Strengthening Supply Chains and Creating New Business Models

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The consolidation of the wholesale lab sector in the 1990s and 2000s by vertically integrated suppliers created powerful lab networks while thinning the ranks of independent labs. In the past decade, optical labs have faced rising capital equipment and labor costs. Those factors, plus the pressure to process high volumes of work for managed vision care customers, have pushed labs to improve supply chain efficiencies and, in some cases, develop more streamlined business models.

Essilor of America operates the largest lab network in the U.S. Essilor maintains dozens of full-service facilities spread throughout the country which it acquired over a 20-year period starting in 1996. The Essilor lab network is made up of both ELOA (Essilor Laboratories of America) that are wholly-owned and partner labs in which Essilor holds a majority stake. The company also works closely with a large network of independent distributor labs.

“Our lab network, at its core, is an integrated supply chain designed to reduce complexity while improving turn time and quality,” said Rick Gadd, the new president of Essilor of America. “Being able to continuously innovate and design service platforms for the future is critical for the success of our customers. Therefore, we continue to develop and enhance our solutions to meet the needs of our customers today and future demands of the highly dynamic optical market.” Gadd, who previously served as president of the Essilor Lab Group, told VM that Essilor doubled its investment in equipment this year alone, “to make sure we have the latest state of the art capital equipment in digital surfacing and coating.”

Gadd noted that Essilor recently has launched a Specialty Lens Lab service within its CustomEyes lab in Minnesota that will service patients with low vision and high prescriptions. The lab is modeled on a similar facility Essilor operates in France.

A different business model which is being embraced by both supplier-owned lab networks and major independent labs involves building large scale, highly automated labs with high production capacity. These manufacturing and distribution hubs are playing an increasingly influential role in the optical industry supply chain, supplying prescription lenses and frames to wholesale and retail customers, often with unprecedented speed and accuracy.

Operating a few, high volume labs as opposed to a number of smaller locations spread around the country has many advantages, according to Ettore Mosca, SVP of Luxottica global Rx operations. “Luxottica has invested heavily in its Rx labs, which serve both wholesale and retail customers,” Mosca said. He noted that the company recently opened a major distribution and manufacturing facility in Atlanta which complements its existing Rx labs in Columbus, Ohio and Dallas, Texas. “Our ability to improve quality and service can be concentrated in fewer locations, providing consistency to our customer regardless of the location making the eyewear.”

Zeiss has also geared its operations around three big, full scale labs. The lens maker’s facilities, located in Portland, Ore., St. Cloud, Minn. and Hebron, Ky. are integrated with a network of smaller, cut-and-edge labs that service local customers. This hub and spoke arrangement is designed to deliver consistent service.

Another lens manufacturer, Hoya Vision Care, also employs a hub-and-spoke model in which a full service lab in Dallas and a nearby distribution center feed a network of smaller labs that perform lens finishing and offer local service.

Independent labs such as Walman have also moved to the hub-and-spoke model in which full service labs in Minneapolis and Omaha service a network of smaller labs.

“The primary advantages of hub-and-spoke are more efficiency and productivity, both from a labor perspective, and significantly, from a capital perspective,” said Walman’s Bryan Schueler. “Because the capital equipment requirement—the leading-edge processing for lenses—is significantly higher than it’s ever been. The way we’ve figured out to do it cost-effectively, and that’s getting the most productivity out of it, and the 24-hour utilization of capital equipment out of it that we require, hub-and-spoke was the best way to go. Even if we were to split out of it something like surfacing, it doesn’t make sense that we don’t surface where we’re doing AR. The spokes have full edging capabilities and customer service centers, and are really our local touch-point for the practices we serve.

“We really find that our customers, independent optometrists with no more than two or three locations, or even a single location, really appreciate the local touch,” added Schueler.

Another large independent wholesaler, The Digital Eye Lab Network, a division of ABB Optical Group, operates four facilities located in Hawthorne, New York, Cincinnati, Milwaukee and Nashville, two of which are “super labs.”

“We have successfully extended a very similar fabrication footprint in our two super labs in New York and Ohio, while consistently optimizing our proprietary LMS system to functionally link our lab facilities,” said managing director Scott Pearl. He added, “Our lab teams benefit from a group of process engineers that provide data insights that guide our efforts around continuous improvements in speed, communication and quality.”

Digital Eye Lab’s business model focuses on offering the benefits of an efficient lab network to our customers, Pearl explained. “A single sales, customer service, web portal and product portfolio is our objective. Our customers benefit from the simplicity of working with a single facility combined with the service and product portfolio benefits found in a lab network.”

GSRx, a two year-old independent located in Scottsdale, Arizona, has developed a unique business model. Founder and CEO David Jochims saw an opening in the market for a lab that could offer independent optometrists many of the same advantages as the big, vertically integrated labs but at a lower price point and with a competitive service level. GSRx accomplishes this by sourcing surfaced and finished lenses from various labs around the world, including some in the U.S. The lenses are shipped to Scottsdale, where most are finished and shipped to customers throughout the U.S., often mounted in frames that are also supplied by GSRx.

“We knew lenses were coming from near-shore or globally sourced laboratories and being sold to ECPs in the U.S. for well over $100,” said Jochims, a lab veteran who had previously worked for a supplier-owned lab network. “So our goal was to take that same process and at least cut costs in half. I knew we could lower costs by leveraging mass manufacturing, state-of-the-art facilities throughout the world. We want to give doctors access to the most premium quality products we can at the most competitive price point.” n