Where the Bedside Meets the Supply Side

Steve Player interviews Jim Bierman, SVP & CFO, Owens & Minor

Owens & Minor, an $8 billion distributor serving 4,000 health care providers, is helping its customers to energize their supply chains one link at a time.

Steve Player: What would be a typical customer ... a single hospital or clinic, a chain?
Jim Bierman: We touch all of them. If you segmented our revenue stream, you'd find that the IDNs (integrated delivery networks) tend to be the larger users of our services. An example would be the Johns Hopkins Hospital and Health System. And, if you look at U.S. News & World Report's Best Hospitals list, you see that we serve 14 of the top 21 hospital systems in the U.S., as well as a handful of large physician practices and ambulatory surgical centers -- those kinds of providers.

In the medical distribution/manufacturing space, there are a handful of competitors. One of the ways in which we differentiate ourselves is that we are the only pure-play distributor on the national scale, and the largest.

SP: How do you compete with other companies that are attached to a manufacturer? Do manufacturers use pricing to obscure distribution services that you provide?
JB: In our industry, pricing for products and services is generally set under group purchasing organization contracts on behalf of the hospitals. There's no question that price is a critical factor when you make a decision on selecting a distributor. But this is only one of several important factors that come into play. If the product, particularly in health care, isn't delivered at the right location and at the right time, which is no small accomplishment unto itself, then a decrease in price doesn't compensate for the risks associated with either of these two situations occurring. So we pride ourselves on the service we deliver. We get the right product to the right location, at the right time, and at the right price, and that service aspect is pretty critical. We're price-competitive, but we're service-oriented.

SP: What are the key metrics that are important to understand in describing the company?
JB: Being in business as long as we have been, there are any number of metrics and data points that are captured and reported. It's really easy to add a data point; it's really difficult to remove one. One of the observations I had in joining the organization was that there was an abundance of data but a paucity of analysis. We've tried to step back and ask, "What inferences can we draw from the data that's provided?" And to that point, we've taken a page out of Jack Welch's book where he notes that there are three things you should measure: customer satisfaction, employee satisfaction, and cash flow. Whenever there's a question about whether or not we should add metrics, I revert to that quote; I've used it often in my presentations.

I think that we do a good job in those three areas. It's very important to us to understand how our teammates rate their satisfaction and how they're doing in the organization, so we measure that. In addition, we're a service-based business, and we understand that our lifeblood is our customers, so we have incentive programs tied to customer satisfaction, and we measure that annually. And when in doubt about a financial metric, you can't go wrong by going to the fundamentals of finance, which are to measure the cash flow implications of an investment, of a relationship, of a decision.

SP: How long have you been at Owens & Minor?
JB: Just over two and a half years.

SP: Give us a little bit of background on your career. I understand that you started in the public accounting world with Andersen?
JB: I did. I started with Arthur Andersen in 1976 in the Philadelphia office. I was with the firm 22 years, during 10 of which I was a partner. Ultimately, the firm transferred me to the Carolinas to head up the banking practice. I served in that role until 1998, when I left to join Quintiles Transnational, Inc.

SP: You went there to lead mergers and acquisitions?
JB: I did. It was kind of an unusual career path, having been a partner on the audit and accounting side, but Quintiles was looking for someone with transactional experience. I'd had a lot of clients that were highly acquisitive; I'd served the banking industry during a period of its consolidation. Quintiles liked that background and took a chance with me running mergers and acquisitions. It proved to be highly successful, and ultimately they asked me to be their chief financial officer.