PSS Balancing Between Service and Profitability

Edition: March 2002 - Vol 10 Number 03
Article#: 1187
Author: Repertoire

PSS World Medical reports that it is making progress in its three-year, triple-pronged mission of reducing operating costs, improving customer service and increasing profitability.

The company announced it would close 13 physician-office distribution centers by the end of its 2003 fiscal year (March 31, 2003), bringing the number of locations down from 46 to 33. At press time, the company had not named the 13 locations to be cut.

It made the announcement at the end of its third quarter (Dec. 28, 2001). The company also said that its physician division reported a 7.1 percent revenue growth, and that its long-term-care division reported a 6.3 percent revenue growth. PSS also reported that it paid down its bank debt of $113 million one year ahead of schedule, and that it has a $39.5 million cash balance.

Service Maintained
PSS President and CEO Dave Smith told Repertoire that the company would maintain sales offices, depots and drivers in each of the 13 cities. Virtually the only thing mising from them will be inventory. Trucks from the remaining 33 locations will supply the sales offices/depots with products on a daily basis. Local drivers will then bring them to their physician customers. PSS has experimented with such a system in Philadelphia and Long Island, servicing them out of a distribution center in New Jersey.

The company has changed its same-day service pledge, says Smith. Instead of every order being delivered on that basis, only emergency orders will be delivered same-day. “The customers were telling us we were overservicing their needs, but that they did want availability of same-day service for emergency orders, which every customer says they have,” he says.

The scaled-down system will reduce operating expenses while helping providing customers with better fill rates and more SKUs, says Smith. “We're a sales and marketing company,” says Smith. “That hasn't changed.”

In fact, the company said it would bring on an additional 70 to 90 sales reps over the next two to three years.

PSS announced the changes after months of surveying its physician customers. “We learned where we were underservicing them and where we were overservicing them, and we learned where our strategic competitive advantages lie,” says Smith. The company's biggest challenge was to figure out how to make its distribution model more efficient while maintaining what he calls PSS's “high touch” method of customer service.

Other Divisions
PSS World Medical already has struck a balance between service and efficiency in Gulf South Medical, its long-term-care division, says Smith.

“Two years ago, we were losing money. We surveyed our customers and asked them what services they needed more of, and which services they couldn't pay for,” he says. As a result of those surveys, the company cut the number of its long-term-care distribution centers in half, from 26 to 13. “We were rated No. 1 in customer satisfaction when we started, and we're way ahead of the pack now,” says Smith. Plus, the division has returned to profitability. “It was a complete recovery, a complete overhaul of that business, using the customer as the No. 1 guiding point.”

PSS World Medical intends to repeat the formula in its Diagnostic Imaging Division. The company announced it would reduce the number of DI distribution centers from 26 locations to 19 locations by the end of the fourth quarter of fiscal year 2003. It will also centralize service call dispatch and service billing to one location in Jacksonville by the end of the fourth quarter of FY 2003.

Supply Chain Management
Helping to orchestrate the overhaul is Bill Midgley, who was named vice president of supply chain management (a new position for the company) last September.

“When we recognized the size of the bite of the apple we were attempting to take, we realized we didn't have the core competency in our company to do it,” says Smith. So he looked outside the company for someone with supply chain experience “who would start with the customers' needs first, not technology or anything else,” he says.

Midgely came to PSS with 20 years experience with Sony Electronics, Park Ridge, NJ, the last seven as senior vice president of logistics services. He serves on the Council of Logistics Management and has also served on the Center for Transportation Development Affiliates Program at Massachusetts Institute of Technology and as an adjunct assistant professor at Pace University.

PSS has been installing its J.D. Edwards One World computer system in physician-office distribution centers for several months, and intends to complete the installations by the end of the first quarter of FY 2004. Integrated with i2 Technologies, the system is designed to “better analyze, evaluate, manage and optimize customer demand signals; inventory, purchasing and distribution management; vendor relationships and sourcing programs; logistics and freight management; and fleet management,” the company said in its quarterly earnings report.