most cost-effective production of component parts. Digitization offers laboratories the power to think of manufacturing simply as one mechanism to deliver an end product that meets the customer's needs.
Fulfilling customers' changing expectations—both in price and quality—has challenged the laboratory's traditional production structure of keeping all fabrication processes in-house. However, digitized case information, in whole or in part, opens up new avenues for production flow. Today, data files move in all directions—from and to the operatory, laboratory, or offshore site. Data can be sent electronically to in-house automated production milling for manufacturing crowns and bridges, which can help level the playing field against offshore competition. This technology can also be used to access cheaper international labor to reduce the cost of one aspect of production, after which the product would be returned for final milling onshore. Alternatively, the data could originate offshore and be electronically transmitted to the United States for one production phase, after which the final product would be assembled and finished offshore. Whatever model the laboratory adopts, there are a number of benefits and potential problems that need to be weighed (Table 1).
Whatever the business model, digitizing case files enables more efficient, cost-effective production and offers laboratory owners a myriad of opportunities to create a competitive business model that fits their market position. Identifying this market position is key to building a manufacturing structure that best serves these changing business models. For example, it is not enough in today's business environment for a laboratory to simply be in the zirconia milling space. "There was a time when you could leverage that, but now it's a commodity game with too many players," Maier says. Laboratories have to utilize technology not only to improve productivity and manufacturing efficiency but also to supply the product variety the market now demands.
Edward Attenborough, managing director of Attenborough Dental in Nottingham, England, agrees that market position is critical. More than a decade ago, he transformed his family business by shifting from analog to digital production and now provides lab-to-lab services as well as serving the top end of the international dental market. "Competing head-on in price is not where we wanted to be," he explains. "So we've deployed our technologies to enable us to offer a premium, high-quality service to domestic and international clients at a very competitive price." Attenborough has stayed ahead of the technology curve, outfitting his laboratory with a wide variety of milling, 3-D printing, and 3-D laser sintering and scanning solutions. Serving high-end international clients from as far away as India, he receives model scan files from remote clients, fabricates the case, and returns it seated on a 3-D printed model.
While most dental professionals do not associate industrialized production with high-end esthetic dentistry, that is exactly what Attenborough and Maier are providing their international clients. The economies of scale come from maximizing productivity, which in turn increases production efficiency and reduces variable and material costs. Controlling production costs enables companies to manage the price of the end product. Production efficiency frees up highly skilled laboratory personnel to work on the more advanced complex cases.
"Our strength lies in taking our knowledge of comprehensive esthetics and leveraging that by using industrial technologies to provide our clients with competitively priced restorations that have the most precise fits in the most flexible array of restorative options on the market," Maier explains. Operating under the corporate umbrella of OpenHealth, the laboratory partners of Core 3D Centers have an extensive global footprint, with locations in North America, the United Kingdom, Ireland, Germany, Scandinavia, and Australia. They share core competencies, a process Maier says is constantly being optimized to standardize digital platforms, operating procedures, and branding among the partners. They are also working to develop sophisticated communication and workflow protocols that connect the patient, dentist, and laboratory to each case through cloud computing.
Maier believes the flexibility of restorative options will be increasingly significant for any business model's survival. Locking into a mono-brand provider limits restorative solutions for clients and often does not give the laboratory access to the latest materials that clients are prescribing. "That's why we partner with the best branded solutions and then have our own generic solutions to provide us with maximum flexibility for ourselves and the market," he says.
From Shore to Shore
Creating high-end restorations at a competitive price is the goal of ProCerex Dental Laboratory, a company based in Scottsdale, Arizona, that provides offshore servicing to the dental industry. Tapping into lower-cost labor sources and using digital technology to increase production efficiency, ProCerex is positioning itself to take advantage of an ever-flattening market. Robert Wisler, CDT, a technical advisor to ProCerex, understands the pricing pressure laboratories face today and how that is changing buying patterns as well as production strategies. "The catalysts for change in this industry have been the digital platforms that have been developed, working in concert with the economic situation we find ourselves in today," says Wisler, who previously owned Alpha Dental Studio Inc, in Farmington Hills, Michigan. "ProCerex wants to be a complete resource and price-competitive solution provider for dental professionals." The company's goal is to produce a high-quality crown that dentists can sell to their patients at a competitive price. However, single crowns are just the beginning. ProCerex offers an array of restorative solutions—from implants and veneers to highly complex screw-retained hybrids in a wide variety of materials, from zirconia and porcelain-fused-to-metal (PFM) to IPS e.max (Ivoclar Vivadent, www.ivoclarvivadent.com).
