Supply chain disruptions fueling higher supply costs for dental practices

Since the onset of the pandemic, a boom in demand has overwhelmed the global supply chain with many businesses and manufacturers struggling to keep up. The increase in demand, combined with COVID-related shutdowns, labor shortages, and lack of raw materials has caused disruption in every link of the supply chain, resulting in a rippling effect of price increases in nearly every industry.

From cars to household appliances, everything we've come to rely upon has faced a series of shortages and disruptions over the last year and a half. The early months of the pandemic saw significant shortages and price increases in personal protective equipment as mask mandates went into effect across the country to help minimize the spread of COVID-19.

"There was a significant price volatility in PPE as we saw non-healthcare businesses and the general population spike demand in 2020," said Chris Salierno, DDS, Chief Dental Officer at Tend, a New York-based dentistry startup.

Health care workers, including dental professionals who are now required to wear extra PPE when treating patients, were hit the hardest by the shortage as they struggled to secure adequate amounts of face masks, gloves, gowns, and other necessary supplies.

Now a year and a half later, data shows that dental practices are better equipped as compared to the pandemic's spring and summer 2020 surges. A survey taken by the American Dental Association's Health Policy Institute in mid-September reports that nearly 65% of general dental practices had more than a two-week supply of PPE on hand.

Although the demand for PPE has stabilized somewhat, costs are still higher than they were pre-pandemic when dental practices were spending an average of 5.5-6% of revenue on dental supplies. With the cost of supplies going up, spending has increased to 8-9%.

"The country is undergoing an economic transformation at the moment, and it's increased the average supply cost in dental practices by somewhere between 2-3%," said Roger Levin, DDS, general dentist and founder of Levin Group, Inc., a dental practice management consulting firm.

The big question is How long can practice owners expect to pay higher prices for supplies? Experts believe at least through next year. Federal Reserve leaders insisted until recently that inflation would start to fall back toward pre-pandemic levels of 2% or lower by the end of this year, according to Market Watch, an online financial news publication. But it's now predicted that inflation could remain high well into 2022 due to ongoing shortages of crucial business supplies and labor.

"While vaccination rates increase and we begin to enjoy more normal lives, the seafarers, truck drivers, and airline crews that move goods around the world are at their breaking point," said Salierno. "We are at risk for seeing new waves of supply delays and price increases as long as our global supply chain is stretched thin."

Large distortions in demand create disruptions that ripple through the supply chain. Economists refer to this phenomenon as the bullwhip effect. Consider how a small flick of the wrist results in large wave patterns in the whip itself. Historically, this phenomenon is prompted by shifts in consumer demand at the end-user level; however, labor shortages, lockdowns in Chinese manufacturing, and seaports, among other interruptions, have been the cause this time around.

These massive delays along with the fear of not being able to meet demand have caused everyone from consumers to manufacturers at all levels of the supply chain to order inventory at much higher levels than before.

These supply chain breakdowns and bottlenecks are keeping prices elevated, which is feeding into inflation. Data from the Bureau of Labor Statistics revealed that the Consumer Price Index, a key reading of monthly inflation, jumped 5.4% in September when compared with the prior year. Before the pandemic, that inflation gauge had been oscillating around 2%.

With higher prices expected to carry into 2022, Levin and Salierno offer several strategies to help dental practices cut back on costs.

Three strategies to offset the extra cost of dental supplies

To meet the challenge of practicing during the pandemic, dentists are faced with buying PPE exceeding the usual pre-pandemic levels and at higher costs. Some dental offices raised their fees to offset the extra costs; however, passing along the rising supply costs to patients has not been an overwhelming success.

"Dentists who are not in-network with third-party payers can more easily increase their fees without raising patient alarms, but dentists who are in-network have received backlash for charging a PPE fee," said Salierno.

Instead of passing along the increased cost, here are three strategies to help dental practices recover lost profit:

1. Practice tighter inventory control

   Levin advises his clients to buy supplies as needed. This strategy helps reduce waste and prevents practice owners from prematurely converting their cash into inventory.

   "Dentists have always felt like they have to have a lot of supplies on hand, but with some dental supply companies, a lot of products can be delivered within 24 hours if the dental practice needs extra supplies," Levin said.

   However, under circumstances when certain products are hard to come by, Salierno recommends a different approach.

   "Dentists should consider carrying an increased inventory of items based upon their usage," Salierno said. "If you used to order impression material every month and you're having trouble stocking it in time, consider doubling that order."

2. Join a buying group

   Buying groups have the ability and negotiating power that an economy of scale provides to deliver the lowest price. While dental practices may be able to find a decent amount of savings on their own, it doesn't compare to the potential savings gained by joining a buying group. These organizations combine the purchasing power of different businesses to negotiate better discounts that result in an item-level price not attainable by most single companies. Plus, practice owners can still maintain a direct relationship with their suppliers even if they're a part of a buying group. Dentists can check with their state dental association for potential buying groups to join.

3. Become a loyal customer

   Shopping with a primary supplier can have its perks, as some businesses offer preferred customer pricing. Using different suppliers may be a necessity when shopping for certain materials or products; however, if the goal is to lower costs, additional shipping charges from using multiple distribution channels could negatively offset any potential savings.

   Shopping with a primary supplier also gives practice owners the opportunity to build an ongoing relationship with that company and create trust. This type of connection is critical during times like this when high demand is causing inflation and dental practices are relying on suppliers to fulfill their business needs at a reasonable price.

   "From my perspective, I would say dental suppliers have been very helpful and have tried to support dentists to the best of their ability during the pandemic and make sure practices have the supplies they need," said Levin.

At TDSC.com, Powered by Henry Schein, supporting the needs of dentists is a critical part of the company's core values and principles. We've understood the impact inflation has on a dental practice and we are committed to being a part of the solution, not simply passing the problem along to our shoppers.

TDSC.com strives to keep costs low by offering shoppers three key benefits:

1. An expansive selection of product substitutions to improve availability during times of high demand and offer cost-saving opportunities.
2. The ability to save frequently ordered items to a customized list to guide team members during purchases and reduce excessive spending.
3. Consistent and competitive pricing so that dentists don't have to worry about negotiating prices every time they shop for supplies.

As circumstances surrounding the supply chain disruption evolve, TDSC.com will continue to challenge price increases and work with manufacturers to ensure customers have a positive and cost-efficient shopping experience.

Since the early months of the pandemic, dentists have been proactive with implementing strategies to recoup the lost profit from price increases. Dental practices will continue to feel the immediate effects of inflation for the foreseeable future, making this a crucial time for dentists to evolve their inventory strategies and put a plan in place to safeguard their practice's financial well-being.