Medline to dealers: Contain yourself

Saturday, May 31, 2003

MUNDELEIN, Ill. — Medline hitched another wagon to China’s rising star as a source for durable medical equipment in April when the company rolled out a ‘Container Direct’ program that ships 20-foot, custom-configured containers direct from China to an HME provider’s door.

The new bulk distribution plan works this way: HME providers use an automatic program to fill a container with 26-30 cubic meters, about the size of a typical delivery truck. In China, Medline loads it, quality inspects it and ships it directly to the dealer at what the company says is a huge savings.

“Think about it,” said Tom Tucker, Medline’s vice president of sales for HME and respiratory. “I’m not going to unload it, put in my warehouse, pick it, pull it and ship it to them, so I’m passing all that handling and logistical savings.”

Tucker reckons that this procurement method will save dealers 10-15% “conservatively.” That margin, say dealers, is becoming ever more important as pricing pressures from Medicaid and HMOs siphon profits that were fairly healthy until recently.

“I would prefer to buy just-in-time,” said Brian Lewin, vice president of Lewin Medical in Riverhead, New York, “but unfortunately, Medicaid is lowering its prices, and HMOs are going on line to see what we pay for product, not realizing that the delivery, billing and services costs add up.”

Lewin recently ordered a 20-foot container of bath & safety products, beds, canes and lightweight wheelchairs — an invoice package that set him back $17,000, but about 10% less than if he’d ordered through Medline’s more traditional just-in-time program.

Until he churns through the inventory, Lewin said the 20-foot container will sit outside his 9,000-square-foot warehouse in Riverhead.

Tucker said ‘Container Direct’ orders typically cost dealers about $18,000 - $22,000. It takes about eight weeks for the containers to arrive from China. Dealers start paying on the order 90-days after the container shows up.

“Sales reps keep telling me that more dealers are on credit hold than ever right now,” said Herb Greenback, president of H&L Medical in Scottsdale, Az. “I needed those 90 days delayed payment because Arizona is now averaging 85-87 days on their payment.”

Greenback also configured a 20-foot container — of crutches, walkers and bath benches. His invoice came to $17,000, and he reckons the savings will amount to about $2,000.

Tucker believes this kind of bulk distribution is simply one other way to drive cost out of the system. While many whisper about the chances that manufacturers would one day go direct to cut costs, no one’s ever thought about dealers going ‘direct,’ he said.

“I really believe in JIT and keeping inventories down to a minimum but with this, the savings overcome that,” said Tucker. “For most of these products, if the manufacturer can’t improve the product, then don’t let the manufacturer touch it.”