ProCerex sends all of its cases to its ISO-certified and FDA-registered partner laboratories in China, where a select group of US-trained technicians complete the case. If the case requires a zirconia substructure or other CAM-milled solution, the technicians scan the physical model, design it, and send the digital design file to the United States. Nobel Biocare and Diadem Digital Solutions are two of the US milling partners ProCerex uses. The milled copings and substructures are drop-shipped to China for final finishing, then sent back to Scottsdale for delivery. "In the past year, I've spent 15 weeks in China training what we call our HQ Line of 60 technicians," Wisler says. "We developed a quality control protocol for each department to ensure the quality and consistency of each restoration produced. We also appointed a department head who is responsible for ensuring all 48 quality points of the quality control protocols are met." Fabrication materials are highly controlled and mirror those used in the United States—from Argen alloys to Ivoclar porcelains.
Producing restorations that meet the quality standards and expectations of North American dentists is a critical component of the ProCerex business model. To that end, they developed the Procera P3 Zirconia™—a layered zirconia framework designed to have perfectly proportioned porcelain to zirconia with a lifetime warranty. It is based on old-school PFM design principles with supportive elements that are built in to minimize fracture. "I'm using my 30 years of experience in knowing what my dentists wanted in a restoration and implementing those quality standards in an offshore production facility," Wisler says. "Dentists in the States want to maintain the quality of the work they provide their patients but struggle to find highly profitable solutions." Thus far, the offshore laboratory has delivered 6,000 P3 restorations, with a fracture rate of less than 1%.
In the future, ProCerex will combine outsourcing with expanded digital technology options, which Wisler believes will open new doors for production capability and a variety of product offerings. For example, their use of cloud computing technology paired with an iPhone® application allows dentists to monitor each step in the process—case upload, communication, and status—anywhere at any time. The dentist can view photographs of the original impression, the original handwritten prescription, and the finished crown with the shade tab for final confirmation, all directly from an iPhone or iPad™. Implementing this new technology has reduced remakes and case delays and increased the predictability of case outcome.
A Little Onshore, A Little Offshore
Tapping into low-cost global labor does not mean the finished product has to be manufactured overseas. Laboratories can still reduce costs and increase production efficiency by offshoring a single aspect of the fabrication process while performing the final milling and assembly of restorations stateside. Issaquah Dental Laboratory Inc is one example of this flexible business model.
When the Issaquah, Washington-based facility started receiving more digital scans from the operatory and digitizing physical impressions and models for its lab-to-lab outsourcing service, the company began to have some concerns about labor, production time, and cost. One of the primary issues was workflow management. Unlike traditional analog cases, digital cases do not arrive en masse; instead, case flow is rather constant throughout the day. However, the volume of casework varies from day to day and week to week. To complicate matters, digital cases from practices can arrive on different computers loaded with software programs that work specifically with the particular intraoral scanning device the dentist uses. Then once the cases are digitized, they must be virtually designed by a skilled employee with a sufficient dental IQ—which presented a labor issue for the laboratory. "Finding people with that combined computer and dental IQ skill set is quite unique and commands an above-average salary," says Greg Harris, vice president of Novadent, the capital investment firm that owns Issaquah Dental. "Combine that with the production and time inefficiencies of virtual design, and you'll find that tweaking the design for milling and digital processing becomes quite expensive." Most of the virtual designers at Issaquah Dental completed about 24 designs a day (three designs per hour), which initially kept pace with the number of digital cases arriving at the lab. "But we realized that if we received twice as many scans, we would have to hire twice as many people," explains Harris. "And this was not a scalable or sustainable business model for our future."
