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9/23/2003
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Fall Conference: Owens & Minor Adds Emphasis On Services

It's reorienting its business from the logistics of delivery to the internal business processes of its hospital customers.

Owens & Minor Inc. is reorienting its business from the logistics of delivery to the internal business processes of its hospital customers. The difference, CIO David Guzmán said Tuesday at the InformationWeek Fall Conference in Tucson, Ariz., is an expanding medical-supply business, with more emphasis on services.

Owens & Minor used to pick up medical supplies from a manufacturer's shipping dock, move them to its warehouse, and ship them as the orders came in to one of the 6,000 hospitals it serves. Now, instead of delivering boxes or pallets to the hospital receiving dock, in some cases it sends a customized kit of supplies for a single surgery into the operating room, delivered by its own cap-and-gowned attendant, Guzmán said.

Building customized surgical kits and getting them to the right part of the hospital at the right time is as much about services as it is about medical supplies. If hospitals can get Owens & Minor to assemble such kits, they save nursing and technician staff time that can be used for patient care.

"Studies have shown that 40% of the value of the supplies is in the staff time" spent handling them, Guzmán said. Costs have been squeezed out of the $25 billion hospitals spend on supplies each year, but the added 40% for staff-handling and delivery-for-use expenses appears to be a field ripe for business-process optimization. Assembling surgical kits is typically the task of the nursing and technician staff--personnel perennially in short supply, he noted.

"We have turned the focus from the cost of the products to the cost of getting the product delivered for use," Guzmán said. The cost of assembling surgical kits, for example, is driven up by the difficulty of collecting dispersed supplies--from the hospital's own inventory, from the distributor, and from manufacturers, which deliver about half the supplies used directly to the hospital, he said.

If Owens & Minor can provide supply handling and delivery inside the hospital of such things as customized kits for the operating room, it's adding services to the value of the products it distributes, helping hospitals with staff shortages and building a valuable database of supply information.

That database, Wisdom2 "is an industry resource," Guzmán said. As Owens & Minor convinces hospitals to tell manufacturers to ship their supplies directly to Owens & Minor, it strengthens its business by gaining the option to deliver customized orders deep inside the hospital.

"Services are an increasing part of our business," Guzmán said, and the company is seeking to convert customers from cost-plus-the-distributor's-margin pricing to activity pricing, where supplies carry services-added pricing.

The 2-1/2-year-old Wisdom2 database includes information on supplies ordered directly from the manufacturer as well as Owens & Minor's shipped goods, he said.

Before it gets a customer to adopt that level of delivery services, Owens & Minor staff map out the hospital's procedures for handling supplies--how they move from receiving dock to storeroom to lab center, nursing station, or operating room. The customer may order supplies in any manner it sees fit, but with the data flowing into the Wisdom2 database or the combined manufacturer/distributor CostTrack supply-tracking system, Owens & Minor can tell where the cost-saving options lie.

The distributor can advise a hospital that it could save by blocking up orders into bigger deliveries instead of many small deliveries or where to carry less of its own inventory, Guzmán said.

If a patient is sensitive to latex, then getting that information to Owens & Minor's systems will ensure that the correct medical gloves accompany supplies. After medication errors, the most frequent error inside hospitals is overlooking sensitivity to latex, he said. Supply packaging and delivery that's tied to hospital processes will help reduce those errors, he said, through automated tracking and activity-based pricing.

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