Higher Productivity = Bigger Profits

March 21, 2012

The more time I spend working with my consulting clients and analyzing the dental laboratory business, the more convinced I become that productivity is the most important contributor to profitability. Right now, you are probably thinking “OK Chuck, that’s cool, but what exactly are you talking about?” Fortunately, the good folks at DLP give me a whole page to explain it.

The more time I spend working with my consulting clients and analyzing the dental laboratory business, the more convinced I become that productivity is the most important contributor to profitability. Right now, you are probably thinking “OK Chuck, that’s cool, but what exactly are you talking about?” Fortunately, the good folks at DLP give me a whole page to explain it.

Let’s start with the premise that for most laboratories labor is the largest single cost item, typically running between 45% and 60% of revenues. The dictionary defines productivity as: “The rate at which goods or services are produced especially output per unit of labor.”

It stands to reason then that the more finished units (crowns, bridges, or dentures) your technicians produce per hour, the more revenue you will generate, and the percent of revenue spent on labor goes down. The savings you realize land on your bottom line-otherwise known as PROFIT.

Keep this important concept in mind. Increasing the productivity of your technicians is not just the number of units you ship to clients. It requires increasing output without increasing the time the technicians spend working. If they build 40 units of porcelain in a 40-hour week, building 50 units in a 50-hour week is not increased productivity. It’s actually worse because you are now paying overtime. Increasing productivity requires producing 45 units in that 40-hour week.

Steps to increase productivity

1. Measure it. It is very difficult to manage anything you can’t measure. If you don’t do this already, set up systems in your lab to measure and track what each technician produces.
If you are a crown and bridge lab, your goal should be to produce 3.75 complete finished units per technician per day. Removable labs should shoot for 3.25 units. A five-technician crown and bridge lab should average 18.75 per day.

This is an easy calculation in a one-person lab, but it gets more complicated in a larger operation. It breaks down into different numbers for each technician in multiple-person labs because the total production is the sum of multiple production steps. Don’t worry too much about what your number is today; focus on making it better next month and the month after that.

2. Provide feedback. Keep your staff members informed regarding their production (or lack thereof). Explain why it’s important along with quality. Producing units that have to be remade reduces productivity big time. Make productivity a part of job performance reviews and pay levels. After all, the more team members produce, the more you can afford to pay them.

3. Staff properly. You should have the number of technicians needed to produce 10% below your peak demand times. Use overtime to cover the really busy times, but overtime should not be needed constantly, and management needs to approve it. Cross-training can really help in this area.

4. Focus on your work processes. How does the work flow through your lab? Is your lab layout set up so staff can efficiently move between work stations? Do the technicians have the proper tools and equipment to work efficiently? Constantly look to eliminate wasted time and process inefficiencies.

5. Invest in automated equipment. Buy equipment that reduces labor whether it is a scanner with CAD software for outsourcing some of the work, or a complete CAD/CAM system, or even automated dispensers for gypsum and investment liquid and powder mixing to eliminate hand pouring and measuring.

6. Invest in training. Technicians who have higher skill levels are going to be more productive than those who don’t. Your material suppliers are good sources of support. Ask them what’s available. As a lab manger you need to devote a percentage of your time working with staff members to improve their skills. Encourage them to learn from each other and exchange ideas and tips gained from their experience.

After my presentation last January at the NADL Vision 21 meeting, Dave Brown, President of National Dentex, commented, “You nailed it Chuck. It’s all about the labor.”

In addition to improving your profits, improved productivity can allow you to pay your staff more, which both boost morale and provides more flexibility to compete with low-cost competitors. Overall it strengthens your business.

I urge you to focus on your technical staff’s productivity. It will give you the “Competitive Edge.”