Issaquah Dental originally partnered with a newly formed company called Propel, which offered them a viable, affordable solution. Founded by an entrepreneur in India, Propel employs dentists there who perform the virtual design at a much lower cost of labor. Once the cases were designed in the milling format requested, they were sent back to Issaquah electronically for automated production and analog finishing. In the meantime, Issaquah hired a staff of lower-salaried employees to scan the physical cases that came into the lab and upload the intraoral and digitized analog cases to the design center in India. The higher-paid employees with a better dental IQ were checking about 100 digital designs daily that returned from India. "It was only costing us $10 to $12 for a scan design," Harris says. "But www.fullcontour.com, a new design partner located in China, has dropped that cost to as low as $6 to $8 per design."
Using a centralized design center makes sense for laboratories that are focusing on industrialized production, Harris explains. "We are ultimately satisfying customer expectations," he says. "We need to use these technologies to deliver what our customers ask for on a consistent basis." This way, labor costs are lower, and the unpredictability of daily case volume and scalability are no longer issues. This model has also opened a new avenue for a semi-finished production process that Harris believes will be a novel opportunity for Issaquah. "We are exploring how to supply our laboratory customers with an unfinished, bisque-level product that is cost-effective and made in America. It only requires that last 10% of signature finishing when the customer receives it," Harris says.
Bringing Production Back Onshore
Some laboratory owners believe implementing a digital industrialized approach can outweigh the benefits of offshoring, especially if they can use it to deliver a high-quality product with a competitive price and quick turnaround. In this model, the case information arrives from the operatory in digital format, moving from the patient to CAD design and automated production in a virtual environment, with minimal analog interaction. At Natural Prosthetic Dental Lab Inc, founder David Jensen, CDT, and president Eric Grimes trust that this production concept will work—and they are investing millions of dollars in technology and the expansion of their facility in Bradenton, Florida, to prove it.
Natural Prosthetic has primarily served fee-for-service dentists for more than two decades, but Jensen and Grimes recently formed a separate division of the company to target large, higher-end corporate accounts. They used offshore production to reach a competitive price point, but now they are in the process of shifting that production from China back to the United States.
"The beautiful thing about automation and a completely digital solution is that we are able to control costs and calculate an estimate of what every restoration will cost us internally," Grimes says. The laboratory recently teamed up with 3M™ ESPE™ to help establish digital impressioning and extend the full digital path. The laboratory will offer clients a Lava™ Chairside Oral Scanner C.O.S. (3M ESPE, www.3mespe.com) in a cost-neutral purchase agreement. In return, those clients will send their business to Natural Prosthetic. This enables Jensen and Grimes to move to a completely digital production platform—from marking the dies and printing 3D models to milling zirconia and titanium frameworks or full-contour monolithic ceramic crowns. At the same time, they do not lock dentists into full CAD/CAM production processes only. "Of course, we would like our clients to choose products that fit our digital platform and they will be incentivized to do so, but they will also have access to every other type of restoration we produce here," Jensen says.
Their business plan is aggressive, and they project that their corporate business segment will grow multiple times over in the next 18 months. "This industry is more than a technology-based business now, it is very IT-driven," Jensen says. "As the industry moves forward with these new business concepts, we are going to have to be very business savvy."
"The current realities of this business include technology, which so far hasn't really decreased cost in dentistry, it's actually increased cost in some ways," McLaren says. "But what it's allowed us to do is to move into new areas—same-day dentistry or machinable materials that we couldn't use before. In my role, I encourage laboratories to find a way to use the technology in their favor rather than worry about a loss of business to chairside dentistry."
At meetings, McLaren often polls dentists on their use of technology. "I ask what they really want, why they would use this technology, and the majority say they want same-day dentistry. The main driving force doesn't seem to be about the laboratory bill or in-office control. Almost all of them say if their laboratory could provide that for them, they'd be interested. So for an entrepreneurial lab that doesn't want to compete on price points or at the boutique level, same-day dentistry may be the next major growth area—a modified chairside CAD/CAM, so to speak."
