Edition: June 2005 - Vol 13 Number 06
Given its proximity to the Atlantic, it’s no surprise that IMCO’s conference room features a sculpture with a nautical theme. It’s an octopus, carved out of a single piece of driftwood. IMCO VP of Primary Care Markets (and fisherman) Yates Farris explains its significance.
Farris explains that the octopus and the eel are natural enemies. But the eel always prevails. How? The octopus approaches its prey and grips it with its strong tentacles. But the eel twists those tentacles until, one by one, they break off, Eventually, the octopus is defeated.
Farris says it’s like the ongoing tussle between the national distributor and the small independent. The octopus is the big guy, confident and bold. But the eel is the independent distributor, who through strategic thinking, patience and imagination, always prevails.
Daytona Beach, Fla.-based IMCO was founded in 1981 and since has been about helping independent dealers achieve market success. President and CEO Bill McLaughlin joined IMCO in 1989 and four years later, with his wife, Sue (who is also the company CFO), bought the company.
Today, IMCO, which technically stands for Independent Medical Co-Op Inc., though few people use the full name, boasts a comprehensive approach to advancing its members’ businesses. That approach utilizes manufacturers’ promotions, training programs, information systems, assistance with marketing, and other initiatives.
Richard Appell, a charismatic veteran of medical products sales, founded IMCO. He did it through a lot of hard work and dedication, along with his wife, Gloria, and daughter, Kathy. They formed an association of independents who could accomplish more together than alone. McLaughlin says Appell had a knack for networking and brought together a “wonderful group of people,” some of whom are still members today.
While Appell was building IMCO, McLaughlin was building a successful medical sales career. In 1968, he joined Parke Davis (now Pfizer), an old-line pharmaceutical company that had a strong line of medical-surgical products, including gauze, dressings, instruments, gloves, drapes and even EKG machines. When the company (acquired by Warner-Lambert in 1970) split its sales force into medical-surgical and pharmaceuticals, McLaughlin joined the medical-surgical side, selling in multiple markets, including physicians and nursing homes, as well as through distributors.
In 1975, McLaughlin opted for a change of pace by joining Zuck and Eaton, a regional medical-surgical distributor in Rockford, Ill., as VP of marketing. Several years later, he became a regional manager based in Rochester, Minn., working for Medix, a Madison, Wis.-based, multi-regional hospital distributor. The Mayo Clinic was McLaughlin’s personal account. (Medix was ultimately purchased by Owens & Minor.)
Following Medix, McLaughlin joined Richmond, Va.-based General Medical (now McKesson Medical-Surgical) as a regional manager. At the time, the company was considering closing its Minneapolis branch, but McLaughlin convinced the corporation to let him try to reverse its fortunes. He succeeded and, as a result, was asked to work in the company’s corporate office in Richmond as director of physician marketing. He became director of hospital and long-term care marketing, and then assistant VP. He was the primary negotiator for what was then a $600 million company.
The art of negotiation
It was at General Medical that McLaughlin got his first exposure to international business. He began to work with overseas companies – primarily Asian firms – for the distributor’s private-label program. His experience in international negotiations and deal-making caught the attention of Tsefong Chemical Cotton, a Taiwanese company, which produced products on an OEM basis as well as under its own brand name, Ultimed.
“It was an excellent experience,” says McLaughlin, who learned the fine points of negotiating with the Chinese, such as where to sit at the table, how to exchange business cards, etc. “Plus I made a lot of friends,” he says. He also gained credibility in the business and learned the importance of nurturing long-term relationships built on trust. It’s a lesson he says IMCO practices every day.
McLaughlin jumped at the chance to join IMCO, which he perceived as a good organization with lots of unrealized potential. “It was an uncarved block,” he says. The Appell family and the members were “wonderful.” Plus, there were already a number of highly supportive vendors. McLaughlin hoped that by adding his experience and relationships the association would grow.
Indeed, when he joined IMCO in 1989, the company had 90 vendors and 50 distributors with combined sales of about $120 million. Today, IMCO has 123 members with a total of 148 warehouse locations and about 900 sales reps, with combined annual sales of approximately $1.8 billion.
