Against the giants Featured

12:38pm EDT September 28, 2005
Medline Industries isn’t your average family-owned business.

The Mundelein-based manufacturer and distributor of medical supplies and services expects to hit $2 billion in revenue this year. The company deals in everything from exam gloves to furniture and sells to hospitals, nursing homes and other health care providers.

The company, led by cousins Charles and Andy Mills and Andy’s brother-in-law, Jim Abrams, has managed to become a major player in an industry dominated by huge companies that have revenue as high as $80 billion.

So how does a family-owned company compete against Wall Street giants? By building the best sales force possible and providing it with products and programs that have a competitive edge. In the medical supply industry, most companies are either a manufacturer or a distributor, but Medline is a hybrid. The company has more than 100,000 products and manufactures about 70 percent of what it sells, which is a key part of the company’s strategy of giving its salespeople more than just a commodity.

“A distributor goes in and says, ‘I can get you one of six different kinds of exam gloves and I don’t care which one you buy,’” says Andy Mills, president of Medline. “We differentiate ourselves. We say we’ve got Medline gloves, here’s why they are better. If they don’t want the Medline brand, they will probably not buy from us.”

The company also distributes its own products, following a business model similar to Gateway or Dell in the PC industry. It manufactures what it considers a superior product, then sells directly to its customers, eliminating the middle man. To succeed with this model, your product has to be measurably better than that of the competition, and you have to have a sales force that can explain those advantages to customers.

“A distributor doesn’t have to know the features and benefits of the products,” says Mills. “If you’ve only got one product, you better know the features and benefits or you will not get the sale in that category.

“You need a very well trained sales force to do this. You can’t have a sales force that just says, ‘We have gloves.’ They have to be able to say, ‘We have gloves, and here’s why they are better.’ We also have to make sure we are manufacturing and building something into a product or getting it through the supply chain for less.”

Medline’s exam gloves are the perfect example. The company has more than 30 percent of the market in the United States and has a proprietary product that uses freeze-dried aloe on the glove instead of powder. This patented product keeps the user’s hands softer and feeling better.

“That’s very important because we’ve found that the better someone’s hands feel in a hospital, the more likely they are to follow proper hygiene,” says Mills. “Not only can our reps say, ‘We have Medline gloves,’ they can explain that the glove they want is the one with aloe and why.”

Medline’s leadership chose to do most of its own manufacturing, not only to control quality but also to protect its source of products.

“At one point early in our history, we were concerned that if we were just a distributor, we would be vulnerable to manufacturers’ whims,” says Mills. “They might decide to take their products direct or limit their distribution, and we might get left out. This way we control our own destiny more.”

Darwinian sales
Medline’s sales force is more than 800 people strong and is a major focus of the company, both in terms of training and in obtaining direction.

The company uses a Darwinian method of determining which products from its 14 divisions get special promotional emphasis.

“Each of our divisions has to compete for the salespeople’s time,” says Mills. “Each quarter, we bring in a rotating group of various sales managers and reps. The divisions present to them what they would like to have on promotion.”

The group is presented with the product, the pricing, market statistics, expected sales and the reasons they should consider focusing on it.

“They will tell them that maybe their product is good, but it’s not priced right,” says Mills. “Or maybe they forgot about a certain competitor with a similar product. Of our 14 divisions, they are all competing. The sales force will vote and pick between four and six products to promote. Their pay is heavily emphasized by selling promoted items because we think they are on board and making the selection for the company. We are following what they believe our most likely success will be in.

“Some divisions aren’t on promotion for two years. They are not getting that extra emphasis or training to sell their products. The divisions have to constantly improve their offerings. We don’t force our salespeople to sell any product.”

Those divisions whose products don’t make the cut are told why so that they can go back and improve in those areas. Some products continue to receive a lack of attention from the sales force and are eliminated, creating an internal survival-of-the-fittest mentality before anything goes to market.

“The people responsible for those categories realize that’s a possibility,” says Mills. “With so many products and divisions, it would be foolish of them to try to push the sales force into selling something where there is not a competitive advantage or where it is a pure commodity and we would just be selling to sell. Our emphasis is not on those products, it is on what our sales force believes they can sell.”

Medline also provides its reps with training to make sure they have a full understanding of the products they are focusing on. Reps receive six months of training when they start, plus ongoing training that includes two to three weeks that focus on the special promotional items. To improve efficiency, the company implemented an online training session in advance of the quarterly meetings that focus on the special promotions.

“There is a mandatory test they must complete before they come in for further training,” says Mills. “We monitor this to make sure they have taken the test, so that when they come in for training, they know as much as they could without us actually being with them.”

Armed with a highly trained sales force, Medline focuses on selling entire solutions to its customers, not just products. It has created a number of programs aimed at helping its customers solve problems.

“We are trying to understand our customers’ businesses as much as possible,” says Mills. “They know that the price of a tongue depressor blade can only be lowered so much. What they are challenging us to do is find ways for them to save money either through better practices or better supply chain usage.”

For example, hospitals and nursing homes face labor shortages, and many have high turnover rates. They need protocols that are easy to follow and easy to document. Medline has people on staff who will train the customer on best practices in wound care, for example. Providing not only the products needed for proper care but also the training and protocols gives Medline a competitive advantage.

“We find that if we help them with this, it goes a long way in helping our sales, as long as the price is competitive,” says Mills. “We can win sales based on the program, so that’s a big emphasis for us. We constantly look at the use of our products and how they fit in with hospitals and nursing homes and figure out better ways to use them.”

Medline is selling products but is also offering what amounts to free consulting services that help save the customer time and money.

The company also started offering a guaranteed savings program. Some competitors were offering a service in which they would analyze products and services and say they could save the customer money, similar to what Medline was doing.

“We were losing all sorts of bids, and we went back to the customer to find out why,” says Mills. “The customer would say, ‘You guys said you could save us $1.2 million, while they said they could save $3.6 million, so we went with that.’”

But it turned out that the customer had only really saved $800,000.

“They were already so invested in the process that they were just happy they saved money, even if it wasn’t the $3.6 million that was promised,” says Mills.

To counteract this, Medline is guaranteeing the savings it promises and tells its customers to try to secure a similar guarantee from its competitors.

“We tried to shoot holes in their pie-in-the-sky numbers and come up with something more realistic,” says Mills. “It’s been very successful for us, and we think it’s our responsibility that our analysis better be accurate. If we miss it, we’ll make up the difference.”

It’s the constant innovation in programs and products that allows Medline to compete with much larger companies.

“We always find challenges,” says Mills. “We are not content with where we are. We know the market reimbursement is not going up, and we know that our customers are looking to provide better patient care and spend less money. That’s the challenge, and I think we are on the right track.

“We are taking a holistic approach rather than selling a specific product. Many are centered around programs that involve our products, such as healthy skin. We provide tools and articles to help nursing homes have better skin care and stay in compliance. Really knowing our customers drives innovation, and we really pay attention to what they are saying.

“There is no specific formula for innovation. Some ideas come from customers, some from sales, some from people in the product divisions and some from looking at competitors’ products. We are willing to try new things. If we don’t innovate, we’ll be dead. We can’t rest on any laurels. What’s the next generation of product the customer will want? We have to have a mindset that things will go stale if we don’t innovate.”

How to reach: Medline Industries, http://www.medline.com or (800) 633-5463