Episode 6 Jun 04, 2020

The Uneven Demand Problem in Medical & Life Sciences Distribution

While it’s true that hospitals and laboratories have seen unprecedented demand spikes for certain products throughout the COVID-19 pandemic, demand for some major revenue-driving inventory has completely disappeared. Zilliant Vice President of Customer Success and Support Rick Chappel and Mick Naughton, a sales director with over 13 years of experience in the medical and life sciences space, talk through this peculiar scenario and the commercial repercussions happening as a result. 

They also address supply chain disruption leading to cost increases and the exceedingly important role of eCommerce in the era of social distancing. Listen to this lively chat to learn concrete strategies distributors in this industry can adopt to mitigate the pain of uneven demand and retain margins without committing the sin of price gouging.

Mick Naughton

Mick Naughton

This is a highly competitive, high-demand, high volume industry. The ability to speedily bring a quote back to somebody that needs a product is paramount. And, if you could do that in an automated fashion - and not wait for a sales rep to have to enter it into the system - that’s absolutely critical. 
- Mick Naughton, Zilliant

Episode Transcript

Rick Chappel: Hi and welcome to B2B Reimagined. My name is Rick Chappel. I'm the vice president of customer [00:01:00] success at Zilliant and I'll be your host for this episode. Joining me today is Mick Naughton, a sales director at Zilliant. I was so excited when Mick joined Zilliant because he has such rich experience in the medical and life sciences, distribution space.

Nick, I'm so excited to talk to you today.

Mick Naughton: Thanks, Rick. This is great. I'm excited to talk to you.

Rick Chappel: I know you've been in this space for more than 13 years. I wonder if you could just share a little bit with me about what are some of the fundamental things that are important or the lessons that you learned while you've been in this space that our listeners should be thinking about?

Mick Naughton: It's an interesting space. Obviously, it's getting a lot of focus these days with COVID and everything around the folks that are trying to find the vaccines for it, and the folks in the clinical space that are treating patients. This space exists on a broad continuum.

If you think about it, it goes all the way from folks in the research lab at universities, major medical [00:02:00] research universities doing pure research on trying to find novel drugs and different things that can help patients, through to the pharmaceutical companies that are then doing the drug development and the manufacturing, and then in the clinical setting - the hospitals and the folks that are using medical supplies. There's a ton of overlap between those three areas. They use a lot of the same types of products. So, a lot of PPE: gloves and gowns and face masks and hand sanitizers. But they're all facing different challenges as they're working through this current environment.

In the university space, there's still a demand for PPE. A lot of university and pure research has been shut down. And they're working through how to come back online, how to keep things flowing. The drug companies are really very focused on COVID research and changing all of the research work they are doing.

And then the hospitals are seeing a huge demand [00:03:00] and need for PPE. But then, some of the basic things like elective surgeries and some of the things that are not essential to COVID, are way off. It's an interesting time. There's a lot of changing dynamics and I think there's a lot of different approaches folks are going to take to manage through it.

Rick Chappel: That makes total sense. I love that you pointed out this dichotomy. People in this industry, and companies in this industry, are seeing here in the United States where we've heard so much about hotspots, like the New York city area, New York, New Jersey hospitals that are overwhelmed.

And in those places, you couldn’t get enough PPE fast enough. At the same time, as the rest of the country works through it, we all want to flatten the curve. Right? You've got a lot of hospitals that canceled elective surgeries. And we have revenue way off, and a lot of things that those hospitals would normally be buying, they weren't. And so suppliers in this medical - my scientist space - are really challenged; incredible hard-to-meet demand, disrupted supply chains in certain places, and [00:04:00] a complete lack of demand in other spots. What are some of the tools or techniques that you've seen as a sales director Zilliant, and in your prior experience, that could help these companies navigate this dichotomous environment?

Mick Naughton: I'll take the perspective of folks that are selling into clinical settings that are supporting anybody that's on the front lines, particularly in PPE - if you're looking at models and you're looking at using price optimization, you have to make sure that you're bringing in that intuition combined with the technology. Because there's a real perception thing out there that’s happening.

From the standpoint of PPE, you can see demand curves go through the roof. One of the major suppliers in the clinical setting has said use of PPE face masks, hand sanitizers, testing kits, and all of those things are up 300%.

One of the stats I heard was [00:05:00] that inside of just a year, they've shipped 15 million more masks than they did in all of 2019.