“It’s interesting to think about the early days, because a lot of the activity consisted of a bunch of owners sitting around a table sharing their price books,” says McLaughlin. “We have come a long way since then.”
Reflecting the independent distribution market at large, IMCO’s members focus primarily on the physician and long-term care markets. Of its $1.8 billion combined member volume, 45 percent is in the physician market, 30 percent is in long-term care and 10 percent is in hospital. The remaining 15 percent lies in such markets as emergency medical services, pharmacy, home care, laboratory, industrial, dental and veterinary. However, these are growing and actively being developed.
“All of our members are looking at the non-hospital market to enhance their margins,” says Deb Bullock, VP of long-term care and acute care markets. Under Bullock’s direction, sales volume in the long-term care (and home care) market has grown from less than 5 percent to about 30 percent today.
Bullock began her career with General Medical in Des Moines, Iowa, and then in Minneapolis, Detroit and Sacrament, Calif. She next started an independent rep firm in California but moved to Florida to become VP of a long-term care company. When that company was swallowed in a roll-up, she joined IMCO.
When asked to describe the growth of IMCO members’ sales in the long-term care market, Bullock uses the word “explosive.” She says some IMCO distributors have gone from zero dollars to $50 million in just five or six years. “I think the industry lends itself to local distribution.” Many nursing homes lack purchasing professionals, receiving docks or sophisticated warehouse operations. Bullock says independent distributors can provide services, systems and more, adding that the sweet spot for many IMCO members is the five- to 50-home chain.
Likewise, the physician market gains strength daily. Farris says IMCO members serving physicians are strong companies that resisted the consolidation craze that has enveloped the market during the past 10 to 15 years. “They are the entrepreneurial ones,” he says. “And they didn’t just survive; they grew.”
Farris first started carrying a bag in 1963 for Charlotte, N.C.-based Winchester Surgical. He sold for approximately 20 years, and then held a variety of management posts. In 1990, Winchester became an IMCO member, and, not longer afterward, Farris became a board member. Five years later, Winchester’s owners sold the company to PSS, at which point Farris joined IMCO.
Today, many independents selling to physicians are uncovering new opportunities, such as in-office procedures or physicians who are breaking away from large, multi-group practices to set up smaller ones.
“I’m amazed at how many start-ups I talk with,” says Farris. Some are being launched by successful sales reps who, when their companies were bought out, found they disliked corporate America. “Not all of them will make it,” he says. “But five years from now, among those who do, we’ll be talking about an even stronger market.”
Unlike independents of the past, today’s distributors have one huge benefit: access to sophisticated information technology. “It makes the small guys look big,” says Farris. “Plus the technology is less expensive today than it was in the past. It used to be that just the big guys could afford it. Now, the little guys can, too.”
Vendor Resources and RepExpress represent two ways in which IMCO strives to forge tight, lasting relationships with its vendors.
“It’s a fundamental principle in marketing that you can’t be everything to everybody,” says McLaughlin. “If you try, you can’t produce. You lose your credibility.” That’s why IMCO has chosen to work with a limited number of vendors. “For example, it would be easy to take on five, six, seven or eight glove lines, but we generally work with two or three and walk away from others,” he says. “And we very rarely make a change. We’ve found that if you choose correctly, vendors remain your partners for a long time.”
IMCO’s pursuit of a private-label strategy is evident. Since its 2004 convention, for example, the organization has added 13 vendors and 30 items to its private-label initiative. But IMCO is cautious in its approach and works to protect its brand vendors.
“Our strategy is to build the private labels where it makes sense,” he says. “A private-label product is usually a fairly common product at the tail end of its life cycle. That lends itself to the Far East, particularly.”
McLaughlin is quick to point out that IMCO does not use private labeling as a threat to its key vendors. “It is one of those things that can differentiate us in the market, because our products have quality, price and a good manufacturer behind it. But we’re not importing and selling against our manufacturers.”
