Bluegrass Oxygen bucks conventional wisdom

Sunday, August 2, 2009

LEXINGTON, Ky. – All kinds of HME providers and manufacturers these days tout the benefits of just-in-time inventory—but not Mike Marnhout. The 30-year HME veteran has taken a different path—one that cost $1 million, but, he said, promises big dividends.

The owner of Bluegrass Oxygen recently bought an 18,000-square-foot building and turned it into a warehouse and billing center. He’ll now purchase all of his inventory for the year at one time, store it, and distribute it each month as needed to his six locations in Kentucky and Ohio.

Marnhout plans to buy his stockpile of inventory at the end of the year.

“That’s when you get the best pricing,” he said. “Manufacturers are trying to get rid of their inventory. They will deal. And by ordering in volume, I can buy it at prices that Lincare and Apria and those guys are buying it for.”

Prior to acquiring the new warehouse space, Marnhout relied on a combination of just-in-time inventory and a smaller warehouse. That required him to purchase product two to four times a year, limiting his volume-purchasing power. He expects the new set-up to reduce his product costs by 12% to 14% annually.

Of course, to make this system work, Marnhout must know how much product he’ll go through in a year. Otherwise, say industry watchers, just-in-time inventory, which allows providers to reduce inventory and storage space by ordering product only when they need it, may be the better strategy.

Marnhout doesn’t expect any problems.

“I’ve been doing this for years,” he said.

Bluegrass paid $1 million dollars for the new warehouse and billing center. Of that amount, the Small Business Administration loaned the company 40%. 

“It was ridiculously easy,” Marnhout said. “Right now there are not a lot of people applying for SBA loans, and those guys were basically sitting on their thumbs. They slammed the loan through in about three weeks.”

Marnhout started Bluegrass Oxygen in 1996. Home respiratory services account for 70% of his business, and the company has grown, on average, 22% annual for the past five years, he said.