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Dental Supply Chain: E-Commerce Challenges the Status Quo

For years, three dental suppliers — Henry Schein Dental, Patterson Dental, and Benco Dental — have held a substantial market share in the dental supply market across the United States. Together, they have roughly 75 percent of the market, the remaining 25 percent is divvied up among regional players around the country. That may all be about to change.
Several new companies are hoping to become disrupters: Supply Clinic, SourceOne Dental, and The Dentists Service Company (TDSC, a wholly owned subsidiary of the California Dental Association), which are jumping into the marketplace, and challenging the status quo with discounted pricing using e-commerce as a fulcrum for savings. 

Even e-commerce giant Amazon is entering the healthcare space. And while you might think Amazon has the advantage here with some 85,000 vendors in its system (many fewer in the dental space, of course), that remains to be seen, mostly because it’s unclear what discounts it can offer to rival the upstarts.

All of the new companies said they’re experiencing rapid growth in the market, and it’s easy to see why. With discounts ranging from 20 to 50 percent off of traditional distribution channels, shopping around for dental supplies may help the bottom line.

There are differences between the traditional and e-commerce models. Traditional distributors employ representatives to take the hassle of ordering out of your hands, while the e-commerce model requires time and effort from the consumer. Delene Losch, Marketing Manager for Burkhart Dental says that their clients like the full service they receive, noting, “Burkhart has a hands-on approach to taking care of our clients. Each client is designated their own Account Manager who routinely visits their practice. We take care of the ordering process so the client can be freed up to do what they do best, take care of their patients.”

But, traditional distributors are also taking note of the e-commerce model; one distributor has offered to match the pricing offered by the TDSC Marketplace. 

The e-commerce challengers, an overview

We reached out to some new and established vendors in the dental supply space and their customers to get their take on the changing industry: Ahmed Shams of SourceOne Dental; Dr. Scott Drucker of Supply Clinic; Bob Spinelli, Chief Operating Officer (COO) of The Dentists Service Company Marketplace (TDSC); Dr. James Stevens, Chair of the TDSC Board of Directors and past President of CDA; Dr. Jonathan Ford, a private practice dentist using TDSC’s service; and Chris Holt, Leader, Global Healthcare at Amazon. (Editor’s note: Amazon declined an interview in person, but responded via email. Similarly, Burkhart Dental talked with us via email. We reached out to representatives of Schein, Patterson but our calls were not returned.) 

Most of our respondents pointed out that the big vendors were actually the first disrupters, and they were just seeking a way to level the playing field. Said Spinelli, “We didn’t come into it to be a disrupter. We came into it to provide a benefit that our members were asking for. They needed to be able to better compete in the marketplace, and their friends in group practices had advantages that they didn’t. We supplied the platform to allow our members to realize the kind of savings that large group practices have enjoyed.”

Ahmed Shams • SourceOne Dental

Ahmed Shams is an entrepreneur who cut his teeth in publishing and marketing, and eventually found himself with Farran Media, the publisher of Dentaltown. Because of his work with the dental community, Shams began thinking about e-commerce as it related to replacing traditional distribution. Specifically, he saw that there was significant dissatisfaction among end customers (dental practices) with manufacturers and distribution channels. “There is a lot of concentration at the top, and I thought it would be proper for an independent third-party marketplace to make some hay,” he said, “specifically taking advantage of the fact that the overwhelming bulk of the market share existed using the same bloated distribution model.” 

The “bloated distribution model” that Shams is referring to, of course, is the one utilized by many supply companies: employing a group of reps who visit practices, scan inventory, and place orders on the dentists’ behalf. Shams recognized that e-commerce (think Amazon) was taking the world by storm, and could be utilized to sell dental supplies just as easily as it could be used to sell books and widgets. And while Shams saw the need for change, he admitted that he underestimated the challenges of getting his new model up and running. “As time went on, I began to understand the reason why it hadn’t been reformed, and it was a bit more of a challenge to get the business going,” he said. “But nevertheless, we saw the value and the need in the market to pursue it. When you have a concentrated marketplace where the people at the top have power over the manufacturers and consumers, it makes it difficult for a new entrant to come in and change the model.” Difficult is an understatement. Shams faced fierce pushback and is involved in ongoing litigation with some of the players. 

Despite initial setbacks, sourceonedental.com launched in 2012. Shams was delighted that a significant number of direct manufacturers came on board for the initial launch, and were excited to move forward with the company, “We certainly knew that we were going to be a disrupter in the field. We were using new technology to cut out a significant amount of the cost of the products being delivered to the customer,” Shams said. “In so doing, it would threaten the existing competitors who controlled the market. We saved money by eliminating the cost of having reps because some customers no longer need them. They understand e-commerce.” 