For today's entrepreneurial laboratory owners, sales opportunities do not stop at the border. "Globalization is a two-way freeway," Attenborough says. "Just because things get sent offshore one way doesn't mean they can't be offshored in the other direction too." This possibility has some business owners planning further expansion internationally and looking closely at economically developing countries overseas—especially one country that has the potential to impact this industry dramatically. "There is an emerging middle class in China that doesn't want cheap," Maier says. "They want the dental esthetics of the Western-style Hollywood smile. The Chinese market is so big that we are more excited about it than scared by it."
While it is the largest, China is not the only emerging market (Figure 1). India, Russia, and Brazil are also poised to play major roles on the economic world stage. In addition to these large nations, many smaller, but pivotal, countries are being watched closely, as their governments and economies stabilize and their populations' buying power increases. In some areas, rising demand may quickly exceed production capacity, opening up opportunities for many capable, prepared US laboratories.
The End User Perspective
Rapid shifts in any industry can create challenges for regulating agencies. Add emerging technologies, products crossing state and national borders, and consumer safety issues in a healthcare industry—and the difficulties increase exponentially.
At the federal level, the US Food and Drug Administration is the oversight agency responsible for ensuring the safety of dental devices and materials. Laboratories must comply with Quality Systems Regulation/Medical Device Good Manufacturing Practices (21 CFR 820). Foreign companies must register with the FDA under Section 417 of the Food and Drug Modernization Act of 1997, and their products must meet applicable requirements and specifications. If a US laboratory outsources production, either domestically or internationally, it must re-label the restoration according to 21 CFR 801. Ultimately, whether it manufactures in-house or outsources, the laboratory is responsible for ensuring that its products meet FDA requirements, which may require additional research on and documentation from its vendors.
Dentists must also make the effort to stay informed about the origin and composition of products. "Knowing what you're getting is not that simple," McLaren says. "Disclosure is abysmal. Oversight is not what it should be, and this is a concern. The message that I would give dentists: Be very, very careful that the material you're getting is actually what they say it is, because there is a lot of aftermarket material out there that's processed poorly. It looks the same on the outside, but when we test it, it's literally less than half the strength."
The safety-conscious, web-savvy consumer is also becoming better informed about dental materials and devices. "About 10% to 20% of my patients are doing research and asking questions, but I expect that number to grow," McLaren says. "We absolutely need to do a better job informing them upfront where these products are manufactured and what they're made of." Current federal regulations identify the end user of the restoration as the dentist, not the patient—therefore the patient does not need to be notified. In a list of recommendations to the FDA's Interagency Working Group on Import Safety, the National Association of Dental Laboratories advised that the patient be denoted as the end user, rather than the dentist (Table 2).
McLaren suggests that certain changes within dental practices in the way they communicate with patients would improve the situation by providing the necessary transparency. "The patient should be informed about the laboratory costs, material options, and even where the restoration is being manufactured. Allow the patient the patient to weigh the alternatives, with the dentist's guidance."
Adapt or Die
Compelled by these challenges and opportunities, the dental industry will inevitably change, and the process of ordering, designing, manufacturing, and delivering dental products will transform as a result.
For laboratories involved in manufacturing, adapting to this competitive, technology-based environment will be essential to survival. Businesses will focus less on the manufacturing method and more on how to improve the efficiency of the production process and service a particular niche. In addition to managed outsourcing or out-tasking, strategies include implementing new methods such as lean manufacturing, instituting quality assurance programs that minimize defects, and adopting international product standards to ensure consistency.
For dentists, these new conditions will require adapting to technology and staying informed about advances in materials and manufacturing processes. They will need to become knowledgeable about laboratory practices and what options are available to balance cost and quality for their practice and their patients. In addition, as patients become better educated about their choices, it will be essential to develop communication protocols to address their questions and concerns. Finally, this rapidly evolving environment will necessitate cooperation and communication across the board—dentists, laboratories, suppliers, associations, and government—to design and implement effective standards, procedures, and regulations for the benefit of all stakeholders.
Of course, the dental industry is not the first or the last business to experience this transformation. "This is the reality of the times, whether you're working with widgets or teeth," McLaren says. As former business models are phased out, new avenues throughout the world marketplace are appearing in all directions—and the demand for oral healthcare will be there.