Yes, every dollar saved in supplies directly impacts your bottom line. In fact, we’ve estimated that for every dollar you save, you would have to increase revenue by $2.94 to have the same impact on your bottom line. But that’s far from the only reason to concern yourself with supply chain management and understanding how the dental supply chain works.
Dental supplies are vital to your business. A stockout on any critical item impedes your offices’ ability to service their patients. And just as the price you pay for supplies plays a significant role in your profitability, how you manage your supply purchases impacts your cash flow and budget. Selecting the right vendors who offer quality products and services at a competitive price empowers you to offer the highest quality patient experience while improving profits.
Today’s dental supply chains are complex and fraught with risk. Understanding how they work gives you the knowledge base you need to make the best decisions for your organization, allowing you to mitigate risk and level up your procurement strategy.To get you there, we’ll run through why and how the dental supply chain is so complicated, the problems that lay within it, and the issues it can cause for your DSO. We’ll also highlight some critical mistakes you’ll want to avoid.
Read on to garner the supply chain wisdom that makes for better business and fatter profits.
To ensure your making the right decisions for optimal growth and profits through smarter, more strategic procurement, it’s helpful to understand the vendor landscape. These are the suppliers you will buy from, also known in the procurement world as your tier-1 supplier base.
Although most tend to think of full-service dealers or maybe even mail-order distributors as the main sources of supply, the market is, in fact, wider, and each carries varying risks, service levels, and costs. A more holistic view of the industry will help you safeguard the long-term financial health of your organization and take control of your procurement.
Measured by revenue, the Dental Equipment Dealers industry is a $13.5bn market (2021.)
Although a significant portion of the industry is controlled by two of the largest players, Henry Schein Dental and Patterson Dental, competition is heating up. And digital procurement platforms like Method continue to shake up the industry.
The procurement channels for dental supply can be broken down into the following types:
The most established and well-known of the bunch, your traditional full-service “brick-and-mortar” companies distribute products made by a range of manufacturers and are likely to stock over 40,000 SKUs. Sales are promoted through a traditional sales model where field service representatives are responsible for a list of dental office clients they call on. Dental equipment sales and service is provided through regional branches.
You guessed it, direct sales companies sell directly to practitioners. However, as they only carry specific lines of products, distributors like Komet USA, Kettenbach USA, and Garrison Dental are not able to provide a dental office with the full range of products required to run and operate a dental practice.
Fulfillment houses are named thusly as they fulfill orders upon receiving them from practitioners, sourcing items from varying channels. However, a warning, as these groups are known for carrying “gray market” items and should be considered high risk.
Although they are similar to traditional full-service supply companies, their offerings of equipment lines are typically more limited, nor do they normally provide equipment services. Mail-order distributors reside as call centers dispersed throughout the U.S. and have sales reps responsible for specific accounts that they call on by phone or email but do not physically visit.
One of the biggest changes to the industry, GPOs exist to help practitioners leverage buying power as a group. Bringing practitioners, and their volumes, together, GPOs then negotiate savings on dental supplies and products.
Alright, so that was the simple stuff. Now, let’s dig down a little further into the complexity of your supply chain.
When you purchase from any of the five different types of dental suppliers (this would be your tier-1 supplier base), each company will have its own supply chain. This would be known as your tier-2 supplier base and could consist of thousands of suppliers. Although you would not be likely to have any contact with them directly, they do impact your supplier’s ability to serve customers like you. And it doesn’t end there. Your tier-2 suppliers will also have their own set of suppliers (tier-3), and they will have yet another list of suppliers they must rely on (tier-4), and so on. This supplier base can be comprised of anything from raw material suppliers to logistics providers or machine maintenance services.
The list of materials and services required to make, warehouse, and ship your products is long and global. Your tier-1 supplier base may purchase from offshore vendors. PPE is likely sourced from Asia, for instance. However, even U.S. manufacturers are likely to source raw materials from other countries today. Pulp for masks may come from Canada, for example.
To further complicate matters, not only must a manufacturer rely on their raw material providers and their logistical partners, but they may also contract out part of the manufacturing or assembly process. But, again, that comes with all the partners that the process would entail. In the end, if you were to map out the entirety of your supply chain (something many in supply chain management are now doing), it would look much like a spiderweb that covers a few contents.
The complexity of your supply chain and its dependence on offshore sources should hint at the problems that lay within the dental supply chain. However, the problem begins one step closer to home for the dental industry. Although companies the world over have long since realized the power of procurement and supply chain management to improve profitability, increase efficiencies and safeguard their continuity of business, the dental industry has only just started to understand its criticalness.
As you likely well know, the global pandemic hit the U.S., and as the repercussions rippled through supply chains, dental offices began running into shortage of supply issues. As manufacturers and their partners were often forced to shut down or faced decreased production rates, demand for PPE skyrocketed. Those caught single-sourcing supply without visibility to the market found themselves unable to react, and production rates suffered.
However, pandemic aside, the principle remains the same. Supply chains are intricate, highly interconnected, and vulnerable to a long list of disruptions.
Let’s review some areas of risk that may lie within your “value chain” (another term often used for supply chain that refers to each partner along the chain that adds “value” to the process, whether it be further processing, repackaging, or logistics):
Given recent headlines splashed all over the news, this may seem like an obvious one. However, labor shortages and turnover rates affect more than just a company's ability to produce what they need on time. With every new hire comes the need to retrain, an increased risk of quality issues, and decreased efficiencies (which can lead to escalating costs, service, and capacity issues).
