Tony Oglesby’s Long-Term Outlook

Edition: May 2003 - Vol 11 Number 05
Article#: 1528
Author: Mark Thill

In a tough market, Gulf South is trying to make all the right moves.



Several years ago, the Jackson-ville, Fla.-based subsidiary of PSS World Medical posted sales of $340 million with a total of 1,183 employees. Today, Gulf South’s sales are approaching $425 million, but the number of employees has dropped to 820. That’s a 35 percent jump in sales and a 30 percent drop in employees.



Those are the kinds of numbers that a very tough market – which the long-term care market surely is – demands of companies that want to succeed in it. And those are the kinds of numbers that Gulf South President Tony Oglesby is proud to recite.



Basketball First

Oglesby became president of Gulf South in September 2002. Prior to that, he had been the company’s executive vice president of sales and marketing.



He started his career in a field very different from long-term care. A talented basketball player, Oglesby tried out with the San Antonio Spurs NBA basketball team, and was optioned to one of the club’s CBA teams. But events took a turn when he decided to take a 10-day contract in Europe. That tour ended up lasting seven years, with stints playing professional ball in Norway, Holland and even Australia. Not only did he play ball, but he also coached young players and did promotional work for his teams.



Oglesby met his wife-to-be in Norway, and got married with the understanding that when their first child reached kindergarten age, Tony would give up basketball and settle down. That time eventually came and the family moved to Knoxville, Tenn.



Back in the United States, Oglesby landed a job as a sales rep with Kendall. He moved up the management ranks, eventually running the company’s Southeast region. One of his customers as a rep was a small, Chattanooga, Tenn.-based long-term care distributor called National Medical. When two of the three owners wanted to retire, Oglesby and the third owner bought them out.



It was a big risk for the Oglesby family, who sold their house and went bank-ing for loans. And it was a huge professional change for Oglesby, moving from a management position in a large corporation to ownership of a small business.



The two partners owned National Medical for about two years before entering discussions with Gulf South to sell it in early 1998. In March of that year, PSS acquired Gulf South. Three months later, the two partners sold National Medical to PSS.



Legacy of the 1998 Acquisition



When Oglesby became president last September, Gulf South had already made significant advances since its acquisition by PSS four years earlier.



For example, in 1998, the company had 26 distribution centers, many of them having been inherited through acquisitions of independent distributors.



“All of [the distribution centers] looked different,” says Oglesby. “Nothing was standardized.” Even the trucks looked different, each one carrying the name of its former company owner.



By 2000, Gulf South had consolidated those 26 centers into 13, exercising some “best practices” techniques to bring them all up to the same level of efficiency. Now, the centers look alike physically, and the people working in them have adopted similar processes for picking, packing, inventorying and so on.



At the same time, Gulf South improved its service levels, says Oglesby. “We did a lot of work from a logistics standpoint,” he says. “Once we were able to consolidate a lot of the smaller centers, we pulled up our inventory levels and increased service. Today, our fill rate and inventory turns are the highest they’ve ever been. Alternate ships [in which the company ships orders from a distribution center other than the one closest to the customer] are well under 1 percent. So from an operational standpoint, we’re the best we’ve ever been.”



In the period between 1998 and September 2002, PSS was able to build on the acquired company’s strong points as well. For example, Gulf South had converted all of its acquired companies to the company-wide information system, says Oglesby. And the company maintained and built on existing contracts with some of the biggest long-term care chains in the industry, including Beverly Enterprises of Fort Smith, Ark.; Integrated Health Services of Sparks, Md.; Kindred Healthcare of Louisville, Ky.; and Mariner Health Care of Atlanta.



A Hurting Industry

Yet in 2003, Oglesby faces some major challenges. First and foremost is the financial situation of the company’s biggest customers. After a spate of bankruptcies several years ago, most of the long-term care chains are back on their feet. However, they continue to face hard times – as do the smaller regional companies and independent nursing homes.



Medicare spending was cut $1.8 billion last year, according to the American Health Care Association, the Washington, D.C.-based association representing long-term care providers. Total Medicare spending cuts over the next 10 years could reach $215 billion, based on the House Budget Committee’s spending plan for FY 2004, according to the association.



Regarding the Medicaid program, AHCA estimates that total spending could be cut by $100 billion over the next 10 years. Meanwhile, 49 states already have taken action or plan to cut Medicaid spending before or during the current fiscal year 2003, according to a recent report from the U.S. Senate. Given the fact that Medicaid pays the nursing home bills for two out of three residents and about 10 percent of those in assisted living facilities (according to the American Health Care Association), such cutbacks could be disastrous.



