Top Of The List: Owens & Minor Takes Supply Chain Deeper

Next step for hospital-supplies distributor: third-party logistics

Tony Kontzer, Contributor

September 19, 2003

4 Min Read

As a customer of Owens & Minor's distribution services, Baylor Health Care System, a nine-hospital network, was aware of how the distributor's Wisdom tool enables hospitals to get a much clearer picture of the supplies they buy from Owens & Minor. But Judy Springfield, Baylor's director of corporate standardization and contracting, wanted to see across the entire supply chain whether supplies were coming from Owens & Minor or directly from manufacturers. "We've just been dying for data," she says.

Owens & Minor took Baylor's needs into account in developing Wisdom2. Now Baylor uploads receipt data monthly from its Lawson Software Inc. materials-management system into Wisdom2, which then generates reports that give Baylor the insight it needs to gain significant supply-chain efficiencies--for instance, consolidating larger lists of materials requisitions across the hospital system on fewer purchase orders, thus ensuring the best possible prices.

Springfield says she hasn't yet been able to quantify the extent of the savings but that it's clear Baylor personnel are getting data faster and can trust its accuracy, which ultimately leads to more precise forecasting and less waste. "Little did I know how wonderful it would be," Springfield says of Wisdom2. "It's so fast, and it dumps stuff right into Excel."

Owens & Minor's supply-chain efforts started with helping hospitals improve their data mining. It formed a partnership with Perot Systems, outsourcing its IT operations to the services provider, and began developing IT products that could help customers see their supply-chain needs more clearly. Owens & Minor launched Wisdom, as well as OM Direct, an order-tracking and customer-service system that gives customers more visibility into orders placed with the company, and CostTrack, a service that provides hospitals with a better idea of what they're spending on the ordering, receiving, and delivery of supplies.

Then the company turned its attention to the actual movement of those supplies. It started collecting real-time surgery-supply needs via a system called SurgiTrack, which enables it to ship preassembled surgical kits that minimize the time hospitals spend gathering supplies in preparation for surgical procedures. It also formed an exclusive relationship with nutritional-product maker Mead Johnson Nutritionals that calls for Owens & Minor to distribute every product shipped by Mead, whether or not it's destined for an Owens & Minor customer.

The numbers show that the company's decision to reinvent itself after the loss of HCA was a good one: Owens & Minor's revenue has continued to grow every year since, from $3.19 billion in 1999, the first full year without HCA as a customer, to $3.96 billion last year. And based on the first half of this year, revenue should easily crack the $4 billion mark for the first time. Profit has grown, too, from $28 million in 1999 to $47.3 million last year. And this year, profit is expected to hit a new record.

Things figure to get even faster for Owens & Minor customers. Guzmán says the company's goal is to offer "automated replenishment." By using the wealth of real-time data it has been collecting, Owens & Minor hopes to one day take the act of ordering supplies out of the equation. "You'd be surprised how remarkably predictable demand is in the health-care system," Guzmán says. "And I don't mean in general. I mean system by system. Massachusetts General is different from Stanford Hospital, but Stanford in its own right is predictable, as is Massachusetts General."

But having focused on its customer-facing systems for so long, getting to a point where automated replenishment is possible is requiring Owens & Minor to make some internal IT investments first. It's in the process of redesigning its systems from a mainframe orientation to a Web-services environment that capitalizes on Java, HTML, XML, and the rest of what Guzmán calls the "new alphabet soup."

And by the way, Guzmán intends to achieve these goals without asking for any more than the traditional Owens & Minor IT budget of 1.2% of revenue--or about $48 million.

The team of Perot Systems employees, most of whom are former Owens & Minor IT workers, figures to play an increasing role in building the supply-chain and logistics business after the systems are updated. Of the 165 people on Owens & Minor's Perot team, 28% are involved in new development, but Guzmán wants to boost that to half within two years, when he expects the system-modernization to be complete. At that point, the company should be prepared to handle information about any medical supply, regardless of who owns it. Not that Guzmán underplays the job that still lays in front of his IT crew. "It's a huge undertaking." But if history is destined to repeat itself, it's not a job too big for Guzmán and his team to handle.

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