Posted on November 2, 2018
Over the years, various models have been depicted that show your clinical supplies spending should equate to approximately six percent of your total revenue for optimum efficiency. We have reviewed many of these studies and have witnessed very efficient practices running at the six percent target. This metric is a good benchmark to measure your purchasing efficiency, and most importantly, will raise a red flag if your variance is too far above or below this six percent metric. A large variance is a sure sign that you have a process breakdown. With this metric in mind, the following article is intended to give you common sense purchasing tips on how to positively impact your supply spend and thus keep more money in your pocket.
The purchasing process should be just that, a process. To the extent that you understand your activity well enough, establish a monthly ordering process and budget.
Take into consideration the following:
The benefit of this strategy is multifold. It leverages your spending with minimal sales representatives/companies. This will allow you to negotiate for better pricing from a position of strength. Additionally, it reduces the administrative process (and associated expenses) as well as time spent meeting with multiple reps. By limiting the number of purchase orders to track and invoices to pay, your office can be much more efficient.
Don’t waste time over-shopping. There’s nothing wrong with shopping for the best product at the best price. Indeed, it’s absolutely necessary for controlling expenses. But shopping too often can waste more in productivity than you might hope to save on products. Once you have a purchasing process in place, don’t continue to shop every day or week. Stick to your plan and purchase your supplies from your known suppliers. I suggest you thoroughly “shop” all of your supplies every six months. Yes, you may miss a buying opportunity here or there, but you will save in the long run on productivity. Your time is best spent with a patient or a potential patient. Consider that every new patient will bring revenue in the thousands. You shopping for supply savings may save dollars, or even only cents. Using your limited time wisely will save you more than you think!
View your sales representatives as assets to your business. A sales representative can be very helpful in reaching and maintaining your supply spending goal. I strongly recommend allowing the rep to become part of the extended staff. A good representative understands that your business can become a long-term revenue stream and that their success relies on making you competitive. Also, sales reps can provide a good source of no-cost continuing education credits for you and your team.
Consider the repercussions of “FREE.” It is fairly obvious, but worth noting, that a sales representative’s job is to sell. The vast majority of reps get paid and receive bonuses based on how much they sell. To assist them with selling, companies develop marketing gimmicks to entice you to buy. Is this a bad thing for you? Not necessarily, but it definitely can be. For starters, NOTHING is free. So when you hear “buy 2, get 1 free,” this should raise a caution flag. Calculate the per-unit price and compare with competitors. Is it still a good deal? Do I really need three of these? Or will the product sit on my shelf while my money is no longer in my account. If the special offer is a product with regular monthly activity, it may make sense to purchase, but avoid those specials on products rarely used. They just become expensive dust collectors. A good sales representative will only bring to your attention specials they know will benefit you.
Go generic on low-tech and commodity items. Supplement your purchases with Internet stores or small suppliers where and when pricing warrants, especially on consumables and disposables. The reality is that many of these companies have less overhead and therefore can charge less for very similar quality product. If you find a product at a price that appears attractive, call and ask the company for a sample. Most will be willing to cede to your requests. Be sure to factor the cost of shipping into the product price, and don’t be afraid to negotiate shipping charges. The more consumables you can move to one smaller player, the more willing they will be to negotiate a discount or eliminate shipping charges.
Just ask for a lower price. The easiest way to decrease your costs is to ask. Yes, just ask your sales representative for a decreased price. Inform them that you continue to see lower pricing on similar products. Ask them to match or improve upon it. Chances are they won’t want to lose your business. Also, tell them you no longer want to pay shipping costs. There will be push back. Try negotiating a better rate or a minimum order amount for which no shipping will be charged. Start at $100, but be willing to accept a $150 minimum order amount.
Inquire about buying groups. Many people ask if it makes sense to join a buying group. Depending on your size and spend, this may be a good route to take. A buying group charges a fee, usually an annual membership fee. Once a member, you have access to reduced pricing and privileges from many suppliers. Privileges may not be limited to the orthodontic industry and may include insurance, travel, and other aspects of your business. Do the quick math on the cost of participation versus the potential savings. Also, look into who the participating suppliers are to ensure you are willing to work with these companies. Overall, these can be a good opportunity for your practice.
Be wary of reward programs. Reward programs are somewhat different than buying groups. These programs provide you “points” for purchases made that can be redeemed at a later time for product. From a supplier perspective, the concept is meant to create loyalty. You will continue to buy from them, sometimes regardless of price, to get your points. In addition to loyalty, the suppliers count on a large percentage of the points never being redeemed. You may have great intentions, but the redemption rates favor the supplier. I only recommend these programs if you have a staff member that will evaluate and manage the program closely.
Save on capital equipment. Although equipment is an asset purchase and does not affect your clinical supplies target of six percent of revenue, there are still potential cost savings you need to consider. The best time to purchase large equipment is around one of the major orthodontic/dental conferences. You will find the largest price discounts at this time. Even if you don’t go to the conference, you can ask your representative for the conference discount. It is also a great time to negotiate price for the former model. Often, the product changes are minimal and vendors are eager to move inventory. If your equipment needs are not urgent, I say wait until the show.
If you don’t already know your clinical supplies expense as a percent of revenue, I encourage you to do the math. Knowing this metric and using some of the techniques outlined above can help you improve your practice profitability. Knowledge is power—in this case, negotiating, buying, and saving power!
If you interested in learning more about how OrthoSynetics can help your practice save, reach out to us today!