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Down is the New Up

 

Feb 2009 | Management

Automation is going to change the laboratory industry in many ways, and some of these changes are already underway.

Technicians will be paid more, considerably more, because it will take fewer technicians to accomplish the same amount of work. For example, we have two Cercon systems and our technicians working with those systems can produce three times the amount of work as technicians using conventional techniques. The higher pay scale—plus the computerized nature of the work—will make dental technology a more appealing career to younger people.

Even though salaries will be higher, our cost-of-labor percentages will be lower because of the greater production efficiencies. We’re now fabricating 35% of our fixed work (about 7,300 units) with CAD/CAM and our labor percentage has dropped from 35% to 27%. We haven’t raised our prices in three years—in fact we lowered our zirconia crown price by $50 per unit—and yet our profitability has never been better. As we get more into CAD/CAM, our labor costs will continue to go down.

Because of open architecture and increased competition, our material costs will also go down, maybe even as low as $8 to $10 per unit for zirconia. When rapid prototyping technology is able to work with zirconia powder and all-ceramic restorations can be layered rather than milled, material costs will go down even further.

Lower lab costs

As our labor and material costs decrease, laboratories will charge lower fees and yet generate a higher profit margin so both the laboratory and its clients come out ahead. As laboratory fees decline, so too will the appeal of offshore outsourcing because U.S. labs will be price competitive with foreign labs.

As lab fees decrease, chairside milling is going to fizzle out. Dentists will figure out that the $100,000 equipment, material costs of $40 to $50 per unit, dongle fees plus the cost to hire someone to operate the system aren’t cost effective. Plus with digital impressions, virtual models, in-lab milling and rapid prototyping, labs will be getting crowns back to the dentist on the same day; crowns will be treated like denture relines are handled today.

Automation is the future. I think smaller laboratories, meaning five people or less, will need to merge with similar size or larger labs in order to take advantage of automated technologies and ensure their success. With equipment costing $100,000 to $250,000, a small lab can’t generate enough volume to cover its costs so it needs to share the burden. Although outsourcing is an option, it cuts into profitability.

Brought to you by LMT Magazine http://www.lmtmag.com/article/378

 

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