As the World Turns
The changing global marketplace is revolutionizing the way dental laboratories do business.
The transformation from analog to digitally generated production that the dental technology industry has witnessed over the past decade is now on the verge of its next evolutionary step. As the industry moves rapidly toward manufacturing maturity, this next shift will challenge traditional business models. There is an awakening and recognition among dental professionals that the industry is competing in a global market. In this marketplace, where goods and services are mobile but labor is not, digitizing case information offers laboratories access to international resources and even gives some facilities the ability to bring manufacturing back onshore.
Some laboratory owners are investing thousands, even millions, of dollars to map out sustainable business models for the future. These pioneers 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 completely automate production processes. They are creating new business strategies in an effort to stay competitive in a world market that is rapidly flattening oral healthcare services. Just as the automotive, clothing, and aeronautic industries before it, the dental technology industry is working through the growing pains of industrialized automation.
“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, president of Core 3D North America, a recently formed international network of dental laboratories. The convergence of a struggling global economy, reduced patient dental insurance coverage, offshore price competition, and suppliers turned competitors has spurred a paradigm shift in how the dental technology industry creates finished products and how and where dentists purchase them.
“Everybody is getting economically squeezed,” said Mac Perry, co-owner of Perry and Young Inc in Aurora, Colorado. As a result, the shrinking global economy has created a world market eager to serve North America, the largest international producer of indirect restorations, and it has North American laboratories looking across the Pacific to larger potential markets evolving in economically developing countries. Driven by the advancement of digital technology, this new global consciousness is changing the way that dental professionals are buying, fabricating, and delivering products.
A Shift in Buying Patterns
Over the past 10 years, how and where consumers buy products has changed dramatically. These same purchasing trends that have permeated the general market are beginning to penetrate the dental industry, as dentists and laboratories peruse the global market to find the products they want at a price and quality level they will accept. The economic downturn has intensified this shift, changing where dentists purchase indirect restorative services and from whom they are buying them. As a result, it is altering the dentist-laboratory relationship.
The economic pressures impacting laboratories today stem from the financially strapped patient. Disposable income for elective dental treatment has dried up and financial constraints have led patients to put off even routine dental procedures. To compound the situation, insurance coverage for treatments such as crowns and bridges has not increased despite the rise in the cost of living. Dentists who converted to fee-for-service in the mid-2000s to take advantage of dentistry’s golden years, have reverted back to insurance practices to fill their chairs. “The tremendous economic pressure on dentists is causing them to shop around,” Perry explains. “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 quiet paradigm shift 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.
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. And 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 has caused the price of zirconia milling blocks to plummet, creating a commoditized product with less perceived value.
The market collapse 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. “The truth is, most patients perceive less value in single units placed in the posterior,” says Dean Mersky, DDS, vice president of sales and marketing for Dentalle Inc, an ISO-certified and FDA-registered offshore producer of dental restorations. “As a result, many dentists find little reason for spending a lot of money on a highly esthetic posterior crown if they can buy one somewhere else for half the price and it fits and has the proper contacts and contours.”
This reality has become a hot button issue 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.” But as more dentists adopt the purchasing patterns of the typical modern consumer, Perry believes laboratories, especially smaller operations, need to adapt to meet their clients’ needs. “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 keep those cases in-house. 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 global market, a digital file or split files can be transmitted to different production centers across the US, 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 a mechanism to deliver an end product that meets the customer’s needs.
Fulfilling customer’s expectations has challenged the laboratory’s traditional production structure of keeping all fabrication processes in-house. However, digitizing case information, in whole or in part, opens up new avenues for production and product flow. Whether a data file comes from the operatory, originates in the laboratory, or is transmitted from an offshore site, it can be sent electronically to in-house industrialized, automated production milling for manufacturing crowns and bridges, which can help level the playing field against offshore competition. Or the data can be used to access cheaper international labor to reduce the cost of one aspect of production, after which it would be returned for final milling onshore. Or it could originate offshore and be electronically transmitted back to the US for one production phase, after which the final product would be assembled and finished offshore. Whatever the business model, digitizing case files enables more efficient, cost-effective production and offers laboratory owners myriad opportunities to create a competitive business model that best fits their market position.
Maier believes establishing the laboratory’s market position is key to building a manufacturing structure that best serves the business model. Today, it is not enough 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,” he says. Laboratories have to utilize technology not only to find their niche in the market and improve productivity and manufacturing efficiency but also to supply the product variety the market demands.
Edward Attenborough, managing director of Attenborough Dental in Nottingham, England, agrees 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 always been 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 variables and material costs. And controlling production costs means controlling the price of the end product. It also frees up highly skilled laboratory personnel to work on the more complex, high-end 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 boast an impressive 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 through cloud computing that connects the patient, dentist, and laboratory to each case.