Shams leveraged his contacts in the dental space, and built a marketplace with ground rules in terms of pricing and product offerings. He then determined who would participate, invited them to list their products for sale under the platform, and taught them how to use their system. And while buying dental supplies might be a little more complicated than, say, going online and buying a pair of shoes, it was just a matter of figuring out the logistics. As dentists well know, supply orders can easily include 100s of different items. When those items are coming from a number of different manufacturers or vendors, ordering can quickly become a headache. Asking the customer to take on that responsibility is a tall order, but Shams (and others we spoke with) created tools that live on their platform and allow customers to order and interact more quickly. “Our goal was to have a system that allowed the customer to place a 100-item order in under 15 minutes,” he said, which they have achieved. “We constantly strive to improve efficiencies in terms of vendor interface and the customer/user experience. We’re always adding functionality, making things simpler, talking with stakeholders about our systems with vendors and customers, and responding to it. Our goal is to have the most intuitive e-commerce platform in the space.” 

Shams and his team spend quite a bit of time creating and adding content to their system, and they’re the only vendor we spoke with who offers equipment sales. They work with a major distributor of equipment, which allows them to build out entire offices and provide excellent product options. They add product videos whenever possible, and include in-depth descriptions and key features to make the buying experience easier. “But,” said Shams, “it’s not a thing where the customer just waits and gets told what kind of cement to buy. We’ll expose them to new products, and when we get new customers, we’ll have what they have purchased in the past, but we anticipate that they will do some of the groundwork themselves.” 

Bob Spinelli • TDSC Marketplace

The TDSC Marketplace came about because California Dental Association recognized that members needed support with the business side of their practices, especially solo-owned practices that weren’t getting supply discounts like their corporate practice counterparts. “One area where members were feeling pressure was dental supplies,” said Spinelli. “With the increase in large group practices, they felt they were missing out on a competitive edge and knew that if the association could leverage the power of the membership, they could deliver a group-purchasing program that brought forward significant savings.” The program launched to all CDA members this past June, but had a beta test group that began last February. In all, the program took about two years from a board meeting conversation about member benefits to making the offering available to all members. Dr. James Stephens, Chair of the TDSC Board of Directors and Past President of CDA, was at the first meeting, and had this to say, “We had to build the company from the ground up, and then we had to build the Marketplace itself. The biggest issue was finding the right platform, one that our members would accept as a reasonable platform. We formed an advisory group among interested members, and asked them what it would take to get them to use the Marketplace, and the answer was basically, ‘Amazon and a discount.’ We set out to create a similar experience and provide a discount, and to a great extent I believe we have done that. At some point if enough members join, volume will allow for some nondues revenue, but it wasn’t designed for that.” 

Leveraging an e-commerce platform made sense to the organization because, well, everyone is doing it. “It’s not just young people. Heck, I do it,” quipped Spinelli. “It’s commonplace. We see a mix of ages in our membership using the service. Some of our biggest adopters right now are people who have been in practice quite a while.” TDSC chose its suppliers through an RFP process, and according to Spinelli, they currently have six on board, with the intention of adding more as needed. Each supplier works closely with the TDSC team to supply necessary content to position products on the Marketplace, and learn the platform to efficiently fulfill customer orders. While TDSC maintains all member-facing interaction, the supply partners are critical to ensuring a high level of satisfaction. TDSC is buoyed by initial sales and utilization by its members. Spinelli said that Marketplace suppliers are scored monthly, but the primary expectation is to fulfill orders on time and accurately.

After vendor partners, Spinelli said, the most critical business partnerships were in the tech space. The company maintains a strong partnership with an interactive agency that recommended and customized the platform that powers the Marketplace. Additional partnerships were developed in the areas of payment processing and tax calculation to support the e-commerce process. Additionally, this past summer TDSC purchased Arnold Dental Supply in Lynnwood Wash., giving it more control of the supply chain and positioning the company better in the long-term.

We wondered, how has this affected CDA’s relationship with vendors? After all, in essence, TDSC is in direct competition with the major suppliers, and those are the same people who pay to exhibit at its annual conference, and are probably tapped when CDA needs sponsors for events. Spinelli said, “You’re right, we’re in competition with them now, and because of that there are different competitive pressures. However, based on research we’ve conducted with our membership, we believe there is space for everyone and see this as an opportunity for relationships to evolve. Fortunately, we have not seen any deterioration in relationship with competitors to date, including exhibitors and sponsors, although there have been disparaging remarks made about TDSC from suppliers that we’re not currently working with.” 

