Chuck Yenkner

	Ah, the good ‘ole PFM: the staple of fixed prosthetics since the 1960s. Even in this new age of all-ceramic restorations, gold alloys are still used in a significant percentage of the cases done in most labs.

	IdentAlloy/IdentCeram, which certifies materials used in dental restorations, reports that in 2008 high-noble and noble alloy certificates comprised 69% of the certificates shipped by the organization. Final figures for 2009 are not available yet, however early indications are that this figure will be down but not as much as you might think.

	That means even at today’s prices, gold alloys of various compositions are going to be around for a long while, and you will need to cope with the capital expenditures involved. High gold prices impact two main aspects of a laboratory’s operations.

	High gold prices mean the lab requires more operating capital. It costs more to buy and inventory alloys to use in your daily operations. Because laboratories pass the cost of gold on to their dentist clients, it means labs must carry higher accounts receivable. It also means higher costs for work loss and increases the potential for theft.

	Don’t let the current volatility of gold pricing get the best of your business. Follow these 10 steps to ensure the high price of gold doesn’t beat you up.

	1. Order smaller amounts of alloy more frequently

	2. Make sure the credit limit with your alloy supplier or on your credit card is high enough to cover costs

	3. Review accounts receivable for any slow-paying clients

	4. Review pricing structure to accommodate fluctuating alloy prices

	5. Review lab procedures to minimize remakes

	6. Make sure you have a good scrap recovery program in place

	8. Take a look at alternative alloys that may be less expensive and more price stable

	9. Market to clients that you have alternate products to offer if higher invoices are making them nervous

	As the total invoice for each case creeps higher because of increased gold costs, clients may be more susceptible to try another competitor lab. That could lead to a loss of business. This loss sometimes gets hidden if you are only looking at the total sales generated for an individual client. Total dollars may be the same due to the higher gold charges, but in reality that client may actually be sending you fewer cases.

Action: What to do
	1. Aggressively manage your cash.

		Order smaller amounts of alloy more frequently from your alloy supplier, reducing the amount of alloy you inventory.

		Speak with your alloy supplier regarding the credit limit on your account. Be sure it’s high enough to accommodate your needs. If you pay with a credit card, check on that, too. You don’t want late cases because gold shipments are held up. 

		Stay on top of your accounts receivables. The habitually slow payer that was marginally profitable before may be unprofitable now. 

		Review your pricing policy. If your unit price includes gold, review your pricing structure each time you buy alloy. Some labs add a surcharge to cover gold prices over a certain level. However you handle your pricing, be sure you cover all your costs plus an add-in PROFIT. 

		Review your daily lab operations to be sure good procedures are in place to minimize work loss. How close to the unit are sprues cut off? Do you have a tracking system for gold in the lab?

		Be sure you have a good scrap recovery system in place. Most refiners are happy to help you with suggestions for maximizing scrap returns. Send scrap in more frequently to free up cash for the business.

		This is no time to be a stranger to your accounts. If they are getting nervous about invoice totals, encourage them to talk to you about it. Closely track not only dollar sales to each account, but the number of cases or units they send.

		Research alternative products. Palladium, a popular element in dental alloys, is now much less expensive than gold and has remained relatively stable in price. Offering alloys with higher palladium content and lower gold content can significantly lower the cost for the dentist while maintaining many of the physical properties and working characteristics of higher gold alloys.

		Direct your marketing efforts to communicate the fact you have a variety of products available. 

		This is a good time to prospect for new accounts. If your competitor is not coping with the high gold prices as well as you, their accounts may be willing to try you. 

Articles

 Ah, the good ‘ole PFM: the staple of fixed prosthetics since the 1960s. Even in this new age of all-ceramic restorations, gold alloys are still used in a significant percentage of the cases done in most labs.  IdentAlloy/IdentCeram, which certifies materials used in dental restorations, reports that in 2008 high-noble and noble alloy certificates comprised 69% of the certificates shipped by the organization. Final figures for 2009 are not available yet, however early indications are that this figure will be down but not as much as you might think.

Coping with high gold prices

	I recently read an article about a nursery school employee who embezzled more than $150,000 from a private school over a five-year period. The nursery school was a small nonprofit, and the suspect worked there as a trusted bookkeeper for about 30 years. She did this by issuing checks to herself from school accounts for money she was not owed and was able to conceal her actions.

	I began thinking about how exposed dental labs could be to this type of crime. Small businesses, like most dental labs, are the most vulnerable to occupational fraud and abuse, according to the Association for Certified Fraud Examiners, which reports that small organizations (100 employees or fewer) suffered higher median losses than large organizations (10,000 employees or more). Small businesses’ losses averaged $127,500, based on a CFE survey.

