by COLETTE WEIL
Friday, August 1, 2003

Bob Mages, RRT, purchasing manager, watches out closely for RSVP Homecare's children. Located in Covington, Ky., RSVP specializes in pediatric respiratory chronic needs. Reimbursement is tight, and each child's requirements are extensive.

A $5 million business operating from one location, the provider has built its service niche in a highly competitive market, so Mages also carefully manages purchasing activity by incorporating a combination of wholesalers and manufacturers. Currently, 20 to 25 percent of the company's purchases are made through distributors including AmerisourceBergen, Gulf South Medical Supply, Invacare Supply Group, Medline Industries and McKesson.

With these suppliers, Mages explains, “I can order in quantities that I can turn over and not tie up cash in inventory … I save time in the number of calls, number of vendor relationships and by ordering online. I would like to consolidate even further with one wholesaler, but none yet can supply all I need.”

And that's how wholesale distributors have built a significant role in today's HME supply chain. Ramping up their own businesses to add value in response to market needs, many wholesale distributors now offer competitive pricing, smaller order quantities and quick delivery as well as additional services like online ordering, purchase tracking, custom reports and direct-to-patient home delivery. As a result, many providers have firmly linked such companies into their supply chain to optimize operations and profitability.

Tammy Pruitt Prentice, owner and manager of Pruitt Care in Ada, Okla., conducts about 30 percent of her purchasing through Dedicated Distribution. Her reasoning is pragmatic: “I don't want to lose any money or tie up money because I need to make a manufacturer's minimum order.”

In business for 12 years serving a 60-mile radius around Ada, with six competitors nearby, Pruitt Prentice explains, “We are vigilant in cost analysis. If I have a pricing concern, I contact my [Dedicated] rep; he either matches or says ‘no.’ I respect their role in my business and the contact I receive.”

According to Steve Cole, Dedicated Distribution president and chief executive officer, “Channels are maturing. Providers and suppliers are shifting away more and more from the ‘I buy direct’ mentality. Operations optimization is key.

“Plus, manufacturers are increasingly determining which accounts they can profitably handle on a direct basis, and then routing others through wholesale distributors.”

Putting ‘Buying Direct’ in Perspective

Our role to our customers is to optimize costs and value,” says G. J. Walley, national director, home healthcare, for $40 billion mega-drug wholesaler AmerisourceBergen (ABC), which offers storage, delivery and transportation, receiving, financing, product formularies and information services. “For HME providers, minding the business should not mean managing the distribution activity.

“HME providers are becoming more and more astute in understanding their customer needs,” Walley points out. “It enables us to better assist them in customizing to their specific business needs to enhance their operations and profitability.”

Paul Haislip says Palm Drug and Medical Supplies buys 45 to 50 percent of its HME needs through ABC. When Palm pulled the plug on gifts, cards and stationery seven years ago, the Highland, Calif., provider remodeled the front of the store to include HME and supplies, and hired Haislip as director of home health services.

In his previous HME position, Haislip had worked directly with manufacturers. “In my previous job, I spent my time, every day, purchasing: on the phone, faxing, confirming. [Buying through a wholesaler] saves a lot of time — less chat, less time receiving, [fewer] bills. Now I spend that time building the business.

“As volume grows, you may find it advantageous to buy direct, but we have a storage issue, and tying up cash in large, single purchases does us no good,” Haislip says.

One wholesaler program that has dramatically changed the financial model in HME supplies is direct drop shipment to patients' homes. Dedicated Distribution, Medline and Invacare Supply Group (ISG) are among distributors that offer this program.

Steve Serra, vice president, HealthCore Division, Henry Ford Health Systems, Detroit, runs eight branch locations and a corporate headquarters of 26,000 square feet. Serra is not new to supply chain initiatives. The company has examined every aspect of its supply chain to improve efficiency, wringing out unneeded time and costs. “We garner 25 percent of our revenue from supplies, but from an activity level, we were spending 60 percent of our time. Something had to change,” he explains.

“We worked with ISG on structuring the program for diabetic supplies, ostomy [supplies] and urologicals with product formularies, and direct-to-patient home shipment via [United Parcel Service].”