Maier believes the flexibility of restorative options will be increasingly significant for any business model to survive in the future. Locking into a mono-brand provider limits restorative solutions for clients and often does not give the laboratory access to the newest materials on the market 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.
But other international business models are emerging as well.
From Shore to Shore
Creating high-end restorations at a competitive price is also 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. And it is not just single crowns that ProCerex offers, but 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).
Either digitally or physically, ProCerex sends 100% of 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 US. Nobel Biocare and Diadem Digital Solutions are two of the US milling partners ProCerex uses. After the milled copings and substructures are drop-shipped to China for final finishing, they are shipped 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 US—from Argen alloys to Ivoclar porcelains.
Producing restorations that match 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 that is less than 1%.
In the future, ProCerex plans to combine outsourcing with expanded digital technology options, which Wisler believes will open new doors for production capability and a variety of product offerings. Currently, they have ushered in cloud computing technology paired with an iPhone® application for digital control of cases. This allows dentists to monitor each step in the process—case upload, case communication, and case status—anywhere at any time. The dentist can view photos 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 a perfect example.
When the Issaquah, Washington-based facility started receiving more digital scans from the operatory and digitizing physical impressions and models for their lab-to-lab outsourcing service, they began to have some concerns about labor, production time, and cost. One of their primary issues involved 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 that are loaded with software programs developed to 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. That 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 were each able to complete about 24 designs a day (three designs per hour), which initially kept pace with the number of digital cases arriving at the lab each day. “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, the company employs dentists there who perform the virtual design at a much lower cost of labor. Once the cases are designed in the milling format requested, they are sent back to Issaquah electronically for automated production and analog finishing. In the meantime, Issaquah hired a staff of much lower-salaried employees to scan the physical cases that come into the lab and upload the intraoral and digitized analog cases to the design center in 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.” Harris utilizes the higher-paid employees with technical knowledge to check about 100 digital designs daily after they have returned from India. 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.” Plus, labor costs are lower, and the unpredictability of daily case volume and scalability are no longer issues. It has also created 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 fully 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. The case information comes from the operatory in digital format and moves from the patient’s mouth 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 formed a separate division of the company in more recent years 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 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 3-D models to milling zirconia and titanium frameworks or full-contour monolithic ceramic crowns. At the same time, they do not lock dentists into only full CAD/CAM production processes. “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. 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.”
Competing in an International Market
As digital technology and the dental technology industry evolve, expand their global reach, and mature, the structure of manufacturing restorations will change and shift and change again. Businesses will have to focus less on the manufacturing method and more on how to improve the efficiency of the production process. That will mean adopting new management methods such as Lean manufacturing, instituting quality assurance programs that minimize defects, and adopting international product standards to ensure consistency. For laboratories involved in manufacturing restorations, adapting to this competitive, rapidly changing environment will be essential to survival.
For business owners, these are exciting times filled with extraordinary opportunities. “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.” And that has some business owners planning further expansion internationally and looking hungrily at economically developing countries overseas—especially one country that has impacted 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.” And in a world where cheap labor is plentiful, if that change does occur, business owners can be assured a new “China” will eventually emerge.
“In a shrinking global economy, if your client is looking around to shop for products, it makes servicing that client difficult for the laboratory.”
– Mac Perry
Perry and Young Inc.
Inside Dental Technology November/December 2010 www.insidedentaltech.com
The global marketplace is seeing an increasing shift in buying patterns, from traditional mass-market products and services toward the growing number of niche markets. In The Long Tail, Editor Chris Anderson of Wired magazine discusses this trend, which was just starting to take off when his book was published in 2006. Technology now provides consumers anywhere in the world with access to an infinite number of choices, allowing them to find a niche product that fits their specific needs, he explains. In contrast, large brick-and-mortar stores stock only those products they believe will sell to the masses. Anderson predicts that the demand for niche products has the potential to be as great, if not greater, than the demand for mass-produced products sold in big-box stores.
Examples of Anderson’s purchasing shift theory are ubiquitous—from the success of Amazon.com to the Apple iTunes Store®. Consumers are demanding more flexibility in choice and greater shopping convenience. What happened to Blockbuster film rental store outlets with the advent of online competitor Netflix is a perfect example of what a dramatic impact this theory can have. This September, Blockbuster filed for Chapter 11 bankruptcy reorganization.
Markets are changing across the board, and the dental industry is no exception.
“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.”
– Robert Wisler
CDT ProCerex Dental Laboratory
iData Research 2009