Peter Drucker, well-known business and management educator is quoted as saying “What gets measured gets improved.” Dental laboratories, regardless of size, would be smart to heed this advice. As the industry continues to evolve with increased digital methods of production, knowing if the lab is making the right business decisions is crucial to financial well-being.
Linking your vision to performance requires the use of selected Key Performance Indicators (KPI’s). Multiple measures are required, simply because one or two measures do not provide an accurate picture of the business. For example, if a lab only looks at Revenues (many do) and units shipped, is the lab profitable? KPI’s are both financial and non-financial measures used to quantify objectives to reflect strategic performance of the lab business. Answer three questions to help guide your thinking:(1) How are you measured today?; (2) What should you be measured on?; and (3) How do your objectives align with the planned objectives?
The answers to those questions allows KPIs to meet the needs of the dental laboratory business. Unfortunately, all too often many KPI's are financially based and do not translate well into daily operations. For example, if you were to ask one of your technicians “How was your Profit Margin today?” you would get the “what are you talking about?” blank look. Yet when you have a KPI such as Remake Rate, the technician knows that the quality of their work directly impacts profitability of the lab. One of the keys to success with KPI’s is (1) keep them to a minimum, (2) make sure they are linked; (3) make sure the individual has execution authority to impact the KPI; and (4) be sure they are achievable.
The question often asked is what are typical KPIs and the answer is each business has its own needs, especially at the corporate level, so what may be useful to one lab may not be helpful to the next one. But if we to select a few to get started, the list would include:
- 1. Monthly Revenue by product
- 2. Profit Margin by product
- 3. Remake Rate (external and internal)
- 4. Output per Technician
- 5. Monthly Expenses
- 6. Inventory (components and pucks)
- 7. On-time Delivery
- 8. Overtime.
Whatever is used, the measurements must be visible and understood by all. Remember to keep your measurements displayed in a prominent location in your lab. Keeping them displayed (and current) will keep your employees “in the loop” and increase their awareness of how their performance will directly impact the numbers. Since some of these measures will contain sensitive information that an owner does not wish to be common knowledge, display this information using generic graphs or trend lines to get the point across without explicit detail.
Measurements are an exercise on paper unless they are reviewed regularly and corrective action (if required) is taken to get the lab back on track. At least once a year, review the set of measures for suitability, viability and applicability to your business plans. It is especially useful with the new technologies. Having the wrong measures is probably worse than having no measures at all. How else will you know whether you are achieving your goals?