	Considering the potential losses, it behooves you to make fraud prevention a priority in your business. Though no one wants to feel they employ unscrupulous people, sometimes temptation or personal financial pressures can push even the hardest-working, most-trusted employee into perpetrating fraud.

: The first step in preventing employee fraud is to hire the right employees. Conduct background checks for people handling inventory and money. Check past employment, criminal convictions, references, education, and certifications. Also, conduct drug screenings because employees often steal from a business to support an addiction. Try to avoid putting employees in situations where they could be tempted to do the wrong thing. Remember, however, to always get the written consent of candidates before doing research because many federal and state laws govern the gathering of such information.

 Have controls in place that are meant to make employees accountable. This protects both you and them. An outside independent accountant can help you develop a system of internal controls and come in to check and validate entries to the accounting system on a routine basis. Knowing that an outsider comes in periodically implies that as a business owner you are serious about accountability and fraud prevention.

 You don’t want the same person in the lab placing orders, receiving the goods, and paying the bill (particularly when dealing with precious alloys). Likewise, you don’t want someone who has authority to sign checks balancing the account. Make sure expenditures are approved. For every expense, have a manager or administrator approve it. In a small lab, the owner needs to review expenditures. Check that the expense is valid and that the math is correct.

 Have security cameras monitor activity in the casting room and storage areas where inventory is kept. People are less likely to commit fraud if they know they are being watched.

 Catching an employee off guard could be your best bet in discovering fraud. Have the owner, a key employee such as a department manager, or outside accountant fill the role of auditor. A simple test can be to examine the payment of 100 vendor invoices in detail. Look at the amounts, invoice numbers, to whom payments were made, and when payments were made. Look even deeper into any that look suspicious. There have been cases where an employee creates a phony company, submits invoices to accounting, and has accounting send payment to a P.O. Box. A surprise audit also can uncover duplicate invoice amounts and invoice numbers, both of which can be red flags for possible wrongdoing.

 As a small business owner, make it a policy to personally sign all checks, or require a dual signature. Making two employees responsible reduces the opportunity for one of them to commit fraud. There have been situations where employees have received “kickbacks” from vendors for processing orders for goods and services that may not be needed or at higher-than-usual prices. Make it a point to know your suppliers and lenders and make competitive purchasing a standard policy.

 Research has shown if employees don’t take vacation, it can be a red flag. They may be afraid to go on vacation because someone is going to find out something is not right. Requiring employees to take time off can aid in preventing some frauds.

	It’s difficult enough to operate a profitable dental lab today. Don’t be the victim of an inside job.

 I recently read an article about a nursery school employee who embezzled more than $150,000 from a private school over a five-year period. The nursery school was a small nonprofit, and the suspect worked there as a trusted bookkeeper for about 30 years. She did this by issuing checks to herself from school accounts for money she was not owed and was able to conceal her actions.

Preventing an “inside job”

	CAD/CAM has been a topic of discussion in the dental lab business for a number of years now, and there are numerous opinions about it-examples of many appear in this issue of DLP. Now that we have you thinking about CAD/CAM, I figure this is a good opportunity to get my 2 cents worth out there too.

	I tend to look at things from the business perspective (that’s why the smart folks at DLP title my Competitive Edge column “Business Strategies”), and to me the question seems pretty simple. Does CAD/CAM make the product you produce in your lab faster, better or cheaper? If so, you really have no choice but to strongly consider it.

	What complicates things is the fact that in the highly fragmented dental lab world, there are wide differences between labs in terms of the products they produce, the markets they serve and how they produce. The situation is further complicated by a diverse spectrum of dentist clients with a wide range of expectations. This means every lab has to consider their own unique position and determine which of the many system offerings might be a good fit for them. The decision to acquire CAD/CAM technology becomes an individual decision for each lab.

	Let’s talk about the three potential benefits I mentioned earlier:

	1. Faster. Making product faster generally lowers your production costs because you can produce more crowns, bridges or dentures in a 40-hour work week with the resources you have. More product to sell should mean more revenues or perhaps require fewer staff to produce what you do sell, thus lowering costs and increasing your profit. That’s called increased productivity, folks, and that’s always good. Faster production may allow you to require less turnaround time for each case, which could be appealing to your dentist clients and may earn you more of their business.

	2. Better. Making a better product enhances your lab’s reputation, attracts new clients and helps retain existing customers. It also could allow you to charge more for your work, and that certainly helps the bottom line.

