Two regional distributors join forces, but not board rooms
Their customers might not notice the difference, but behind the scenes, two Southeastern distributors have implemented a plan to maintain their independence while competing more effectively with national players.
NDC members Grogan’s Healthcare Supply of Lexington, Ky., and Medical Supplies of America (MSA) of Knoxville, Tenn., have created a partnership to consolidate their operations in hopes of providing greater efficiency in serving their customers.
Since July 2015, MSA accounts have been serviced through Grogan’s platform and distribution center. All order processing, invoicing, shipping, pick/pack, rebates, tracings, replenishment and receiving now are handled through Grogan’s operating system or website. Meanwhile, MSA converted its distribution center into a sales and customer service office and a break-freight and emergency inventory location.
MSA is primarily a physician distributor with a small long-term-care component, while Grogan’s services physicians, hospitals, consumer/HME customers, equine veterinarians and schools. The two distributors are approximately 175 miles apart from each other.
Local sales, customer service and delivery in Knoxville by MSA sales and operations personnel will be preserved.
Best way to stay competitive
“Many structural factors today favor the larger distribution companies – everything from manufacturer policies, to making the necessary investments in systems and contract administration to deal effectively with consolidation among healthcare providers,” says Grogan’s President Alan Grogan. “[Grogan’s and MSA] had many areas of expense duplication that can be reduced or eliminated, improving the ability of both companies to service customers and expand our business.
“There was initial discussion of a traditional merger or acquisition, but initially, the partnership seemed to offer a quicker and less expensive transition for both companies,” he continues. “Getting all the legal, financial, and due diligence done and funding the transaction is expensive and time-consuming, and can be a big distraction from focusing on business and the customer. The partnership approach allowed MSA to retain all the aspects of local presence and service they felt their customers needed. And this approach left both companies with a way out if it turned out the benefits weren’t there.
“MSA has preserved a scaled-back location, their sales, customer service, and delivery personnel,” continues Grogan. “But they now have all our inventory, personnel, systems, customer programs, and other resources available for all their customers. We are expanding their GPO involvement, improving their buying power, enhancing their web functions, offering barcode ordering and inventory systems, and are using their incremental volume to regain efficiencies internally where we have lost some customer volume due to consolidation and acquisition in recent years.”
Says MSA owner Mike Hatcher, “Decreasing margins while trying to maintain excellent customer service was increasingly difficult for MSA. As we got to know each other, Alan and I found similarities in the ways we like to conduct business and in the culture of both of our companies. We were both comfortable with a business ‘engagement’ period, with the ability for either of us to withdraw and revert to our former models. While there were risks in deploying this unique model, we were able to minimize them for our companies. I think it is safe to say now that while this was a non-traditional arrangement, it has worked very, very smoothly with, to my knowledge, zero disruption to our respective customers.
“From our standpoint, we are able to really focus on our customers,” says Hatcher. “We know that Grogan’s will support us and deliver all of the support functions we historically provided in our Knoxville office. [MSA Director of Sales Michelle Autry] is able to give more time to each of our customers and offer more products at lower prices.”
SKUs unchanged
Product disruption to Grogan’s and MSA customers has been minimal, according to Hatcher and Grogan.
“Both MSA and Grogan’s focused on continuing the service level we previously had with our customers, including providing them with products they were familiar with,” says Hatcher. “Post-transition, we have been able to slowly convert customers who wanted to change their product selections. For MSA, this has all been positive. In many cases, we also have more products to demo to our customers.”
Says Grogan, “It was important that we not disrupt the customers by pushing any change of product brands. We consolidated all the MSA inventory into our warehouse and system. Many of the items we were selling were the same, but there were a number of SKUs and vendors from MSA that were added. So, our SKU offering is now expanded along with our inventory levels. And the inventory available to MSA customers has expanded dramatically to include inventory supporting our other customers.”
Customer-facing
Customers have noted few changes since summer, says MSA Director of Sales Michelle Autry, who has been with the firm 15 years. “What our client sees is the same. It’s like ‘The Truman Show,’” she says, referring to the 1998 movie starring Jim Carrey, who unbeknownst to him, is born and raised on a reality-TV set. “Everything is as you see it, but the internal schematics are a little different.”
For example, some clients are not even aware that MSA no longer stores significant amounts of product in its Knoxville facility, she says. And because both Grogan’s and MSA are NDC members, product selection has been relatively unaffected. “Our private label was the same; so there was no conversion. And BD is still BD, regardless of which warehouse it comes out of.”
Says Hatcher, “The beauty of this unique model is the trust that has developed between us and our companies. Alan and I are both gradualists, and we appreciate that slow, measured changes work better in our industry than a ‘shoot first, aim later’ mentality. At the same time, it is rewarding to see how we have accelerated changes to our business model by experimenting with the many ideas we have, dialing in on improvements and steadily seeing improvements to our bottom lines.”
Adds Grogan, “This partnership model was developed to offer a long-term path to improvement for both companies and their customers. So there is no reason any of that needs to be changed next year or the year after, or ever.
“The model was also developed as a proof-of-concept of sorts in order to pursue the same approach with other small- to medium-sized distributors needing some of the same things that MSA was needing in order to stay competitive for the future in a tough market. If there is clear benefit or need, we will look at a more formal and comprehensive combination. But it can work well either way.
“Now that the basic transition is successfully completed, we will soon be rolling out some new programs to the MSA customers, approaching some new customer segments in Tennessee that we are already serving, plus using some of the MSA product lines that we weren’t selling to expand our business with Grogan’s customers.”