In 2016, MDM is recognizing distributors that are innovative in their approach to their markets. Bensenville, IL-based health care packaging distributor Action Health was selected as a 2016 MDM Market Mover for its innovative approach for adapting to the new low-margin reality of its market.
2016 MDM Market Mover
Distributor: Action Health
Headquarters: Bensenville, IL
Leadership: CEO Nancy Cwynar; CFO Phil Negri; President Sean Cwynar
Details: Health care packaging distributor’s investment in technology drove cultural change and enabled the company to adapt to the new low-margin reality of the industry.
For Action Health, what started as a need to adapt to the changing health care market led to complete company realignment – including rebranding, cultural change and a focus on internal innovation. And the implementation of a new ERP system was the change agent that started it all.
Increased health care regulations and new players joining the market meant decreased reimbursement for hospitals, creating a lot of downward pressure on price, says Phil Negri, CFO of Action Health. When this low-margin reality began to set in a few years ago, the company “knew that we had to get out in front of that, and we had to be as efficient as some of those gigantic distributors,” he says.
While many companies were resistant to the price-focused market pressure, Action Health saw an opportunity. But creating a more efficient company that could compete with larger distributors meant changes would have to be made.
One of the first steps toward a more efficient business was implementing a new ERP system, NetSuite ERP’s cloud-based solution, which Negri points to as the “change agent” that propelled the company’s realignment.
In 2014, when Negri and Sean Cwynar, president, joined what was then Action Bag Co., the company was serving two distinct markets – health care packaging and retail gift supplies, the latter of which generated only 20 percent of the company’s revenue.
“Having the software involved in the more advanced financial reporting really opened our eyes to the potential and opportunity within the health care space and also opened our eyes to the amount of resources that we were tying up in the slower-growth retail market,” Negri says.
This triggered the decision to sell the retail division to a strategic buyer and reinvest the proceeds into the health care packaging business, which showed a higher growth potential.
Reinvesting in the company and building it for greater scale and efficiencies was key for competing with much larger competitors while providing the lowest prices.
The sale of the retail division brought a new name – Action Health – and more importantly, a revitalized company culture centered on the mission “deliver savings to the supply chain.”
Upgrading to more advanced technology also boosted confidence in attracting key talent. The new “enterprise-class” tools made the company feel comfortable pursuing A-players who could leverage those tools to produce great results. “Before that, we just didn’t feel confident enough in the tools that we were providing,” Negri says.
However, getting on the “leading edge” did not happen without challenges and sacrifices. “I don’t think you can overstate the significance of changing an ERP system within a distribution company,” he says. “It’s a screen that people sit in front of hours a day and changing that is really changing someone’s world. It was a huge, huge cultural transformation for us.”
Although the transition was smoothed by proactive communication from the CEO, as well as a lot of preparation and support, some employees who were experts at the old system weren’t as willing to adapt and had to be let go.
“In order to be out in front of some trends and some changes, you really have to make some sacrifices like that along the way,” Negri says. “It’s important for the company to grow, and unfortunately some of those things have to happen.”
With sales up 18 percent compared to last year and a 40-percent gain in revenue per employee, Action Health’s hard work, sacrifices and dedication to their customers is paying off.
Negri credits that success to investing in people and technology. “That investment in technology has really enabled our talent to do some really great things,” he says. “On the flip side, our talent has also improved our technology as they recommend new features or find new ways to use the product. Those two things hand-in-hand have really been able to drive our success.”