Edition: May 2001 - Vol 9 Number 05
Author: Mark Thill
Is it manufacturer or distributor? Big company or small? Niche player or general-line distributor? Good questions. But one thing that can't be disputed is that Mundelein, IL-based Medline is an old-line, privately owned business with deep roots in Chicago, whose annual sales just exceeded $1 billion for the first time last year.
The company is a throwback in some ways, priding itself on such things as the longevity of its executive team, its roots in garment making for the Chicago Stock Yards 90 years ago, and the fact that it hasn't laid anyone off in 35 years. Salespeople can make a good buck there, and customers can save some money by buying its products.
Call it a hokey, anachronistic approach to business, but there's no arguing with success. The company has consistently raised profits and sales for 35 consecutive years.
And one other thing: Medline is debt-free.
So, what's wrong with being old-fashioned?
An Old Story
The company was started in 1910 by A. L. Mills, the great-grandfather of current President Andy Mills. The elder Mills started a garment company that made aprons for meat-cutters in Chicago's Stock Yards.
At some point, a nun from a local hospital asked A.L. Mills if he could take over the sewing of the hospital's garments. Thus, the business grew into health care.
Mills' son, Irving, took it from there. Having started working for his father at age 10, he bought the company in 1930 upon his graduation from high school at age 18. Irving Mills went on to night school for 10 years at Northwestern University to earn a degree.
Andy Mills is proud that his grandfather was the one to invent colored scrubs and OR products in the 1930s. The white had too much glare in the OR. Greens and blues were better.
Over the years, the company expanded its textile offerings and built its health care business. Today it manufacturers textiles and med/surg supplies for the industry.
Medline could probably best be characterized as a manufacturer that has developed distribution expertise to satisfy customer demands.
''We want to keep growing as a manufacturer,'' says Mills. In fact, the company makes about 70% of the 100,000 products it sells.
''We think we're doing a good job in what we make, and we think the market will continue to respond to quality products that can be delivered at a savings.''
Mills sees the health care industry moving in the same direction as the computer industry, with such companies as Dell and Gateway. That is, buyers will buy directly from manufacturers in many cases.
If true, that would be good news for Medline, whose margins on self-manufactured products exceed those on distributed ones.
And the company has been doing everything it can to heighten its profile as a manufacturer of quality products, not just inexpensive ones.
Several years ago, it hired a quality control expert - Betty Lock - to troubleshoot its operations. Today, the company's quality department comprises 82 people around the world, including Thailand, Malaysia, China and Taiwan.
To bolster its quality, Medline went through the ISO 9000 certification process starting in 1997 including en4600 and CE marking of products (approval to sell in European markets). ISO is the International Organization for Standardization. The 9000 certification covers quality management and assurance.
''We think the benefit [of ISO certification] is long-term satisfaction from our customers and high efficiencies,'' says Mills.
Particularly promising for Medline-as-manufacturer is the surgical pack-and-gown business. The company distributed other manufacturers' packs for some time. But 18 months ago, it introduced its ProximaTM brand, designed to compete with Convertors and Kimberly Clark.
Mills expects Proxima to reach $50 million in sales by the time the product line is two years old.
Next up is the uniform business, the company's roots.
For the past 16 months, Medline has been gearing up to compete with market leaders Cintas and Angelica. It has built a facility in Monroesville, AL, and one in Mexico, and is training its 600 field sales reps and 50 inside reps on how to sell uniforms.
Already Medline is supplying health care providers everything from lab coats to polo knits to blazers, says Mills. It won the uniform contract for HCA hospitals in December 2000.
However, Medline won't confine itself to the health care market. It is preparing to offer uniforms to airlines and other non-health-care customers as well.
''It's all cutting and sewing, something we're already doing with scrubs and gowns,'' says Mills.
''It's a giant market - $12 billion in the United States,'' not all health care, he says. ''And we think we can get a decent share of it.''
Growth Through Acquisition
The company has plunged more deeply into manufacturing in recent years through a series of acquisitions. In 1997, it bought the North American rights to Arglaes from Maersk Medical.
Arglaes is a film dressing impregnated with silver that is said to help prevent infection without the use of antibiotics. Medline has incorporated it into a transparent film dressing, and has plans to introduce it in other forms as well.
The company is eagerly awaiting a clinical trial of the product currently being conducted in the cardiology department at Cleveland Clinic Foundation.
Medline is so confident in the future of infection prevention products that it acquired the distribution rights (for five years) to the Carrington Laboratories line of wound and skin care products in December 2000. It also acquired Carrington's 32-person clinical skin and wound care specialists for these products.
