Operations Management
Operations Management: A Tool to Increase Profitability
Michael J. Mulvehill, III, DDS
Copyright 2001 Journal of the California Dental Association.
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Operations management enables the efficient utilization of the production systems in a business. This paper will address several key elements in the business competency of operations management. Specifically, this discussion will review the components of a material requirement planning system and a "just-in-time" system for inventory control and time management to enable the dentist to monitor a portion of the practice’s overhead costs.
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Business and economic climates have been positive, and most dental practices are thriving. Statistics from the American Dental Association 1996 Survey of Dental Practice show the average real net income for all independent dentists to be just less than $135,000 per year. But as sure as night follows day, the profitable good times will be tested with lean times. What will determine whether a practice survives? Will dentists be able to change or re-engineer their practices to meet the future demands so they can maintain their productivity and, more importantly, their profitability? Each dentist must evaluate the economic health of his or her practice to sustain prosperity. If the practice makes money, it will prosper; and the value created by the delivery of dental services will benefit the dentist, the patient, and the office staff, as well as dental suppliers and manufacturers.
Dentists not only diagnose the oral health of their patients and provide the appropriate therapy and care, but also are responsible for the quality of that care, the daily work schedule of patient treatment, and the efficient utilization of all the practice’s resources. Dental practices are therefore subject to the same requirements as other business enterprises with respect to sound financial planning and adequate resource management. Dentists need to become excellent business diagnosticians to stave off failure or misfortune. Some may disagree, but the main goal of every business is to make money.1 To achieve this goal, dentists must carefully examine the business operation of their practices.
This paper will address several key elements in the business competency of operations management. The focus of operations management is the efficient utilization of the production systems in a business. Chase, Aquilano, and Jacobs, in their book Production and Operations Management, Manufacturing and Services, define operations management as the design and control of business systems responsible for the productive use of materials, human resources, equipment, and facilities for the development of a product or service.2 To increase productivity and profitability, dentists need to deliver their services more efficiently and cost-effectively. Specifically, this discussion will review the components of a material requirement planning system and a "just-in-time" system for inventory control and time management to enable the dentist to monitor a portion of the practice’s overhead costs.
Material Requirement Planning
In every production system, there are primary inputs and necessary resources that undergo a transformation function to produce a desired product or service. In the dental practice, the inputs are the patients. The necessary resources are the dentist, the auxiliary staff, and the required supplies and materials, along with the appropriate dental equipment. The transformation process is the physiological oral health care or therapy provided and the desired outcome or output is the oral health of the patient.
The material requirement planning system began in the manufacturing industry, as a way of calculating the amounts of materials required in the production process. In its basic form, the system takes into account the amount of each item and when it will be required to complete the product or service within a specific time frame. The main purpose of material requirement planning in a dental practice is to control inventory levels, minimize inventory investment, maximize operating efficiency, and manage the dentist’s time with respect to the scheduled patient appointments.
To manage the inventory, the office should be set up to order the appropriate materials, in the correct amounts, within a specific time frame so that the practice never runs out of supplies. All materials and supplies can be categorized in an inventory file in the computer. This database can contain the specifications on each item used in the practice, the vendor or supplier, the unit cost, and the delivery or cycle time. For the efficient utilization of resources in the dental office, the dentist should know the sequence of the use of the materials, supplies, and labor for every procedure performed.
Most office computer systems can summarize how many specific dental procedures were performed in a given year and the cost of the associated materials. With this information, the dentist can calculate the cost of materials or supplies for each procedure. In doing this analysis, the dentist will discover the cost of a portion of the overhead and which procedures are the most expensive for the office to deliver. For example, a dentist can make a list of each item used in a composite restorative procedure (anesthetic cartridges, needles, cotton products, rubber dam, composite material, etc.). Then the per-unit cost and the quantity of each item used in the procedure is calculated. This sum gives the material and supply portion of the procedure overhead, excluding the fixed costs. Taking this to another level would include calculating the cost of labor, rent, and equipment to arrive at an overall true cost of performing each procedure. This is somewhat time-consuming, but it can be a very useful starting point for determining an initial level of cost control measures.