Of course, greater sales are what keep manufacturers of all kinds coming back to IMCO, which continues to develop ways to promote sales. For example, short-term promotions are organized throughout the year.
But one of its highest profile promotional programs is the Winner’s Circle, through which all members received incentive to sell a particular manufacturer’s products during a specific time period. The top reps then enter a competition to win a valuable prize at the convention. For example, the winner of this year’s Winner’s Circle was to be awarded an all-paid vacation to a sports event of his choice, anywhere in the world.
“It’s very exciting for our members,” says Director of Member Relations Angie McLaughlin. “National companies have always been able to run national promotions with big-time prizes, but what have independent dealers had? So, we put together a national promotion that would get our members working the same lines at the same time, with big rewards during and at the end.” The program, which is in its fourth year, has grown from fewer than 200 participating reps in 2001 to 500 this year.
“The big guys have more visibility,” says Bill McLaughlin. “But when independents sell the same thing at the same time, it moves mountains. We’ve found that if they behave like the big guys, the independents’ focus can be even greater. It’s the difference between working with an entrepreneur vs. working with a district manager. It’s not even close.”
The Winner’s Circle isn’t the only IMCO-organized sales promotion program. Introduced last year, Quality Choice Network is a product-bundling program for long-term care customers. Bullock says IMCO has brought together vendors of high-quality products, each of which plays a role in key nursing home quality indicators, such as wound care and infection control. Through its negotiated contracts, IMCO has made it more cost effective for a nursing home to purchase these products in a bundle.
“Long-term care doesn’t have a reputation for providing best quality,” says Bullock. With its expertise in medical products, however, IMCO can help nursing homes improve their quality record.
At the most recent convention, IMCO introduced Quality Choice Network for Primary Care. Tailored after the long-term care program, Quality Choice Network bundles brand-name and private-label equipment, disposables and even non-medical products. “It will be a high-profile, hard-hitting experiment in marketing,” says McLaughlin.
“[Quality Choice Network] will enable our members to take a group of products and make a concept sell,” adds Farris. To help move the program forward, IMCO and participating manufacturers are offering IMCO members Web-based and in-person sales training.
McLaughlin says IMCO continues to design a more comprehensive approach to helping its dealers succeed. But it does so cautiously, with input from its members. “It’s about them,” he says.
In addition to its advisory committees, the organization solicits information directly from its members. Angie McLaughlin, for example, spent the better part of a year traveling around the country, listening to IMCO members. “It was a great opportunity,” she says, having joined IMCO after serving as a sales rep for Welch Allyn.
“Initially, it was just me, trying to get in front of the members,” she says. “We hadn’t had anyone in the field full-time before. There were members that none of us had ever visited. So it was definitely a great education on what programs they were using and what made them tick.
“And it’s ongoing,” she continues. “I try to get to as many sales meetings as I can. We’re trying to keep the lines of communication open.”
Many of IMCO’s programs and program changes resulted from Angie McLaughlin’s countrywide trips. For example, IMCO lengthened the duration of the Winner’s Circle program because of member feedback. In addition, McLaughlin learned about IMCO members’ technology needs while on the road.
Listening to members
McLaughlin says as medical products distribution becomes more complex, so must IMCO’s offerings. “Knowledge has expanded,” he says. “New products are expanding at a huge rate. The opportunity to help patients offers greater challenges. Fifteen years ago, we were simple, yet we were taking care of our members’ needs. But today, the business is more complex. The needs of the distributor and its customers are more comprehensive. It’s not just a matter of ‘Give me my price.’ And if we don’t adapt and stay ahead of the curve, we’ll get pushed behind.”
IMCO has no intention of falling behind. “What’s made this work from day one is that we legitimately care about our members,” says McLaughlin. “We’re like a sales rep, always listening to our customers. If we continue to excel in the services we offer, we’ll succeed in the business.”
Technology is one of IMCO’s biggest initiatives, and it comes in many flavors:
• IMCO Exchange. This new Internet trading network for IMCO members will allow the purchase and sale of overstock. Initially, only members using Prophet 21’s Turns system will be part of the Exchange. However, the system will be opened up to all members as soon as possible.