Another key area in working with ISG was in electronic data interchange (EDI), Serra says. “The reporting was critical. EDI cut order-entry time, and we received confirmation with UPS tracking when the orders completed. My estimate is that we saved [the equivalent of] 10 FTE (full-time employees) in handling, receiving, shipping and confirming orders. Our efforts are better spent in sales and marketing than [in] shipping and handling.”

Mike Perry, vice president and general manager of ISG, says he has seen dramatic changes in wholesaler-provider relationships. “We work closely with providers, evaluating their operations to pull cost out of their model. Providers come to us ready to leave the supplies business. We ask them ‘If you don't add value, why touch it?’ From there, we structure a direct-to-patient home delivery program that not only saves them time and money but improves efficiency in serving the patient.

“Two years ago, this program was less than 20 percent of our sales; today it is 55 percent,” Perry notes.

As a general trend, he continues, “Providers and suppliers are becoming far more assertive about their product stocking and inventory assortment for their clients. Providers work on formularies, establishing a core group of cost-effective products that meets the clients' and payer needs. They are allowing wholesalers to help with compliance and utilization. The net result is better business for the provider, improved efficiency and a successful business service by the wholesaler.”

Matching Service to Need

Wholesalers continue to develop innovative new services based on their customers' needs. According to Tom Tucker, vice president of sales for the respiratory and HME division of Medline Industries, “We need to know everything our customer faces — issues in handling the product and challenges in getting paid. Then we can offer the services that meet their situation and needs.”

After listening to customers, Tucker helped develop order programs from the smallest order quantity to the largest — a container direct — for the HME industry. These days, he says, “HME providers look to the wholesale distributor as their partner.

“Wholesaling is maturing,” Tucker continues. “HME providers recognize distributors as business associates providing tools in product and price selection, order level, shipping, financing, formulary and home delivery.

“Providers realize the importance of these tools in cash flow management and business value.”

Tucker also sees the wholesaler's role in HME continuing to change and expand. “We've had double-digit growth for the last 10 years. There's definitely the need for the wholesale distributor in the HME supply chain.”

Colette Weil, MBA, is managing director of Summit Marketing, which specializes in marketing, branding strategy and program development for manufacturers, wholesale distributors and retailers. She may be reached by phone at 415/388-5303, or e-mail at cweil@summitmktg.com.

And the Wholesale Distributor Is …

A business that purchases in large quantities from manufacturers and resells to smaller businesses. Wholesale distributors typically offer product in smaller quantity levels, and many offer business support that may include services in areas like inventory maintenance, storage, transportation and delivery, financing, information management, electronic data interchange (EDI) and merchandising services. Frequently, the terms “wholesale distributor,” “distributor” and “wholesaler” are used interchangeably.

Find Out More

For more information on the wholesale distributors interviewed in this article, visit the Web sites listed. For a comprehensive list of HME distributors, along with their main product lines, check the HomeCare Buyers' Guide 2003-04 or search the Guide online at www.homecaremag.com.

Providers' Practical Tips

The providers we spoke with for this article say keeping your particular HME needs in mind is paramount in choosing — and using — the services distributors offer to full advantage. Here are some of their practical suggestions for working with distributors:

  • Know where the delivering warehouse is located. If you want it tomorrow, you want it “complete” tomorrow. Your patients can't wait.

  • Availability is critical. Buy from wholesalers that have high in-stock and fill rates for your needs. Just because it's in a catalog doesn't mean it's in stock.

  • Work with the wholesaler to assist in product formulary, overall product purchasing costs savings, speed in order placement and delivery.

  • Take advantage of any prompt-pay discount. Demand it.

  • If better pricing comes your way, check with your wholesaler first. It could save you time and money, rather than searching for or trying new vendors.

  • The time you spend saving a few cents is better spent building the business. Use electronic data interchange (EDI). It saves time and improves accuracy.

  • Do distributors know who you are, provide personal service and say thank you? Otherwise, look elsewhere, because [that means] they don't listen, don't know or don't care about your business.

  • If distributors don't answer the phone or respond to Internet orders, can they really give you the best price and the best service?