Three Ways DSOs Can Improve Profits With Better Dental Procurement

February 27, 2020

Owning and operating a Dental Service Organization (DSO) is no easy task. The dental industry continues to face mounting financial pressures from all sides, and the folks managing these companies must continue to seek solutions that positively impact their finances.

Conventional wisdom suggests that increasing production is key to driving financial success. What's often surprising, however, is the direct impact of savings and improved operational efficiencies on profitability.

By following the few simple techniques mentioned below, dental service organizations can increase their profits and establish effective scalable processes without the need for heavy financial investments.

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Looking Beyond Increasing Practice Production to Improve Profits

According to the recent Levin Group practice survey, the average practice carries an overhead of 64.5%. At this level, a typical dentist saving $100 on overhead costs creates the same profits as a $280 increase in production. That's even more impactful when you consider the benefits can be had without fitting additional treatments into an already-full schedule.

With the massive impacts of procurement on profits in mind, many DSOs are now focused on finding new opportunities for bottom-line growth by leveraging technology to proactively manage the complete procurement cycle. By bringing a modern, digital-first approach to enable strategic procurement, a DSO can transition from a process that is often neglected and ineffective to one that can deliver, in our experience, between $12,000 and $30,000 or more to an average practice's bottom line.

Multiply those savings by the number of locations owned and operated by a DSO, and you can see why many are choosing to increase margins through a procurement-focused strategy. And better still, enabling procurement best practices allow you to prevent profit leakage and safeguard your financial well-being.

Ready to scale profitably? Here are three ways your dental practice can generate better profits through a streamlined procurement process.

1. Maximize your buying power through supplier competition.

According to Method research, the average dental practice spends nearly $225,000 on products and services that could be influenced by direct supplier competition. That represents significant buying power and leverage. So, why isn’t everybody taking full advantage? The truth is that many practices simply have no perspective on market pricing. Instead, they default to buying from their existing suppliers.

Rather than blindly relying on the same providers and their usual pricing, you can instead implement regular competition in which multiple suppliers provide quotes. With a quote process based on your projected annual spending, you can seek the overall best value for your full buying power. As a result, you can form strong supplier partnerships and lower costs significantly over time.

It is important to avoid simply asking a supplier to "match pricing" from another supplier. A proper Request for Quote (RFQ) process allows suppliers to truly compete in a fair process, without being fixated on beating a specific competitor or price.

2. Implement efficient inventory procedures and controls.

Strong inventory management is essential to a productive dental practice, allowing you to improve cash flow, mitigate the risks of financial write-offs and decrease your carrying costs (the costs of holding inventory).

Office managers need to ensure that the right materials are on hand at the exact time they’re needed. When items are out of stock, expired, or delayed, patients and providers both experience true and costly disruption. However, holding too much inventory ties up your cash, and puts you at risk of incurring financial hits if items are lost, damaged, or past their expiration date.

In short, any successful practice needs a standard, digitized process for tracking and managing supplies.

Reducing the direct costs associated with inventory begins with the accurate tracking of inbound shipments. A single misrouted or delayed order can have a ripple effect across the practice and put you at risk of not being able to service your patients in case of a critical stock out. Therefore, it’s imperative that all team members have access to information about orders placed and details on shipments.

In a dental setting, all supplies should be inspected, counted, and recorded upon arrival. This doesn’t need to be time-consuming, but it does need to be done consistently. Electronic systems that keep detailed records make this efficient for your entire team, including finance, and provide an audit trail of exactly what happened, when, and the actions taken.

A smart inventory process also includes a disciplined approach to recording the usage or withdrawal of on-hand items, as this is how you’ll know when it’s time to order and also provides you with accurate usage data, critical information when it comes time to negotiate volume breaks.

Here’s where the right inventory management system may be able to help, allowing you to track each item, including its precise location and providing alerts when items fall below a defined level.

For the ultimate efficiency and accuracy for busy practices, consider leveraging barcode scanning to reduce the effort needed in identifying and counting products and eliminate human error. With the advent of the FDA’s Unique Device Identification (UDI) regulations, more and more manufacturers are including unique barcodes on supplies. Integrating barcode scanning with a digital inventory management system can rapidly provide the best possible end-to-end process to coordinate your team.

3. Reduce the effort needed to run the procurement process.

Anyone involved in dental procurement can tell you it’s not as simple as clicking “Buy it now.” Procurement is a complete business process that includes activities such as:

With so many moving parts to the procurement process, it’s not uncommon to see practices wasting efforts and resources. Method finds a typical organization can save 30% or more on the associated labor through a digital transformation. Accordingly, this can represent an annual savings of up to $5,000 or higher in a typical dental practice. To be clear, these are efficiency cost savings and are over and above the earlier-mentioned savings that can be found through supply cost reductions.

Additionally, practices get the boost that comes from freeing up staff's time to work on more important matters, like scaling initiatives or ensuring quality patient care.

Getting Started on the Journey to New Profits

The financial pressures on DSOs are here to stay, and those leading the charge are finding they must innovate to drive new areas of opportunity.

Lowering overhead through an improved procurement process is an untapped source of new profits for many dental organizations. Digital tools to support this transformation deliver a surprising return on investment (ROI) and can make the dental office a better, high-functioning workplace for all.

To take the first steps, review your processes and choose 2-3 key areas for improvement. Compute the potential financial impact of a procurement transformation project, and then align and empower your team to determine the necessary changes.

Consider dental-specific technology tools that guide and automate best procurement practices, making it easy for your team to use every day.

Think Long Term

Although it’s important to ensure a fast ROI and start realizing improvements as soon as possible, when it comes to selecting the right platform, you’ll want to balance this with your long term objectives. The “right” solution should be easy to implement, but robust enough to grow with you over time, empowering you to leverage your collective volume, identify synergies across locations and improve formulary compliance.

Method does just that, offering everything you need to optimize your procurement including both deep and snapshot analytics, a digital Request for Quote (RFQ) process, and an Amazon-like marketplace with a detailed product cataloge of 750,000+ dental supplies and access to 2,000+ dental-specific supplier database.

Want to know more about our pricing and features? Click here.

Have questions or are ready talk about how our team can help you better your bottom line? Contact us now.

Learn More About Dental Procurement

Ready to build a better dental practice?

Method Procurement Technologies gives independent dental practices and DSOs the inventory management and procurement capabilities they need to succeed. With our full, end-to-end solution, ordering dental supplies is straightforward and hassle-free.

Learn how Method Procurement's spend management solutions can improve your bottom line. Get in touch with our team today or request a demo to see it for yourself.