The costs of dental supplies are rising. Although efficient, strategic procurement can help you mitigate increases and find cost savings; there’s more that you can do. But is it really worth the effort?
As we delved into in The Low Hanging Fruit: Key Procurement Performance Metrics for the Dental Industry, although growing revenue is a great strategy for growth, it comes with risk, and only a portion of your revenue actually makes it to your bottom line. But on the contrary, for every dollar you save, a dollar makes it to your bottom line.
Outside of dental supplies, when it comes to saving money, dentists have limited options that don’t come with heavy risk. For example, it’s hard to cut back on employee salaries or administrative and marketing costs without facing repercussions or risking service levels.
Saving on the cost of your dental supplies and reducing financial waste offers a unique opportunity to add thousands, if not tens of thousands, to your profits—all with limited barriers to entry and minimal risk. So, yes, reducing financial waste is worth the time and effort it may take.
So with that in mind, we present to you a few suggestions on how you can reduce your overhead costs and minimize any waste.
Take Advantage of “Try Before You Buy” Offers
You know the drill; A sales rep walks into your office and offers you some free product he has in his car so you can try it before you buy it. Some may refer to it as “grip stock.”
Whether the rep is pushing products that are new to the market or offering you another brand or private label version of a product you already use in an effort to pull you away from a competitor—trialing any new products to ensure their suitability for use in your practice simply makes sense and safeguards your practice.
Ordering supplies without prior testing and approval introduces a myriad of risks to your organization, from a possible lack of compliance to regulatory requirements to impeding patient service levels or increased costs due to poor quality.
Your team is responsible for ensuring the best possible patient service and, as such, holds a stake in the trial process and should be given an opportunity to test, evaluate and provide feedback on new potential new supplies. Plus, a clinical trial process can help you finalize a formulary and drive compliance.
But besides the critical need for a formal and documented trial process, what’s important to stop and take note of when looking to take advantage of “try before you buy” offers, is exactly why you’re doing so and where the true benefits for your practice lay.
Sales reps will do just that, sell you on benefits and reasons to buy what they’re swindling. And although it’s natural to always want “the best” of everything for your practice, making the right business decisions for your practice and your profits means cost must be part of the evaluation.
If you’re trialing a lower-cost product, what are the possible risks? Taking a total cost of ownership approach will ensure any perceived cost savings will be realized on your profit statements. Will the product last as long as its counterpart? If not and you need to buy more, are there ultimately any cost-savings?
Higher quality products may give the elusion of value, but is that “value” truly something worth paying for? Can your employees get by just as well with a lower-priced product? Will your patients really be able to tell the difference, helping you retain or gain customers or increased revenue?
When evaluating if something is really worth paying for or saving, take a moment to do the math. How much of the item do you buy in a year, what are the total potential savings or increased costs, and balance those numbers off of the above.
In the end, any newly approved product should deliver very clear clinical and financial benefits for your dental practice.
Keep Track of How Much You Are Spending
Running a dental office isn’t cheap. Operating expenses add up quickly and come straight off your top line, thinning out your bottom one. Although you can’t avoid the cost of doing business, you can control and minimize it.
Of course, nobody is intentionally wasting practice funds. It’s not likely your staff has bad intentions, but intentional or not, misspending and mismanagement of purchases happen. To minimize the impact on your profits and gain control of your spend, you may want to take a look at implementing some best practices.
Here’s what we suggest—and what we can help you with.
- Set a budget. To control spend, you must first gain an idea of what things should be costing you. Taking your previous month’s collections or production, set a target with the following numbers in mind.
As a % of Cost of Revenue:
>5% Very good, on par with DSO’s
<7% High (Time to focus on reducing costs)
If you’re working with Method, you can simply enter your production and goal, and Method will do the calculations for you.
- Keep track of all your purchases. Either by transitioning to a digital procurement platform like Method or using a spreadsheet. You’ll want to track the supplier, item, quantity, price, and sales tax for every purchase. And although they should be minimal, make sure to include shipping costs or any extra fees.
- Monitor spend against your budget.
To avoid overspending, prior to placing orders:
- Ensure quantities and items being ordered make sense for your business
- Look out for data entry errors.
- Your employees are busy. Make sure they aren’t rushing orders through where you could be saving money. Compare your order price to current market pricing and any received quotes or special discounts to ensure you’re taking advantage of the best possible price your dental practice has at its disposal.
- Compare what you’re looking to spend with what you have left in your budget for the month. If the order pushes you over budget, see where you can cut it back without risking stockouts. If you haven’t found where you can cut back and continue to overspend, you may be paying too much for your dental supplies.
- Fine-tune. To gain even tighter control and pinpoint where your issues may be, you can break down your budget into categories such as clinical supplies, hygiene, and front office supplies. Of course, if you’ve chosen to break down your budget into smaller categories, you’ll want to ensure you code every order and monitor against those budgets as well.
Sound complicated? That’s why Method is here to help. Simply enter your categories and location budgets into Method, and the approval process will show you all the information you need.
Want to decline some items and approve others? That’s ok. Method can handle that, too, empowering you with data, leveraging automation, and giving you the flexibility you need to stay within budget and minimize any financial waste.
Fighting Financial Waste and Mitigating Price Creep
Price creep—the escalation of prices through small but incremental price increases. As buyers often lack the time and processes necessary to identify and combat the increases with pushback, they tend to fly under the radar. And suppliers take advantage.
However, it’s not just price increases that may be eating away at your profits. Suppliers can often invoice incorrectly, either due to simple human error or issues and discrepancies in shipping and delivery that go unnoticed and result in inaccurate invoicing. You may be invoiced for more than physically received or at the wrong price.
