FINANCIAL - You May be Overpaying for Supplies

Recently, a federal court has approved the $80 million settlement agreement in a class action lawsuit against several dental product companies (Benco, Patterson, Schein).  Each was accused of violating antitrust laws by fixing prices on dental equipment and supplies.

Even before this price-fixing became known, our practice had negotiated significant price reductions on our dental supplies by putting our supply list out for bids and pitting one company against the other.

For example, we were able to reduce supply costs by more than 15% over the discounts we were already receiving by agreeing to purchase more than 90% of our supplies for the entire year from one supplier, the lowest bidder.

Here’s the way to approach your suppliers:

1. Request the supplier’s “Monthly purchase detail list”
   • Have each dental supply company send a detailed spreadsheet of all the supplies that you purchased from them in the previous year
   • Ask that this be in the form of an Excel spreadsheet to simplify calculations later

2. Combine all information into one “Total Supplies Spreadsheet” which includes columns for:
   • Item
   • Manufacturer
   • Manufacturer code
   • Price per item
   • Total number of items purchased last year
   • Total annual cost

3. Save the “Total Supplies Spreadsheet” and create a separate “Supplies Bid List” by:
   • Clearing contents for the columns “price paid” (last year) the “total annual cost”
   • In the total annual cost column, enter the excel formula for each row as “= price X number purchased” so that, as they enter their new bid price, it will multiply by the number you ordered last year and give you a total annual cost for their bid

4. Send the Supplies Bid List to at least 2 major suppliers. In your own words, tell them that:

• “We are putting our total supply order out for bids to several suppliers with the commitment to purchase ALL of our supplies from whichever distributor offers the best overall price. 
• Please give us your best price for the attached items (or a comparable substitute).  We are committed to purchasing nearly all of our supplies from one supplier next year and will not selectively pick the best price on each item.  We enjoy having a relationship with only one company at a time to simplify ordering.
• Also, since it’s not fair to you, we will not come back a second time to see if you can “beat” the other bid. For this reason, give us your BEST PRICE now and we will select the lowest overall bidder and commit to purchasing ALL of those supplies for the entire year.”

5. After receiving the bids, combine them onto one spreadsheet

6. Select a distributor and insist that the discounted price be visibly listed online and automatic when you order supplies

7. Every 2 or 3 years, repeat the process (just to keep them honest)

Here’s what we found when we did this recently:

• Patterson’s bid was 16% higher than Schein’s (who we had used the year earlier)
• Also, not so surprisingly, Schein was willing to reduce our new costs by an additional 2% over the previous year just because they knew we were comparing suppliers again. (Mm. Interesting!) 

This may require some effort (much which is delegated to a staff person), but multiply these cost reductions over the next 10 years and it adds up to some “real money” as the yearly savings become automatic. In a small practice, one might save $5,000 to $10,000 per year, generating $50,000 to $100,000 of profit over 10 years.  In our large practice, we reduced supply costs by more than $40,000 per year, yielding close to a half a million in the following decade.

So, even if you are considering joining a buying group, it might be good to see what discounts you can receive on your own.  Remember, you DO have negotiating power.  Don’t assume that your buddy, the dental rep, is giving you the best price.  Based on the class action suit, he/she may not be.

Be guided by one of my favorite maxims – “Never pay retail!”