Supply chains have always been riddled with logistical challenges, such as extreme weather and human-made accidents. However, the global pandemic escalated these challenges to a near-grinding halt. Even now, supply chain disruptions of all kinds continue to contribute to shortages of product and raw materials across the country, both in and outside the dental industry.
For the most part, for planning purposes, supply chains work off of historical data, especially in industries where usage remains fairly consistent. For instance, raw materials, labor, and machine time are all planned according to what historically has been required. A mismatch of supply (all resources required to make, sell, or ship a product) and demand (sales) causes a shortage.
Hence, why toilet paper was suddenly scarce during the beginning of the pandemic— systems and processes were unable to handle the sudden massive spike in requirements. In short, nobody saw it coming, and responding takes time due to the complexity of the supply chain. And the shift in supply and demand doesn’t need to be under your own roof or even in the same industry to disrupt your ability to take care of your patients and decrease your patient satisfaction.
Many raw materials are used by a myriad of industries, meaning a raw material shortage in a completely different industry could very well still affect your supply chain. And, of course, a disruption in any node of the chain has repercussions upstream. Although suppliers may have some extra inventory on hand “just in case,” they have long since stopped carrying high stock levels, as holding unmoving inventory is a very costly habit that quickly erodes margins and damages cash flow. This explains why most now prefer the leaner “Just-in-Time” model.
In short, the problem with dental supply chains is they’re complex, riddled with risk, and have little ability to adapt quickly in times of peril.
Here are some ways you can mitigate your risks by looking out for mistakes you may be making in managing (or not managing) your supply chain.
Concentration risk. It’s the fancy term for having too many eggs in one basket. To avoid this, you’ll want to ensure you have vetted multiple suppliers, as well as products for as many critical items as possible, starting with those that are at the highest risk of coming up against availability of supply issues.
Before onboarding a new vendor or even going as far as requesting quotes, make sure you vet them first. See if you can find out what kind of reputation they hold in the industry, ask for customer references, or better yet, ask people you know. You may also want to check their financial status and ask them if they are able to provide you with any clear delivery processes and quality performance metrics. To monitor service levels and ensure expectations are being met, you’ll want to develop Key Performance Indicators (KPIs) to track performance and ensure quality, delivery, and service for each supplier in your supply chain.
When selecting vendors and products, ensure you avoid items from the “gray market”— these are items sold by unauthorized dealers and may or may not be authentic. You may think you got a great deal, but the quality should be highly questionable, and it may cost you more in the end and put you at risk. Even if the item happens to be authentic, it may not have been stored or shipped correctly and could be past expiry and relabeled. Plus, if you have any issues or need to return the product, you’ll soon find out it’s not covered under warranty and won’t be able to recover any of your costs.
Gray market products put your company and your patients at risk. If you’re unsure if a distributor is authorized by the manufacturer, you may be able to find the information online. If not, contact them directly to ask. Do not trust any documentation offered as “proof” by the distributor.
Before you purchase a new product, you should run a trial to test its quality and fit for your Doctors and employees. To do so, set up a trial evaluation committee to review, test, and rate products.Find out more about how to conduct trials here
Shop around and know your market prices. You’ll be surprised to see how much discrepancy there is between suppliers. Make sure you aren’t being gouged. Unfortunately, it’s common practice in the industry for suppliers to increase prices randomly, as contracts are not often utilized to secure pricing without notice. Therefore, always compare pricing to what you paid last time and ask your supplier to notify you (and defend the reasons for) any increases. You’ll also want to ensure the supplier invoices you correctly at the right price and quantities. (Hint: Method’s dental procurement platform can help with this.)
“Over-specing” is establishing specifications that are higher than what is required for the job, and it’s something you’ll want to avoid. Instead, know what is required and buy accordingly. Underestimating your requirements will put your production and your patients at risk, but you also want to make sure you don’t overdo it and purchase something far more expensive than what you really need. For example, you may not require an item to be sterile, so purchasing a sterile item is only going to add unnecessary costs.
The more you get to know your supply chain and understand the market, the more you can protect your business, profits, and growth plan. We suggest you research the companies you partner with. You’ll want to understand their size and where they stand in the market, and, importantly, who their partners are and what their quality control and risk management procedures are like.
Talk to employees, strategize, and look for products that may allow you to better serve your customers or make life easier for your employees. Supply chain management isn’t just about cutting costs. It’s about making smart business decisions on the items that impact your business and its employees, as well as finding better ways of doing things that may help you stay ahead of your competition and reduce human error.
If you don’t know it already, we may want to protect your organization by familiarizing yourself with the Sunshine Act. According to Health Affairs, part of the Affordable Care Act, the Sunshine Act, was designed to increase the transparency of the financial relationship between dentists and manufacturers and “requires certain manufacturers and group purchasing organizations (GPOs) to disclose any physician ownership or investment interests held in those companies.
Supply chain management can be overwhelming— unless you’re leveraging the right partnerships and the right tools. When things go wrong, it’s important to be able to react quickly and secure supply before it impacts your business. Method’s procurement platform allows you to quickly and easily see availability and current pricing from 2000+ suppliers and a product catalog of 350,000+ dental supplies.
Critically, Method Procurement Technologies can help you gain visibility into the market and help you gain a better understanding of your supply chain, while streamlined workflows make life easier for your employees.
Contact us to arrange a personalized demo that suits your needs.