Dr. Scott Drucker • Supply Clinic

Dr. Scott Drucker, founder of Supply Clinic, is a periodontist who got into the dental supply business almost by accident. “When transitioning from dental school to periodontal residency, I had to purchase a bunch of my own supplies and surgical instruments, but I didn’t have a clue as to how the dental supply world worked. So, I asked a couple of faculty members at University of Pennsylvania, and they told me to reach out to the local Schein or Patterson rep.” Drucker contacted a rep who was very welcoming and offered him a 20 percent discount for being a new dentist. “I got pricing sheets back, and like every millennial would, I then searched online, shopped around, and found every item for substantially less than the 20 percent discount. So, first, I knew that I wasn’t going to go to Patterson or Schein, that I was going to buy from the sellers with the best prices, and second, I thought that the market made absolutely no sense. Why was it that the big players who had the most leverage and power had prices higher than everyone else, when their efficiency should have driven prices down?” 

Drucker decided to research the issue, and for six months read everything he could get his hands on, including industry analyses and annual reports from the publicly traded distributors. Drucker explained, “Schein and Patterson’s catalog prices are typically more than 30 percent higher than what smaller, more regional players sell for. Smaller companies aren’t burdened by an army of sales reps and their salaries. Traditionally, those three distributors have kept gross margins of more than 30 percent on items sold. That’s unheard of in most industries.” 

Drucker’s research turned up all kinds of issues with the top suppliers, particularly opaque pricing that often left the solo practitioner out in the cold when it came to scoring deals. He explained, “If I sat down with my friend who is a pedodontist, and we logged into our accounts, our pricing would be totally different across the board for identical items. The largest distributors are into tiered pricing models, which doesn’t really make sense in the age of e-commerce. Essentially, if you’re a three-to-five-person office practice, you’re going to get better pricing than the one-office practice. Additionally, sales reps have a lot of leverage. They can decrease prices, but most people don’t realize that. They want to sell the same product at a higher price because then their commission is higher, so they’re disincentivized to offer lower pricing. It’s an inherently flawed system. And all commission sales are that way, but e-commerce sales aren’t.” 

Large companies, Drucker said, will argue that their sales reps provide lots of service and support to the customer. He explained, “It’s a very generational thing. Older practitioners in the space love the reps and have 30-year relationships they value, and the younger dentists will tell their staff to lock the door during lunch because they don’t want a rep to come in and waste an hour of their time, and have to pay a 30 percent premium on the products they buy.”

Moreover, Drucker said, the value of sales reps has diminished in the internet age. “Now you can learn practically anything online and watch instructional videos, and basically teach yourself how to use any product. Before, practices relied on reps for the dissemination of information. What’s new out there? What’s new in the market? What new tech is available? Today, I can research it online or attend a dental show.” 

Supply Clinic has been in existence for about three years now. Its website, www.supplyclinic.com, has been up and fully operational for a year and a half. “We have a very solid group of people on our core team, and we have done a tremendous job of recruiting people who have much more experience than we do in terms of the components that we’re piecing together,” Drucker said. “Our advisory board includes key opinion leaders from the dental space. One advisor, Alan Weinstein, is a titan of the healthcare supply chain field. He founded the nation’s then-biggest group-purchasing organization for hospital systems. Knowing what I know is nice, but knowing what I don’t know is even more important. We have people who understand supply chain, people who understand B2B e-commerce and online platforms, and people who understand the workflow of the dental office. We have been piecing together a very powerful team.”

Like TDSC, Supply Clinic doesn’t sell equipment larger than handpieces, but that is on the horizon. They’re currently in talks with a company to handle installation and repair side of those transactions to make selling equipment possible. Additionally, Drucker said, they’re working on adding products like implants, bone, and membrane. “There are more technical and logistics issues with that type of product, and more legal hoops to jump through,” he explained. “We’d have to have procedures put in place, but it’s something we’re working on, and we’ve been speaking with many manufacturers in that space.”