An assumption to be made at the outset is that every practice must have control over the office appointment schedule. The old adage, "time is money" is never more true than in a dental office. The management of the dentist’s and hygienist’s time is critical because they are the primary revenue producers. Dr. Roger Levin in the May 2000 issue of the Journal of the California Dental Association remarked that the scheduling system reflects the use of time, and this system overpowers all other systems and must be the focal point for change.3 As the schedule goes, so goes the production for that particular day or session and along with it the utilization and consumption of the office resources, namely, the supplies, dental materials and staff labor. An office should plan for a full productive day with a specific dollar amount as the daily goal. The target amount is then divided by the number of hours in a work session to arrive at an hourly rate of production. This will assist the front office staff in the preparation of the daily schedule as they allocate time for the different patient appointments. The schedule should be as accurate as possible with respect to the specific amount of time the dentist will need to complete the procedure. The dentist and auxiliaries should periodically review their time requirements and discuss any improvements with the schedule coordinator or office manager. Saving a few minutes by becoming more efficient will allow the dentist and team to increase daily production. There could also be an assessment of which procedures can be appropriately delegated to an auxiliary to increase the dentist’s and hygienist’s productive time. Some offices have found it very helpful to schedule for the assistant’s and hygienist’s time, in addition to the dentist’s time.
Just in Time
The "just-in-time" production management system was developed by the Japanese after World War II. This system streamlines the production of quality goods and services by using minimal amounts of resources and supplies. The necessary materials and supplies arrive "just in time" to be used in the production process. The just-in-time system is based on high quality performance along each stage in the process, upgrades in housekeeping, good supplier relationships, a strong desire to minimize the waste of time and inventory, and a stable demand for the product or service. The just-in-time system works well for controlling costs in service industries such as dentistry.
A true cost-saving measure is to ensure quality in the delivery of all dental services. This is commonly known as total quality management, and it applies to the entire dental office team. Quality in dental practices can be improved by implementing a reliable treatment sequence. Quality is the goal at each step to ensure that each patient receives the maximum value for his or her health care dollar, regardless of who performs that particular service or task. Stressing quality in the beginning ensures uniform treatment procedures for patients the first time they are performed. Procedures that have to be repeated to maintain high quality standards dissolve the profit margin.
A dedication to good housekeeping will allow the treatment procedures to work better. The necessary instruments and supplies must be kept in the operatory and laboratory respectively. Everything should be in its proper place, clean, and ready to use. Each member of the dental staff cleans and maintains his or her own work area. This focus on organization, preparation, and cleanliness will allow the treatment process to flow more efficiently. Also, the attitude of continuous quality improvement will be easier to develop, and patients will perceive they are receiving better care.
Patients and employees are important components of the just-in-time system, but so are the supply vendors. The supplier network in this system is the cooperative association between the dentist and the dental supply company. The supplies represent a major portion of the office overhead cost. If an office is able to forecast its material and supply usage to its suppliers, they will have a picture of the demands that will affect their business over the same period. This will allow the vendors to plan future shipments and thereby improve their material and supply flow with increasing efficiencies and decreasing costs. This might give the dentist an opportunity to negotiate a lower cost, as the vendor and manufacturer will also save money.
Dentists can minimize the material and supply costs by looking at the dollar investment resting on the shelves. It makes no fiscal sense to buy in such bulk and tie up resources if the consumption of these materials may be months away. A logical cost-saving approach would be to talk with the supply representative about bulk discounts in relation to consumption rates and delivery times. For example, instead of purchasing 6,000 toothbrushes in bulk, it may be more advantageous to have the vendor ship 1,500 toothbrushes every quarter with an appropriate discount for the guaranteed order. An opportunity exists to save money if the delivery or cycle time of an order can be shortened along with a monthly or quarterly commitment regarding how much of a particular item will be purchased. A more recent purchasing option for the dental office is the use of the online dental supply companies. In some states, dental organizations have partnered with online suppliers to offer discounts on material and supply purchases for member dentists. This modality may offer decreased cycle and transportation times, lower inventory levels, and less waste of motion, everything the just-in-time system espouses. Although this system may be scaled down for dental practices, it offers a standard or benchmark to measure present inventory levels against in relation to waste or excess supplies. This could result in substantial monetary savings.
