Inside Dental Technology
July/August 2013, Volume 4, Issue 8
Published by AEGIS Communications
Return on Investment for CAD/CAM
Moving beyond the spreadsheet and considering all costs
Navigating the changing landscape of the dental technology industry is an increasingly challenging endeavor for dental laboratory owners. CAD/CAM technology in particular dramatically affects the industry’s business dynamics, and as it becomes more affordable, average-sized laboratories may be capable of incorporating this previously unreachable technology into their everyday workflow. These capital equipment purchases are often the largest expenses many dental laboratories have ever encountered, and for this reason it is critical to put a process in place that ensures that there will be a sound return on investment (ROI).
The ROI Spreadsheet
Because there are so many elements to consider when calculating the ROI for CAD/CAM, it is useful to employ the use of a spreadsheet. Vendors will typically have an ROI spreadsheet on hand, but these are often “rose-colored” calculations that gloss over not-so-obvious costs and assume the best-case scenario. Make sure you know your numbers and be conservative when calculating your costs. Some frequently overlooked costs are labor, tooling, and equipment.
While CAD/CAM is great for automation, there is still labor involved. For example, creating waxups with a CAD/CAM system may offer far greater productivity than waxing done by traditional means, but laboratories still need to pay a person to operate the equipment. As such, that labor cost needs to be calculated. This is often overlooked in overly optimistic ROI spreadsheets.
Typically, laboratories focus mainly on materials when calculating costs, but the cost of tools is not inconsequential in mills. Make sure to calculate the tooling cost per unit.
Equipment Cost Per Unit
Make sure the ROI is based on the number of units being fabricated, not on filling the machine 100%. For example, if the daily amortized cost of the machine is $50, and it has a capacity to make 50 units per day, the theoretical equipment cost per unit is $1. This is nice to know, but it is not useful unless the laboratory has very high volume and is in the market for multiple machines. If the laboratory produces five units per day, the equipment cost per unit is $10. This will likely result in a good return on investment, just not as good as the $1 cost would suggest.
Speed of Return
The speed of return is primarily a function of the laboratory’s volume and current outsourcing costs. If the laboratory is outsourcing to a milling center that charges a premium for a premium product, then it is likely that the laboratory will achieve the breakeven point on the purchase with fewer units than if it were outsourcing to an economy milling center.
Figure 1 demonstrates a laboratory’s savings after bringing a $40,000 zirconia milling solution in-house compared to outsourcing work to milling centers in premium, average, and economy price ranges. In this example, a laboratory working with an economy milling center will reach the breakeven point at about 45 units a month, whereas a laboratory sourcing from a premium milling center will break even at about 23 units per month.
Redundancy also plays into the equation. As a laboratory moves up into a higher utilization range, the laboratory owner must consider the importance of having redundancy. All equipment requires some downtime, a reality that must be faced head-on. Always have a backup plan. Depending on the situation, the laboratory may be able to minimize downtime by employing backup milling services from its equipment vendor. In the higher volume range, it is ideal to eventually invest in a second machine. As the cost of equipment has dropped dramatically over the last 3 years, this redundancy is far more affordable than it used to be.
Beyond the Spreadsheet
The return on investment spreadsheet must be an important factor in decision-making. However, the spreadsheet cannot tell the full story. There are other, softer elements to consider when buying a CAD/CAM system that play an equally important role in the numbers themselves. The dynamics in the dental technology industry are undergoing rapid change. Be certain to make sure your ROI analysis takes into account the fact that market conditions will change. Pricing of materials will likely decrease over time. Does your purchase allow you to take advantage of that? What happens when the next generation of super translucent zirconia materials are released? Will you be able to use them in your mill and remain competitive? Closed systems may have an attractive initial ROI, but if you fast-forward 2 years, the ROI formula often erodes because the closed system tends to remain stagnant while the market conditions change. With open systems, you can take advantage of the factors that are most important to you such as price, material properties, quality, consistency, supplier support, fast delivery, etc.
Every product on the market experiences a life cycle of growth, maturity, and decline. The arc of some products is much longer than others, but they all go through the cycle.
The Right Time to Buy
Laboratory owners should never feel like they are about to jump off a cliff when making a CAD/CAM purchase. It should be a well-informed and validated decision. When zeroing in on a system, find out who is using it. Try outsourcing some work to those people to ensure that the quality of the output is consistent with your standards. You will also need to get a feel for the learning curve, the level of support available, and the reality of operating the equipment. Ask people who have the equipment about what works well and what does not. The online community dentallabnetwork.com is a great site for engaging in conversations with people willing to share their opinions regarding CAD/CAM solutions.
Once you have seen that the ROI will work for you, have validated the solution via outsourcing and peer references, and considered even the soft, non-financial factors, you can move forward with confidence in your decision to purchase a CAD/CAM solution.
Rob Nazzal is the CEO and co-founder at Custom Automated Prosthetics (CAP), in Stoneham, MA.