It’s a sign of the times that while Gulf South has slimmed down the number of its employees, the credit department has expanded to 30 people (from just a handful three year ago). The company pre-qualifies its customers today. “With fewer reps and our emphasis on growing the business, we’re moving forward with smart growth,” says Oglesby. “That’s why we scrutinize our customers from a credit perspective at the front end.”



Another huge issue for long-term care providers is staffing. As president of a committee of AHCA’s business members, Oglesby has taken a close look at the staffing shortages facing his customers. His group estimates that every single nursing facility in the United States has at least six openings for a nurse or nursing assistant. That’s a total of 106,000 openings. But finding qualified people for these jobs isn’t easy. That’s why Gulf South and other companies, in conjunction with AHCA, are sponsoring educational programs for would-be nursing assistants.



“We’ve taken an active lead in this issue,” says Oglesby. “We know that if our customers aren’t healthy, we won’t be healthy either.”



Growth Opportunities

Despite these challenges, Gulf South foresees continued growth in at least three market segments:

• Nursing home chains (especially regional chains)

• Home care providers

• Assisted living centers



The company’s strongest customer segment remains the large, national nursing home chains. But its fastest-growing customer segment is the smaller regional chain, says Oglesby. Such chains comprise anywhere from two to 100 or so homes. Many are spin-offs of the major chains that were forced to slim down as they emerged from bankruptcy. These regional chains are proving to be a dynamic force in the market, says Oglesby.



The major chains have for a long time been sophisticated purchasers,buying many of their supplies online, creating and buying off corporate formularies and so on, says Oglesby. “Now you see that same level of commitment and sophistication moving further down in the market,” he says.



Another area of growth is home care. Gulf South won’t become a home care provider, in the sense of providing respiratory services to patients in their homes, says Oglesby. Nevertheless, the company believes that the home care dealer and visiting nurse association have similar needs for medical disposables as nursing homes. The needs are so similar, in fact, that Gulf South has elected to serve the home-care segment with the same sales reps who call on nursing homes, rather than devote a distinct force for home care.



At the same time, the company has implemented some home-care specific initiatives, such as patient-specific shipments and home-care oriented reporting mechanisms.

To penetrate the assisted living market, Gulf South plans to implement an approach similar to that of the nursing side – that is, selling solutions first, products second. “These solutions involve efficiencies of technologies, such as inventory tracking, ordering supplies and managing the supply budget,” says Oglesby.



A growth area for Gulf South in the assisted-living market has been the distribution of housekeeping supplies, such as can liners, mops and toilet paper. The company has signed housekeeping supply agreements with some of its big chain customers, such as Integrated Health Services; Beverly Enterprises; Sun Healthcare of Albuquerque, N.M.; and the Good Samaritan Society of Sioux Falls, S.D. “So we can leverage what we’re doing in the nursing home on the assisted-living side,” says Oglesby.



Selling

Over the past couple of years, Gulf South has dropped the number of its field reps to about 95 (not including the national accounts team, sales managers, etc.), down from about 120 two years ago. And though the company plans to add to the sales force this year, the fact is, the major chains and a growing number of regional chains are enforcing on-line purchasing in compliance with strict formularies in lieu of a high number of sales calls on their facilities.



Last quarter, 54 percent of Gulf South’s revenues were generated from electronic orders. The company operates its own online ordering system, called Gulf South Online. In addition, some of the chains, such as Beverly, use a portal operated by DSSI (the e-commerce division of Milwaukee-based Direct Supply), which then feeds orders to Gulf South.



Not only has online purchasing changed the field sales force, but it has changed Gulf South’s customer service staff as well. The customer service staff is housed in the company’s old hometown of Ridgeland, Miss.



“Where they used to take a lot of orders, now they’re taking more product- and technology-related calls,” says Oglesby. The customer service people receive training four days a week.



Meanwhile, Gulf South continues to enhance RepNet, its Web-based sales force automation tool, which allows reps to look up their customers’ purchasing histories, credit situation and profitability.



One thing that will not occur is a commingling of the Gulf South and PSS physician sales forces, says Oglesby. Very seldom do smaller group practices (PSS’s strongest customer segment) align themselves with nursing homes, he says. While it’s true that some of Gulf South’s back-office functions, such as human resources and accounting, have been integrated with those of PSS, the fact is, Gulf South will remain strictly a long-term care company, with some home care thrown in.



At press time, the company was preparing for its 2003 national sales meeting, whose motto was to be “Dominate Through Solutions.”



“We will follow the elder care market,” says Oglesby. “We’ll be the dominant force. We have good people, whom we continue to train and educate. And we have lots of opportunities.”