• Electronic medical records. IMCO’s new partner for physician office electronic medical records and practice management systems is Horsham, Pa.-based NextGen Healthcare Information Systems. In addition, IMCO is discussing a relationship with NextGen through which IMCO members would integrate purchasing into the electronic systems of the IT vendor’s existing and future physician customers.
• Sales automation. Bullock calls the laptop- and PDA-based sales automation tool from Access International in Chicago “one of the most customizable programs we’ve seen.” Reps can use the system for a variety of functions, including placing orders and checking backorders.
• IMCO Store/supplyTrax. IMCO Store is an online order entry system, which IMCO provides at no charge, other than a small annual server storage fee, to its members. The members can then pass it on to their customers for online purchasing.
Last year, $1.6 million in orders were processed through IMCO Store.
• supplyTrax. Meanwhile, supplyTrax by Seneca, S.C.-based interdirected is a private-label barcode system providing product tracking in nursing homes.
• Electronic catalog. Working with interdirected, IMCO will introduce a more robust catalog with connectivity to all its members’ enterprise resource planning systems.
• Marketing support. Through IMCO Advantage, IMCO members can create their own custom flyers online. Members can point and click on an ad, choosing from hundreds that are available, and receive a flyer instantly that includes a custom logo, pricing information, etc. The flyer can be saved and printed as many times as desired.
• Information site. Since the inception of AccessIMCO one year ago, 134 members and 128 vendors visit the site regularly to access information of mutual interest.
• RepExpress. A sales information system for manufacturer sales reps, RepExpress is offered by Currit Software Systems in Lake Mary, Fla. IMCO introduced the system to its vendor partners at its recent convention in Orlando, Fla.
If the average physician group spends about 4 percent or 5 percent of its total expenditures on medical supplies, which means IMCO members aren’t influencing another 95 percent, until now.
IMCO and five other non-competing, non-medical associations have formed a super group called United Buying Group, or UBG. Through UBG, IMCO members and IMCO vendors will have access to a number of major discounts on a wide range of supplies and services. The UBG formed to negotiate and share discounts in common areas. These include product liability and health insurance, credit cards, janitorial supplies, shrink wrap and warehouse supplies, auditing services, office supplies, freight, hotels, furniture and even gold clubs and accessories.
IMCO expects to release a growing number of non-medical services and products that will add value to their partners: members, vendors and customers. The good news is that via UBG, IMCO doesn’t have to take its eye off the ball and lose any focus on its core competencies. Instead, it simply outsources what UBG negotiates. This type of horizontal marketing is not new in many industries. However, the value proposition is substantial.
Already, UBG boasts 5,900 locations, 3,623 members and more than $7.7 billion in sales, says IMCO’s president and CEO, Bill McLaughlin. And plans call for inviting at least five more associations to join.
IMCO’s current initiatives include:
• Training. IMCO has designed training specifically for the Quality Choice Network program and is designing programs for Quality Choice Network for Primary Care. In addition, the organization provides customized training for its members;
• Conventions and meetings. Bill McLaughlin says the key to the success of the annual convention and other IMCO meetings is member input. For example, IMCO has advisory committees to aid in the national convention;
• Strategic development. As new classes of trade emerge and strengthen (e.g., industrial, emergency medical services, etc.), IMCO will devote more attention and resources to them. In a process McLaughlin calls “segmentation,” IMCO will add specialized products and, if warranted, a manager in particular segments;
• Customized negotiations. IMCO works with groups of its members to negotiate smaller scale deals;
• Logistics and redistribution. IMCO continues to offer a redistribution program for its members in conjunction with St. Louis-based MMS and Louisville, Ky.-based Labsco (both IMCO members). “MMS continues to build volume on major brands from those members that didn’t achieve minimum volume in order to remain authorized, or from specialty items,” says McLaughlin. “And Labsco is a great source for lab items. However, IMCO’s primary emphasis is not to disenfranchise or get between vendors and members. Instead, IMCO wants to secure the best costs, including terms and incentives as well as close field and promotional support.”