Case Analysis - Owens and Minor,
Inc.

1.1) What are the services rendered by the distributor to manufacturers and hospitals?
Owens and Minor Inc. is a dominant distribution company that distributes medical and surgical supplies to hospitals, integrated health care systems and group purchasing organizations. It takes on the financial risk of owning and managing inventory for customers. It tracks and verifies their customer’s prices. In addition, O&M supplies customer usage and sales numbers, market trends, buying patterns and product penetration to manufacturers.
1.2) How has the nature of distribution changed over time?
In the mid1980s hospitals joined together to gain more control of supply costs. They began carrying less inventories and demand more services from distributors without paying more, which led to the consolidations of distributors as well. Customers wanted the distributors to package the products in smaller units and shipped them directly to nursing and surgical units. They also placed smaller orders more frequently. This new trend shifted some of inventory related costs to distributors. Companies like O&M had a hard time find a way to price these new complex services for each individual account. They underpriced services and some customers such as those with stockless system were unprofitable for the companies.
1.3) How is O&M different from other distributors?
O&M decided to focus solely on distributing medical and surgical supplies while many of its competitors maintained other lines of business. Some hospitals decided to go to O&M’s competitor companies in order to purchase all of their supplies and resources all at once from the same distributor. Many of O&M’s competitors also offered private label supplies, while O&M is brand neutral.
2) Evaluate the impact costplus pricing has on distributors, customers, and suppliers.