By reviewing and clarifying the process flow in their offices, dentist can improve treatment and service performance. Staff should regularly discuss ways of improving patient satisfaction in all areas of dental practices. Reviewing and evaluating equipment and treatment protocols is a must if dentists are to stay up-to-date with the rapidly changing dental environment. Each staff member should have a specific responsibility in caring for patients, be it in the operatory, the lab-sterilization area, or the front office.
The elimination of waste of motion, a prime factor in the just-in-time system, can be applied to the dentist-assistant relationship at chairside to make the delivery of each service more efficient. Some operational objectives designed to improve efficiencies include looking at decreasing the set-up times between patients, including the disinfection of the operatory and instrument sterilization. A checklist should be developed for all necessary instruments and supplies for each procedure. Another objective would be to decrease the operating time for each patient, while maintaining the appropriate skill and quality of care necessary for each procedure. Procedures should be designed to make patients feel assured about the treatment being provided. Cross-training all members of the office staff will increase flexibility and improve overall performance.
Unique approaches to leveling demand should be developed so patients’ waiting times can be minimized. One such idea is to offer discounts to patients if they schedule appointments during hard-to-book time periods. Dental practitioners should be respectful of patients’ time as they move through their daily schedules. The office should do everything it can to stay on schedule. When treatment requires additional time, the staff should inform patients who are waiting and ask them if they would like to reschedule at their convenience. This can be an opportunity to improve customer-patient satisfaction and to increase the rate of return business.
The staff should be asked how they see their responsibilities and problems associated with the overall process flow. The dentist should seek their opinions for improving treatment delivery, patient flow, and the elimination of unnecessary activities in an effort to increase patient satisfaction through quality performance. Communication among the team is of utmost importance.
Conclusion
The material requirement planning/just-in-time combination provides several benefits. The material requirement planning system allows for the scheduling of dental services with specific time allotments and information regarding the needed materials, supplies, equipment, and personnel. The just-in-time system provides quality control and reduced inventory levels so dental procedures can be performed in a more cost-efficient manner.
The work flow should be analyzed. The dentist and hygienist should be kept busy with revenue-producing procedures whenever possible. Waiting time between patient appointments, unnecessary activities, and any down time during individual procedures should be reduced or eliminated. The "right" or appropriate inventory items should be reduced to cost-efficient quotas to prevent running out. The number of employees required to perform the necessary professional services as well as the auxiliary duties should be evaluated for the smooth operation of the entire practice. High quality should be demanded in all phases of the practice. To borrow a phrase from Dr. Terry Donovan, "Excellent clinicians pay strict attention to details." The same can be said for the successful entrepreneur with regard to business competencies. This article’s aim is to help dentists maintain their competitive advantage in today’s health care market by producing the highest quality of dental services efficiently, on schedule, and on budget with great customer service and satisfaction.
Author
Michael J. Mulvehill III, DDS, maintains a private practice in Arcadia, Calif., and is professor of clinical dentistry and the director of clinical operations at the University of Southern California. He is also a student in the Executive MBA Program, USC Marshall School of Business, USC, class of 2001.
References
1. Goldratt EM, The Goal, 2nd ed. North River Press, Great Barrington, Maine, 1992, p 40.
2. Chase RB, Aquilano NJ, Jacobs FR, Production and Operations Management, Manufacturing and Services, 8th ed. Irwin McGraw-Hill, Boston, p 1.
3. Levin RP, Business systems: The key to dental practice success. J Cal Dent Assoc 28(5):358-65, 2000.
Bibliography
Bavoso PJ, Give office purchasing policies a face lift -- How to profit from the Internet. Dental Economics, June 2000.
Brown LJ, Lazar V, Dentists and their practices, The economic state of dentistry. J Am Dent Assoc, Vol 129, Dec 1998.
Levin RP, Cutting costs in the dental practice. Dental Economics, Vol 87, Issue 5, May 1997.
Miller CE, Fulton J, Getting on the fast track. Dental Economics Vol 90, Issue 9, Sept 2000.
To request a printed copy of this article, please contact/Michael J. Mulvehill, III, DDS, USC School of Dentistry, 925 W. 34th St., Room 252, Los Angeles, CA 90089-0641 or at mulvehil@hsc.usc.edu.