Chris Holt • Amazon Business

It should come as no surprise that the e-commerce giant would want to enter the healthcare space. With some 85,000 vendors in its sphere, it only makes sense. Via email, Chris Holt said that Amazon Business was launched in 2015, “delivering an expanded marketplace that brings the selection, convenience, and value of Amazon to business customers, manufacturers, and sellers, as well as additional selection, new features, and unique benefits tailored to the needs of businesses. We now serve businesses of all sizes and across industries, including dental practices.” With what many would consider the gold standard in selection, convenience, and ease of experience in the e-commerce space, there’s no wonder that those we talked with for this piece cited Amazon as the template for their e-commerce experience. 

Like the other retailers we spoke with, Amazon offers Business Prime shipping (two-day service), and easy price comparisons in the platform. They also offer Amazon Business Analytics to help dentists make more proactive decisions in purchasing, which can drive improvements in overall cash flow. Dentists can monitor or approve the purchases of their teams using group and user management with workflow approvals, which adds a layer of control to support cost-saving initiatives.

Preventing gray market goods in the e-commerce space

For all of the retailers we spoke with, gray market products were a concern. Gray market products are those manufactured for foreign markets that find their way back into the U.S. market. They can be problematic for a number of reasons, especially when companies have several different formulations of a product, each with different legal healthcare standards, but bearing the same name. Additionally, as is the case with products such as cements and liners, composites, and bonding agents, there may be shipping standards that aren’t adhered to, which can cause some chemical compounds to fail. Thus, gray market products have the potential to cause real issues for dentists who purchase them, with or without their knowledge. 

At Supply Clinic, Drucker has addressed the problem head-on by requiring all of its sellers to only list products that are legitimate and non-gray market. Then, they double-check any product that has the potential to impact treatment. “There’s this additional layer of supply chain verification that we do because we want to be extra sure,” Drucker said, adding that he can go online to other sites and find gray market products at any given time. He explained, “This is just my observation. I can go online today to look up 3M products and find a lot of gray market goods through online retailers. If you’re a practitioner and you decide that you don’t care if you buy gray market products, that’s your call. But you should know that there is a lot of gray for sale online.” 

Spinelli at TDSC said, “We take a very serious stance on gray market products. As a part of the CDA family of companies, we see it as our responsibility to protect our members against gray market goods. We take it as seriously as anyone out there. In order to make sure that we carry no gray market product, we make sure that we only have direct manufacturers or authorized distributors of the product. We have nothing in our catalog that comes from anyone else, so we are able to track the supply chain from beginning to end.” Shams said, “We have zero tolerance for gray market products. None whatsoever. When we take a customer from a competitor, they will say there’s no way we can offer the pricing we do without accepting gray market, but it simply isn’t true. We never have accepted them. Prior to us I will say that it would have been difficult to achieve our pricing without using gray market, but we simply don’t. We never will. It’s the cornerstone of our business.” 

What are the savings, really?

According to Shams, SourceOne Dental’s standard discount varies, depending on what the major distributor is charging the customer, making it hard to state an absolute figure. He explained, “They charge different amounts to dentists in private practice versus those in corporate practices, and so it depends quite a bit. Some customers could save 30 percent, some could save 20 percent, some could save 40 percent. Some can save even more based on their product choices, due to the fact that we have more than 60 direct manufacturers whose products are available. That’s in addition to the channel manufacturers who are available to us and any of the large distributors. Direct manufacturers have even more significant discounts on apples-to-apples product base, so a lot of our customers will choose those items and save even more.” Supply Clinic offers savings between 30 and 50 percent, depending on the product. They’re able to do it, said Drucker, because the big vendors are overcharging by a substantial amount, and because they work with smaller sellers who are willing to take a much smaller margin on the sale. “For instance, they’re okay with buying a product at $50 and selling it at $70, instead of $100,” he said.

Amazon offered no concrete savings data in its response to the News, saying that “Amazon Business sellers offer business-only pricing to customers on millions of products, including reduced pricing on single items and quantity discounts on larger purchases. Negotiated pricing is also available to customers, where they can view private or customer-specific pricing they have already negotiated with their suppliers. Customers can access that pricing through the Amazon Business experience.” 

And while TDSC shoppers are seeing an average savings of around 20 percent over MSRPs, it’s important to note that it offers something none of the others do: ownership of the company. Still, their savings can add up quickly and work to offset the cost of their membership dues. We spoke with Dr. Jonathan Ford, a CDA member who uses the TDSC Marketplace to purchase most of his supplies. Since February, he has saved nearly $5,000. Dr. James Stephens and his wife, Dr. Susan Park, who practice together, have saved nearly $10,000 in the same time period. 