Medline's logic was to combine the clinical knowledge of the Carrington sales force with the materials management relationships of the Medline sales force, says Mills.
The deal gives Medline 38 sales reps who are focused on wound and skin care. They work with Medline generalists when opportunities present themselves.
Two other deals in the past few years have strengthened Medline's glove line: the acquisition of a glove line called MediGuard and the latex exam glove business of Kendall Healthcare.
Although Medline believes that it and its customers benefit more from selling and buying Medline-manufactured products, it has positioned itself as a general-line distributor. With 23 warehouses, Mills believes his company can offer hospitals just about any med/surg items they want.
Medline has even marketed its distribution expertise to some major accounts. For example, it has taken over the supply distribution function of three major customers - Shands Healthcare (University of Florida); Seton Healthcare Network in Austin, TX; and Wausau (WI) Hospital Center.
In each case, Medline has taken over the warehouse and hired its employees, and has been able to run the operation more efficiently than the provider had previously been doing, says Mills.
''In manufacturing and logistics, we think we're a pretty efficient operator,'' he says. ''Some of the things we've done internally - in manufacturing, operations and supply chain management - we can take to the market. And that's what we've tried to do.''
Like other suppliers, Medline has geared up to service large integrated delivery networks. Several years ago, it created the role of senior account rep, who is responsible for ''quarterbacking'' Medline's activities at these large accounts.
But the company has been just as focused on the non-hospital market. In fact, 270 of its 600 reps call primarily on non-hospital customers.
Home care has become a significant part of the company's business. Through its Patient-Home Direct(r) program, Medline ships products directly to the patient's house or agency branch in patient-specific packaging. Each package is billed to the appropriate payer source.
Nursing homes are important to the company's future as well. In January 2001, Medline bought certain assets of SunChoice Medical Supply, the nursing home distribution company previously owned by Sun Healthcare Group. Its 40 reps accounted for approximately $60 million in sales, about half to Sun-owned facilities.
''We've always believed we can make a distribution company significantly more profitable by offering Medline-manufactured products,'' says Mills. That's the strategy going forward, he says.
One more frontier is the retail market. In February 2001, Wal-Mart customers began seeing Medline AloetouchTM exam gloves on store shelves nationwide. Soon customers of other major retailers will see a variety of Medline products.
Medline prides itself on its track record with employees, beginning with the management team.
The average age of its senior management team is a relatively young 42 years old. But their average years of service with Medline is 15, with close to 20 years in the industry.
''We have a young team that's been around for awhile,'' says Mills.
''We've grown up together in our organization and in the industry,'' he says. They socialize outside of work.
''We have kind of a friendly tension in place, and we can cut to the heart of matters.''
Because people aren't afraid of losing their jobs, they're free to speak out when they think it's necessary, and they aren't afraid to admit to mistakes they've made, he says.
That management team strives to treat its reps like they treat their customers.
''If you're negative with your sales reps, it's hard for them to be anything but negative with their customers,'' says Mills. ''So we treat them as we want our customers to be treated.''
Reps who are financially motivated and entrepreneurial will like Medline, says Mills.
The average rep makes $108,000 there, and a rep with three years of experience can make up to $136,000. The top reps are at $400,000.
''There is no cap on earnings or income,'' says Mills. ''We believe that if the sales rep does well, the company does well.''
For their compensation, reps are asked to do a little more than reps in other companies, he adds. For example, they are expected to get involved with credit and collections.
''We believe our reps are the better eyes and ears of how we'll get paid,'' says Mills. ''They can bridge relationships with their customers. We expect that from them, and we pay them for that as well.''
Because Medline believes turnover is expensive, sales managers are incentivized to keep their reps as long as possible.
''Sometimes [turnover] is inevitable,'' says Mills. But people usually leave a company because they feel they're not getting support from others.
''If someone knows you care about them, they're not so quick to jump ship.''
Old-fashioned or not, Medline remains focused on selling. As it enters new territory - uniforms, for example - it maintains its grip on old ground. For example, its ACCESS consignment program, first introduced to small mountain hospitals in the 1970s, remains a strong offering today.
''Every one of our divisions has grown significantly,'' says Mills. ''I don't know anyone from whom we haven't taken some market share.
''Our competitors don't like us,'' he admits. ''We used to be a very small player who no one cared about. But when small players like us starting taking major accounts, others start caring and noticing.
''Our competitors don't like us. But our customers love us.''
That's what counts.
Corporate vice president/special projects
Year started with Medline: 1969
What were you doing prior to joining Medline? Professional baseball.
