Distributor Heads to Prison – All in A Day's Work

Edition: June 2002 - Vol 10 Number 06
Article#: 1254
Author: Laura Thill

Sam Schatz, president of San Rafael, CA-based UnimedUSA, Ltd., pays no mind to the time he has spent in prison. In fact, his visits behind bars are a priority for his company.

Schatz leased dental and medical equipment from 1978 until 1990. Then he read an article suggesting that prisons constitute the largest unconsolidated healthcare market in the country. In fact, he already was filling orders for medical and dental supplies and equipment at San Quentin Prison located a short distance from his office. After reviewing the article, he realized just how great the need – and opportunity – was to satisfy the prison healthcare market, and founded UnimedUSA in 1990.

''This is a $4.2 billion industry,'' notes Schatz, citing statistics from the American Correctional Association. With over two million inmates in prisons across the nation, each with a $2,100 annual price tag for meeting his or her healthcare needs, Schatz finds he has more work than his company can field.

Essentially, this is an untapped market, according to Schatz. Distributors are put off by the extensive red tape and background checks required by the prison system. For one, they are required to give their social security number, driver's license number and date of birth for a background check. And more than one rep has been arrested upon arriving at the front gates with unpaid speeding or parking tickets. But, this has not intimidated Schatz. Nor did his first – and somewhat notable – prison experience: ''On my first sales call, I had to sign an understanding that if I was taken hostage, no one from the prison would go in after me,'' recalls Schatz.

He wasn't taken hostage, and today UnimedUSA is distributing medical, dental and laboratory supplies and equipment to 75 prisons. ''I know how to work the system now,'' says Schatz.

Competing with the Yellow Pages
In such a wide open field, UnimedUSA finds that it acquires much of its business through word-of-mouth. ''Prisons have looked through the phone book and mail order catalogs for distributors. They need our help,'' Schatz says.

Taking care of inmates is a lucrative business, according to Schatz. ''It costs a lot more to care for inmates than for nursing home residents,'' he says. The state of California recently paid $900,000 for an inmate's heart transplant. This compares to the $30,000 or $40,000 needed for a resident's annual stay at a nursing home. ''Prisons spend $800 million annually in medical, dental and lab supplies alone,'' says Schatz. ''Seventy thousand inmates are over 60 years old and require more than $75,000 each year in care.''

Schatz believes that part of his company's appeal is helping prisons keep these costs as low as possible. ''Eighty percent of our sales are drop-shipped directly from the manufacturer, eliminating warehouse storage and keeping costs down to a minimum. Also, when [medical products] companies merge, they need to unload excess products. They sell it to us (at a lower cost) and we market it to the prisons,'' he says. Additionally, he sells them products that have been over-ordered or whose packaging has been damaged, all at reduced prices.

No Customer Too Big or Too Small
UnimedUSA's greatest advantage may be that it knows precisely what it's doing right, and keeps on doing it. ''The key to success is learning how to develop this kind of account,'' says Schatz. ''No customer is too big or too small for us.''

''My job is to take care of the prisons,'' Schatz points out. ''We can send out, say, an emergency product to a prison, and the prison can send the purchase order later.''

A problem arises, however, in that UnimedUSA deals with people with little or no purchasing experience. ''Eighty-five percent of the people we work with have no purchasing experience. We must train them over the phone.'' In other words, UnimedUSA often directs its customers to different manufacturers or products that better suit them. The company also finds itself suggesting to the prison more efficient ways of ordering products, such as with blanket purchase agreements.

''The whole thing is about communication, customer service and trust,'' Schatz says. ''I steer all of my customers to the best deal. I know what they need in prison and where they should get it.''

This has created a nice niche for UnimedUSA as a specialty distributor in the eyes of the manufacturers with whom it works. ''I know how to get [the manufacturers'] products into the prisons,'' says Schatz. For instance, when doctors were slow in complying with needle safety laws, frustrated manufacturers found a ready market among prisons, which, as federal institutions, were among the first to comply.

Keeping Up with Demand
Special attention to customer service, together with a move in 1998 to join the Independent Medical Cooperative (IMCO), has boosted business to a level that Schatz could only dream of 12 years ago. ''UnimedUSA's alliance with IMCO has given me better access to more manufacturers,'' says Schatz. ''These manufacturers can give me leads that I can't get on my own.'' Despite the tendency of prisons' purchasers to continue to look at mail order catalogs or search the yellow pages for the best deals on products, Schatz is finding it increasingly difficult to keep up with demand.

''I work with over 100 manufacturers. And, there are about 100 prisons that want to do business with me,'' says Shatz. This translates to too much work and not enough time.

UnimedUSA needs a link – a joint venture third party logistics partner – to help it meet this demand, according to Schatz. Working with such a partner could help UnimedUSA grow exponentially, Schatz believes. ''The formula already is here,'' he notes. ''I just need that third party logistics partner.''

Until then, the vast amount of paperwork alone could be daunting.