Redos and the Bottom Line

This OLA-sponsored article focuses on the cost benefits of controlling warranties

You've worked hard to instill the confidence that patients have in your office. They come to you because they want the best, and they are willing to pay a premium price for the quality you offer.

Enter economic uncertainty. In hard times, patients often sacrifice to make ends meet and, unfortunately, their eyewear purchases can be one of those sacrifices. One of the tools in your arsenal of patient retention is your warranty program.

In part two of this article, sponsored by the OLA (Optical Laboratories Association), we'll observe some of the reasons to take a closer look at your warranty program.

Participants in this roundtable include: Tom Brophy, Perfect Optics, Vista, Calif.; Bruce Calhoun, Riverside Optical Lab Ltd., Ottawa, Ont., Canada; Joe Jowanowitch, Homer Optical Company, Silver Springs, Md.; Mike Klotz, Duffens-Hawkins Optical, Topeka, Kan.; Danny Pugh, Optical Prescription Lab, Inc., Pelham, Ala.; Jonathan Schwartz, ProFit Optix, Grapevine, Texas; and Rick Tinson, Hoya Vision Care, Lewisville, Texas.

LAB PERSPECTIVE

Q What effect does a redo have from the lab's perspective?

Brophy: Redos generate exceptions to the production flow and have negative financial implications.

Calhoun: Redos are always an inefficient means to correct a mistake, whether it originates with the customer or within the lab. If something can be learned as a result of the redo—so that it is not repeated in the future—then there is a positive benefit. But, if it is a result of carelessness or lack of competency, it points out a need for corrective action.

Jowanowitch: Regardless of whose error it is, a redo affects the lab in many ways. More work equals more lab costs. Lens cost is absorbed through the lab, and turnaround time for new jobs is affected.

Pugh: The lab's profitability is dependent on the performance of the customer's ability to contain their errors. The lab industry has retained these redo policies which, in most cases, should be eliminated.

Schwartz: Redos drive up the cost of labor, absorb customer service and other resources, and increase potential delays on new orders. Indirectly, regardless of who—if anyone—might be at fault, there is an unhappy patient behind the remake order who has the potential to cause difficulties either in the office, the lab, or between them.

Tinson: More labs are beginning to aggressively manage redos, and some use financial incentives to keep them at a minimum. Without that type of financial incentive, “good” ECPs are essentially subsidizing “bad” ECPs as labs try to recoup their increased costs.

ABUSE OF WARRANTIES

Q Warranties open the door to abuse, and this does happen. How does this affect office costs?

Brophy: They pay for it one way or another—we increase prices every year. How much depends largely on increase in costs and increase of doctor redos.

Calhoun: Ultimately, all extra costs are passed on to the purchaser. If customers take unfair advantage of warranty terms, then everyone pays. We monitor our customers for any warranty misuse and will have a conversation with them if we find the data are outside acceptable values.

Labs also must take some responsibility if they offer too generous warranty conditions such as “for the life of the lens” or “no hassle guarantee,” and so on. This sets up unrealistic expectations in the minds of the customer.

Jowanowitch: Warranty abuse can be a problem for all labs—mainly with lens costs and labor costs. The lab must determine how to price the redo, and the customer wants much faster service when reordering, affecting how the job is handled. Many warranty jobs are rushed through the lab ahead of new customer orders, affecting time for the new orders to be processed.

Klotz: Some ECPs will contact their patients when their warranty is set to expire, and then have a new pair made for them. This will result in lost revenues for the next pair, as most patients will now wait before getting a new exam.

Pugh: Our lab has created a daily routine of processing lens returns. This results in increased labor costs for our business.

Schwartz: Nothing is free. The costs of remakes are built into the overhead of the lab and price lists.

From an ECP standpoint, remaking questionable flaws at the end of the warranty period can potentially mean a lost future sale. If the ECP makes a new pair for free in two years, rather than taking the opportunity to talk to the patient about new frame styles, advances in lens design, or new coating durability, it may result in a patient who doesn't update his or her eyewear for four or five years. That could only be viewed as a lost sales opportunity.

And, because the lab needs to rule out abuse, we typically require that the old lenses be sent back, which contributes to increased costs that have to be accounted for somewhere.

ASSOCIATED COSTS

Q What costs are involved when a warranty redo occurs?

Brophy: Our cost (without lenses) to run a job all the way through production and shipping is $32 to $5.

Calhoun: Here's how the following costs are increased: shipping x 4; order review x 2; lens selection x 2; blank costs x 2; order entry x 2; surfacing x 2; quality control x 2; coating x 2; finishing if applicable x 2; final inspection x 2; consumable costs x 2; and administration costs x 2.

Pugh: They include: increased labor and administration, costs of goods and supplies, plus the “human” costs of stress and frustration dealing with unreasonable customers.

Schwartz: The lab has hard costs in labor, supplies, shipping, and handling whether or not the lenses are actually “free.” The hard costs are not a significant portion of their cost to do business.

Tinson: Since 2006, warranty remakes have increased by about 34 percent. Scratch coating warranties have remained roughly equal, so the majority of incremental warranty remakes are related to AR coats.

Typically, with newer coatings, the lab will not be able to strip and recoat; the entire lens has to be remade. Some labs absorb the cost of the base lens remake; others charge the ECP for the lens, and only cover the AR coat itself.

Hopefully, these insights show that when lab costs increase due to warranty abuse, the ECP costs increase as well. EB