Name some positions you have held with Medline: Salesman, sales manager, director of government and national accounts, vice president of operations, president of Caring Division, vice president of corporate programs.
Why have you stayed with Medline as many years as you have? It has continued to grow and be successful and afforded me plenty of opportunity. I feel good about our contribution to the health care industry - value and quality products.
How has Medline changed over the years? When I started we had 11 sales reps. Today, we have over 600. Our products and services have expanded to the point where we are one of the largest companies in our industry. I am the last of the original group of people who was with the company when it started. Aside from Jon and Jim Mills, the rest have retired. My son is now with the company, whom I am very proud of; and Jon and Jim's sons are now running the company much like their fathers did, but with their own ideas, too. Even though we've grown and changed a lot over the years, we never lose sight of what makes us successful - treating our customers, our sales reps and our employees with respect and giving what they ask for.
Vice president hospital sales
Year started with Medline: 1980
What were you doing prior to joining Medline? Student at Northwestern University.
Name some positions you have held with Medline: Sales rep, regional manager, division manager, vice president corporate sales, vice president national accounts.
Why have you stayed with Medline as many years as you have? I have always felt like the company provided me with an opportunity to be compensated for my abilities and hard work. That was true as a sales rep, where you basically had your own franchise, to all the other positions that I have held within the company. I have been able to turn down or accept the positions without reprise, and I have always been challenged by those I have accepted. Whether it has been as a sales rep or as a corporate officer, I have made more money with Medline each and every year that I have been here.
How has Medline changed over the years? When I joined Medline in 1980, we had approximately $45 million in sales and 50 sales representatives. At that time, we basically sold plastics and textiles. Since that time, we have evolved into a $1 billion sales company with 600 sales representatives. I think the marketplace viewed us as a small, aggressive little niche company with a few good product lines. Today, we have developed complete product lines across 15 product divisions that allow us in many cases to be a prime supplier to a hospital, surgery center, laundry, physician office group, nursing home or home health group. We have a large number of people who have grown up within the company. They have 12-30 years experience, they have lived through this evolution and are in key positions within Medline.
A lot of us have a lot of experience that other people don't, because we were here during the growth and took part in a lot of industry changes that affected our customers and our company. Medline remains privately held and very stable. Medline has no long-term debt, and a lot of the employees here have a lot of experience. I think that gives us a significant advantage over a lot of companies who have changed ownership, changed culture, and changed the way that they approach their business.
On the product side, Medline has always been a company that has cared very much about cost. That's one thing that hasn't changed. Medline has always been run fiscally conservative in order to produce savings for our customers. In the early days of the company, it was frustrating because Medline was perceived as a smaller entity in the marketplace and therefore ''less quality.'' However, in many cases, we were manufacturing product for some of our competitors and we always believed that our quality was equal to or better than anyone in the industry. Today, we are viewed as a quality company and rightly so. In fact, many companies with high end or unique technical capabilities are bringing product to Medline because of our quality standards and because of the number of sales representatives that we have in the field who can bring that technology to the end user. All of these things combined give us an even bigger future.
Ray Swaback President of sales
Year started with Medline: 1976
What were you doing prior to joining Medline? Worked for Jewel Food stores after graduating from DePaul University in Chicago.
Name some positions you have held with Medline: Sales rep in St. Louis for seven years, then sales manager for mid-South and Eastern regions of the country for 10 years. Came to Chicago in 1993 to run the health care sales force. In 1996, took over running the sales force for entire company.
Why have you stayed with Medline as many years as you have? I like the freedom I have had within every area I have been. Whether it be a sales rep, manager or running a sales division in the company, I felt I had the authority and responsibility to not only make good decisions, but also the ability and the backing to commit the company to things that made good business sense. This really has not changed in 25 years.
How has Medline changed over the years? We have gone from a very small company that was only regional in nature, selling from a 3-ring binder catalog, to a company that is over a billion dollars in sales, with a very active website, very thorough catalogs, and product lines that reach far into the health care marketplace. Sales in the home care marketplace, international marketplace and retail marketplace were non-existent 10 years ago, but today offer sales and sales growth that we enjoy.
The product lines have expanded greatly through the years to a point today where textiles no longer is the largest product category. Surgical trays are. We are a vertically integrated company with the ability to ship the patient in their home, an institution, or a retail establishment, all out of the same warehouses, using the same operating systems and the same systems, thereby creating an extremely efficient supply chain avenue for our customers, especially customers who cross marketplaces. This will continue well into the future.