	3. Cheaper. Making a cheaper product allows you to be more competitive with your prices or more profitable with your current prices. Cheaper and better need to balance with each other. Making a cheaper product with a corresponding drop in quality or service may or may not be a winning strategy. The same or better level of quality made less expensively is a definite winner.

	Evaluating these three concepts requires you to have a good understanding of the current state of your dental lab business. Most lab owners and managers are well equipped to judge the quality aspects of the product they produce. They generally know how long production takes, but many struggle with knowing what their current costs are for a particular product or process. The cost piece of the equation is necessary when you are evaluating CAD/CAM systems. You must have that knowledge to determine how much a system will save you (or cost you).

Remember equipment when calculating costs

	A key aspect of the evaluation process that needs to be considered is the capital cost of the purchased or leased system. Material costs for things like blocks to be milled are pretty straightforward but the system cost, which can run into the hundreds of thousands of dollars, needs to be figured into the cost of the products produced. Historically, capital costs for dental labs have been low, and therefore, many lab owners and managers do not have experience with this. An accountant or business advisor can really help out here.  

	Bottom line, CAD/CAM systems are not for everybody, but they can be good for many labs. Just be sure you evaluate it carefully, and don’t get caught up in emotional buying. Just because the guy across town bought a system, that does not mean it’s right for you!

 CAD/CAM has been a topic of discussion in the dental lab business for a number of years now, and there are numerous opinions about it-examples of many appear in this issue of DLP. Now that we have you thinking about CAD/CAM, I figure this is a good opportunity to get my 2 cents worth out there too.

CAD/CAM: To buy or not to buy?

	I am always amused by the fact that we call ourselves Dental Technicians, our field Dental Technology and yet in some ways many of us are reluctant to use newer technologies to improve the productivity of our dental laboratories. Perhaps an even larger problem is under using technologies.

	Any of you who read my columns or have heard me speak know I’m a big proponent of improving productivity in the dental laboratory. In my opinion it’s the path to surviving and prospering in the decades ahead. Improved productivity allows U.S. labs to compete effectively, not only against other domestic labs but against worldwide competition. Improved productivity allows labs to pay better wages and attract bright, hardworking people to the profession. Perhaps most importantly it can improve profitability of dental lab businesses.

	The big potential benefit of technology in the dental lab world is its ability to eliminate or reduce some of the time consuming, labor intensive activities in the dental lab. I’m speaking not only of the products and tools directly involved in producing crowns and dentures, such as milling machines, but also things like the Internet, communications tools, and software for operating the business.

	Many labs have technologies partially installed but under-used. Simple things like sending statements by e-mail instead of mailing them can save time, paper and postage. Having the lab operating software communicate with the lab financial software can save time entering data and reduce administrative expenses. Pressing ceramic substructures or milling monolithic all-ceramic crowns can replace labor hours with machine time. Things that reduce labor and speed the process allow a lab to produce more units and thus sell more units with the same labor resources. (That’s increasing productivity!)

	The key to evaluating and using technology is focusing on what it can do as opposed to what it can’t. The comments I frequently hear about new technology revolve around how esthetic results aren’t as good or the time involved in getting it working is too long. Sometimes that’s the case and that particular system/product may not be the right one to buy, but don’t make the mistake of writing off the whole idea because one approach isn’t successful. Automobiles as a concept didn’t fail, but steam-powered cars did. No new technology comes to market performing as well as it will down the road as it matures.

	Using new technology in the lab comes down to a few basics:

	1. Understanding what it currently costs to perform a task or function. Where are the bottlenecks and excess costs in your lab? Does your ceramic department produce a below average number of units per technician? How many administrative staff members do you have? Is it the right number for the size of your lab?

	2. Understanding the potential impact of the technology. How much time could it save or how much could it increase capacity? If you purchase and implement technology without reducing costs (labor or materials), increasing sales, or reducing staff you are NOT increasing productivity.

	3. Understanding the costs of implementation, and that means both time and money. Technology generally costs money, so you need to balance the upfront, one-time cost of the technology plus the ongoing maintenance against the current costs and quality. 

	The bottom line is, purchase and implement technology into your lab if it will help you do things better (improved quality allows you to sell more or increase prices), faster (allows more production, potentially increasing sales), or cheaper (reduces overall costs).

	Don’t fight technology. Learn about it and figure out how to make it benefit your lab.

 I am always amused by the fact that we call ourselves Dental Technicians, our field Dental Technology and yet in some ways many of us are reluctant to use newer technologies to improve the productivity of our dental laboratories. Perhaps an even larger problem is under using technologies.

Author | Chuck Yenkner

Articles

Coping with high gold prices

Preventing an “inside job”

CAD/CAM: To buy or not to buy?

Don’t fight technology