Enter the three-way match, an accounting control measure designed to prevent losses from overpayments, whether from fraud or error. Combined with the three-way match process, Request for Quotes (RFQs) and digital procurement processes can help mitigate price creep and fight financial waste.
Let’s walk it through.
Step 1. If you can, deter price creep with price commitments
During the RFQ process, suppliers can be asked to commit to pricing for a limited time period, typically up to 3 to 6 months. Having suppliers lock in pricing will help to deter price creep, as long as you hold them accountable and ensure you pay what you should. This leads us to step two…
Step 2. Identify price increases and invoice inaccuracies
We’ll be honest—this is where dental offices really struggle, the ongoing process of monitoring and identifying price increases and invoicing discrepancies. Without digitization to amalgamate all the required data and documentation into one place, the process can be cumbersome and time-consuming.
Supplier mistakes can be costing your practice. Designed to prevent losses from overpayments, the three-way match is an accounting control measure where the invoice is matched to the delivery slip and purchase order to validate information prior to payment.
Any invoicing issues found, such as inaccurate quantities, should be investigated and rectified either internally or with the vendor before processing payment. Once any necessary corrections are made and the three documents align, the payment is processed according to the payment terms.
Step 3. Fight back
Invoice discrepancies should be quickly and clearly communicated to the supplier, with continual follow-up until the issue is resolved.
Method’s procurement software will automatically store any quoted prices and quote expiration dates. When a purchase order is created, the current effective price will automatically appear on the purchase order. Upon receiving the invoice and performing the three-way match, if you identify a discrepancy, it is suggested you not pay the invoice until a corrected invoice or off-setting credit is issued.
However, even without a quote holding suppliers to committed pricing, price increases should be fought against. Price shop before buying, and if you find stronger pricing elsewhere, ensure your preferred suppliers are aware that you’ll be transferring business elsewhere due to pricing. And always ask them to advise why the price increases were necessary in the first place and if they’re able to offer a discount.
In other words, negotiate and fight for the prices your practice deserves.
Update Your Budget When Needed
Things change. And so should your budget. Ensure you take the time out to fine-tune and adjust your budget as needed by establishing a regular budget review process. At first, you may want to start with a monthly review as you could be far off the mark to start and want to either adjust your budget or find where you are overspending as soon as possible. The sooner you pay attention, the sooner your balance sheet will thank you.
Regularly analyzing your supply needs is the due diligence you need so you can begin to account and plan for fluctuations or changes in compliance requirements, patient needs, staff changes, or any other of the myriad of things that may impact supply requirements.
This is also a great time to look for redundancies and identify opportunities to reduce waste. Perhaps you’re buying two similar products and can instead choose one and increase your purchasing power. Or maybe you’re overbuying because your inventory area is a mess, and employees are re-buying simply because they can’t find what they need. Taking a few hours on a Sunday to organize your stock shelves may save you plenty.
Once you’re confident, your budget is accurate, ensure you stick to it with a controlled purchasing procedure.
Consider Consolidating Purchases
Every order you place comes with both hard and soft costs. The hard costs are, of course, that of the supplies themselves, as well as any extra charges such as shipping fees. Although harder to calculate, soft costs, which include all the labor associated with every order, also impact your efficiencies and your practice’s financial outcomes.
From the identification and specification of needs to invoice payment and record maintenance, every step of the procurement lifecycle takes time out of your employees’ day and, therefore, comes out of your profits. Consolidating your purchases can not only increase your supplier loyalty and service quality, which will get to later, but can save your dental practice money in the long run while mitigating your supply risks.
As we’ve spoken to before, your dental supply chain is a complicated one and comes with many inherent risks. Consolidating your purchases to 2-3 main suppliers such as Henry Schein or Darby, who you order from 2-3 times per month, keeps things competitive, ensures you have a strong supplier base who can support your needs and get you what you need when you need it while saving you on both hard and soft costs.
The better you manage your dental supplies, the more you’ll be able to leverage your purchase power and negotiate better pricing. Once you’ve implemented processes for tracking and controlling your purchases and have established some historical purchasing data, you can begin to renegotiate with suppliers for improved pricing and payment terms.
Limiting your purchasing to two to three suppliers creates a competitive environment while not stretching your spend out too thin, causing you to weaken your buying power while increasing administration costs. Actively requoting ensures your preferred suppliers don’t rest on their laurels. About once or twice a year, you should be asking your two to three main suppliers to requote based on your supply requirements and purchasing history.
This is also a good time to pit them against each other and remember to give your favored suppliers the right of the last refusal, allowing them the opportunity to requote and beat out the competition. But remember to play fair and keep all suppliers motivated to offer their best possible pricing by awarding enough business to each. Be deliberate in your strategy and awarding of volumes.
For example, you may want to dispense your total spend as such:
Preferred supplier 50%
Alternative supplier 30%
Third supplier 20%
Preferred supplier 70%
Alternative supplier 20%
Third supplier 10%
How you dole out your volumes will be dependent on what you prioritize as a business, your current vendor relationships, and what your long-term goals are.
You do not have a choice on whether you buy dental supplies or not. Your practice requires them to run. But the less they cost you, the more you profit. So take the time, do it with purpose, and grab yourself those improved margins. And if your vendors are reluctant to help you and support you as they should, find yourself some new ones.
Empowered with procurement analytics, inventory management, a robust approval process, and full visibility on current pricing and availability across a product catalog of over 700,000+ dental supplies and a 2,000+ dental-specific supplier database—Method may be just the method you need to reduce your financial waste and increase profits.
Get a personalized demo that suits your practice's needs
Tell us a bit about yourself, and one of our product experts will get in touch