Shams and SourceOne Dental offer the next best thing to ownership. The company has been endorsed by five state dental associations — Texas, Arizona, Nevada, Florida and Georgia — and it’s adding another in January. SourceOne Dental created a white label version of its site, offering association members the same products on SourceOne Dental at an even greater discount. Shams explained, “The reason that we can offer an added discount over the SourceOne Dental prices (which are already significantly below the main incumbents) is that we don’t have a real acquisition cost from our association customers. We’re partnering with state dental associations that have marketing elements already in place, and marketing tools they can utilize to communicate with members and educate their members about our service. It’s remarkable. Associations bring us their customers, and we don’t have to pay a traditional marketing cost. The trade-off is that we take a lower margin, and our vendors have to agree to do the same, but the volume we get is significant. The goal is to leverage that in the future to continue to drive costs down.” Of course, it’s a win-win for the state associations, as well. The ability to offer members a program that will pay their tripartite membership fees many times over is appealing. 

But what about customer service?

We wondered, without reps, what kind of customer service should people utilizing these services expect? For traditional vendors like Burkhart, service is their bread and butter. Losch says, “Burkhart is a full service dental dealer. In addition to supplies, we offer equipment, technology, technical service and practice consulting. Partnering with our clients to help them reach their goals is our main focus.”

Amazon doesn’t have dental space representatives to answer questions about products, and it’s unclear how responsive the company would be if customers requested a product that wasn’t on their platform. At TDSC, Spinelli said, “We have reps in Sacramento, Calif., to help individuals sign up, find products, and source items that are not currently available on the site. If we get enough requests for a certain item, we can always add the item to the catalog, as well. We’re new. We launched to our general membership in June, and we have added and refined the catalog as necessary.” 

SourceOne offers robust customer service options that kick in even before a customer commits to the site. Shams said, “When people are interested in coming on board, we ask them to send us recent invoices from their present suppliers. We’ll create reports on each item, do a line-by-line price comparison for the exact item, and estimate the projected savings for the customer. We’ll do that before they ever log in, preferably. Generally, they’re going to see significant savings and will want to use us. The other major benefit of that step is that we now have that customer’s order history, which makes it easier to buy. We have 50,000-plus SKUs on the site, and we don’t want customers to have to search through all of those on their first order. By providing us with an item history, we can find the exact SKUs and build and upload an item list for them. And that’s one of the features based directly on customer feedback. They told us what they needed, and we made it happen. They already know they’re going to save money, but you also have to make it convenient. We spend a lot of energy on it because it’s such a valuable service.”

At Supply Clinic, a dedicated team is accessible through chat, email, or phone during business hours five days a week, sometimes more. Their team will do just about everything a sales rep will, except visit the office in person. Drucker said, “What’s awesome, and pretty sad, is that reps from some distributors reach out to us frequently about product information.” 

Why wouldn’t you use one of these services?

We wondered, is there any advantage to staying with the large distributors? Change is hard, we know. And Ford told us that his Patterson rep offered to match TDSC’s pricing, but he just didn’t want to go through the work. “It meant that I would have had to pull the TDSC Marketplace website up and double-check all of the pricing, and it was just an extra step that I wasn’t willing to do,” he said. As for selection, Ford orders essentially everything through the Marketplace that he would have gotten through Patterson: gloves, cotton gauze, suction tips, masks, composites, cements, and impression material. He said, “It would be nice if I could get equipment through the site, but other than that, if there is something that I need that I can’t find in the Marketplace, I email their customer service reps, and typically it will be on the website within 48 hours. They’re great about getting products that I want. The other thing is that certain manufacturers will offer ‘buy one, get one free’ deals, and all of the manufacturers I have worked with honor those deals. I just email TDSC, and they give me an invoice that I can present to the manufacturer sales reps.” 

Burkhart takes the worry out of your hands, says Losch, “As a part of our normal business practice, Burkhart will process coupons and credits on behalf of the client, helping them save money and time. Our goal is to reduce our client’s supply percentage cost. We closely monitor their inventory to ensure they have adequate supplies and eliminate unnecessary overages and waste. Burkhart is the only dental supply company to offer a written guarantee to reduce client dental supply costs.”

The best of both worlds

The e-commerce model may well help practices regain some of the competitive edge lost to their larger competitors. Every dollar saved helps, but that savings comes at a cost of convenience and selection, which won’t appeal to every consumer. And because e-commerce catalogs aren’t as robust as those of their traditional counterparts, practitioners may need to utilize both models for the time being. Regardless of how you choose to proceed, it could be worth a look to see if you could benefit from utilizing e-commerce in your practice. 
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