26 Jul Everything Dental Blog – July 2016
How did we get here?
Trends in distribution provide critical data about our dental community!
Over the years, we have seen the dental distribution business evolve. Some suppliers have fallen out of favor while others are more popular today than ever before. A distributor’s relevance and longevity depends on many factors including, breadth of inventory, next day delivery, payment terms, customer service, price, one-stop shopping and customer alignment.
With each generation of doctors the market place transforms to meet the current needs of the clinician and dental facility. The millennials have grown up and now occupy the digital highway. They converse in text, share moments and memories on social media and they get their news on the web. They are entrepreneurial and computer savvy. Failure to relate to them is a recipe for irrelevance. One must never forget that dentists are people too. They are not exempt from debt, family responsibility or stress. Owner dentists also have personnel, operational, financial and clinical issues to deal with.
Twenty years ago the distributor targeted 6-8% of the dentists gross for business. This was how much the dentist spent on sundries and dental materials. Today, the distributor has a huge portfolio of products and services predicated by the needs of the progressive dentist and the modern dental facility. The product mix is so diverse and ranges from the traditional product mix to technical equipment, financial products and practice management services.
In the early nineties, the progressive distributors began to embrace business analytics. They measured inventory turns, sales activity and return on investment capital. This triggered a more sophisticated approach to operations, marketing and sales. In my opinion, this was the tipping point for this once cottage industry. Today data mining and business analytics are used in every aspect of the dental business.
By the early 2000’s the distribution channel, with its enhanced sophistication, focused on the competition. They targeted prominent direct companies and collaborated with vendor partners to take market share. They armed their national sales organizations with competitive analysis, inexpensive trial kits and hired key opinion leaders to promote their products on the speaking circuit. These activities resulted in many direct sellers joining distribution. Today, only a few direct restorative companies exist with respectable market penetration.
By 2010 the technological revolution began. The movement toward digital radiography tipped from the early majority to the late majority (over 60% of dentists had already invested in intraoral digital radiography). From that moment forward, mobile communication became omnipresent and we are still immersed in a proliferation of smart phone applications.
Today, 2D/3D Imaging and CadCam are the fastest growing equipment categories in dentistry. We have officially entered the era of Same Day Dentistry. Industry experts believe that 60% of all general dentists will have a digital impression scanner or a full Cad/Cam system within the next five years. The market place wants same day dentistry. Patients don’t want to wear a temporary crown for a week or two and then have to return to your office for the lab fabricated crown to be cemented. They would prefer to get it done in one visit. Besides the C&B implications, these two technologies provide a digital workflow that enhances the dentists cosmetic and implant dentistry.
In addition to this technolution (technology revolution), the dental community is undergoing a major consolidation. There are mergers and acquisitions in the manufacturing and distribution sector and there is a movement towards group dentistry. These events are irreversible, disruptive to the status quo and difficult to forecast. I suspect the market place will look something like this in five years from now.
- 15% DSO (Dental Service/Support Organization – Corporate Dentistry), Military, Community Health centers and Hospitals
- 32% LGP (large Group Practices), local and regional and National Groups – having 3 or more and up to 25 facilities
- 53% will be solo practitioners (1-2 offices).
Dental practice owners are looking for ways to grow their business while remaining relevant and profitable during this period of consolidation. They are looking for ways to curb spending, reduce overhead and operate more efficiently. At the same time, they want to increase new patient numbers, maximize patient fees, optimize insurance procedure coding and execute better on elective dentistry. Unfortunately, many older offices lack the facility (# of ops), technology, leadership and personnel to accomplish these goals.
Historically, small business owners have tried to save their way to prosperity when market conditions contract. There is this belief that things will settle down and over time, the landscape will resemble what it did before the turbulence. This is not going to happen. The dental landscape has changed forever and new technologies are driving the business like never before. Take this example into consideration.
A dental practice does 700K in collections. They grow by 10% or $70K based on industry averages (60-80% overhead). We will use 70% for this example. The net growth in revenue for this practice is around $21K.
Now let’s see what happens if that same office attempted to save their way to better days instead of growing the business. Based on industry averages (dentists spends 6-8% in sundries) we will go with 7% for this example. To keep things simple, this office was able to change products, streamline their inventory and they saved 10% on their supply bill. That equates to a 10% reduction from 7% of their gross collections which is roughly $5,000. *Keep in mind that you can only cut so far before you affect quality and inventory on hand. *
Based on the example above, growth is infinite (you can grow and expand every year) and savings is finite (at some point you have shaved as much as you can). I guess one must determine if they’d like to save $5,000 or increase their revenue by $21K. When you grow your revenue it is easier to invest in technology. The cost of keeping up is significant but the cost of catching up is insurmountable.
In this world of data analytics, you can’t hide. We are operating in a period of time when software algorithms extrude indisputable and accurate data in real-time. The analysts know if you’re trending up, down or are flat. Your suppliers know what services you buy and what motivates you. Managers know how employees perform compared to industry norms and their co-workers. Credit card companies know intimate details about what you buy and your financial circumstances. And the insurance companies know what services the dentist delivers and at what price point and frequency.
As we enter the second half of 2016, the media and political pundits predict that most things will remain the same until the presidential elections in November. In December, they’ll tell us to wait until congress convenes in January before they can forecast the economic and political landscape for the coming year. And, in February, they’ll announce that we are still in a state of gridlock.
If you want to grow and improve your profitability then you must act decisively and operate with purpose. The trends around us and the history of dental distribution tell a compelling story. Just like the distributor, the dentist must adapt to the new economy. All businesses need to be efficient. All dental facilities need to acquire technology that adds revenue, saves time or yields better clinical outcomes. You must be cognizant of your brand and your marketing efforts. You must measure your performance and you must work with others who share your cause and/or philosophy. Create your winning strategy so you can look back and be proud of what you accomplished while others waited.
Enjoy the rest of the summer!