When you're doing price optimization, you're trying to manage revenue on a demand curve. You would see a huge demand, but you have to be very cognizant and cautious about the perception of price. Price gouging can be seen in the marketplace. If it can be picked up, a whiff of that can be a real issue from a public perception.

This is where using the tools, the technology, using your resources and your team will make sure that you've got a strategy you're sticking with. You're staying in place. That keeps you in that great above-the-board place. Simultaneously, one of the things that we're seeing, and hearing, is that there are real issues in supply chain. You have cost increases coming through, and some of them are significant - upwards of 50 and 60% for a lot of the things that are being sourced overseas. [00:06:00] In these critical spaces, you're seeing real cost pressure.

And so, you'd need to account for that. If you have a system that helps account for that quickly and efficiently, you can set it with your strategy of not trying to push through more price into a marketplace that isn’t above what you're experiencing. That approach, combined with the tools and technology, will allow the suppliers to come through and manage through this issue, and be seen positively and remain profitable, simultaneously.

Rick Chappel: That makes total sense, Mick. At Zilliant, we've seen some other historic disruptions to different supply chains. Nothing that I'm saying compares to this identity event, but I know one of the techniques we've seen customers use. You might even think about executive communication directly to your customers. Right?

To explain that you've got a disrupted supply chain that's driving costs for the business helps provide some cover for [00:07:00] some of the price moves that you might need to make, just so you can continue to be a viable supplier in a challenging environment.

Mick Naughton: Absolutely. I have seen those letters. And they're very direct and specific to supply chain. They are transparent in passing along the information that there are cost increases in the system and that they're accounting for it. And they're not price gouging. They're not taking advantage of the situation. They're going to be a good long-term partner for the folks that are out there and are going to work with them.

You have to have strong communication, strong strategy, and then the tools and technology to be able to execute on that.

Rick Chappel: That makes total sense. What do you see, or rather, what do you hear from the folks that you talked to about the expanding role of eCommerce as customers are trying to navigate at this time?

Mick Naughton: ECommerce has been, at least particularly in the medical supplies industry, a very strong push for over a decade now. The ability to self-serve and go online [00:08:00] has been a real push, just because of the number of products, the complexity, the ability to search and compare and contrast, eCommerce has been a pretty big area.

But what I think you're seeing is now that you've got a lot of your field salesforce staying home. They are serving their customers. But the ability to combine eCommerce along with potentially automated deal negotiation, although they may not be face to face, the customer is looking for a quote. And they're looking for it in a more timely fashion. And they want to do it through your website.

That ability to do that without necessarily the direct presence of a sales team in the field every day, being a touchpoint with a customer, is still an important part of the selling environment. They need to be the experts on some of the different products that are there and the resource. But for day-to-day quoting and being able to just get a price for a product and be able to buy it, the drive toward [00:09:00] eCommerce is only going to be accentuated by what we're going through.

Rick Chappel: That makes total sense. As we see more and more people working from home, we see sales teams that are not often allowed to call on their customers directly like they might've done historically. Yeah. Makes total sense that eCommerce becomes a focus.

Mick Naughton: Yeah, absolutely.

Rick Chappel: A few questions that I wanted to ask you: How do you see distributors being able to maintain price consistency across online and offline channels?

Mick Naughton: As you drive towards eCommerce and the ability to have a strong system, you might have agreement pricing. In this industry, contractual agreements are commonplace. Whether it's the medical supplies industry where there's either direct agreements between a large hospital system and the suppliers, or they're buying through a group purchasing organization, that aggregates the spend of lots of little hospitals and in the laboratory [00:10:00] supplies space. There are some pretty large group purchasing organizations that have these contracts.

To have that ability to have an eCommerce site that is able to load your pricing, manage through the ability to where there is negotiation, or where there is specific spot pricing or contract pricing in place, and to have that in place in a really efficient manner is critical - particularly in an environment where you don't necessarily have the sales reps out there on a day to day basis to use any eCommerce channel where you're pulling in your agreement pricing. To have that automated deal negotiation is really going to help the companies that are ahead of that curve and have that technology in place, positioned to be successful through this and beyond.

Rick Chappel: Nick, you mentioned something really interesting. Did you talk about automated deal negotiation? I know some of our customers at Zilliant are using that. But there might be some businesses that don't really know what that is yet. Can you explain that?

Mick Naughton: Sure. As our [00:11:00] tools and technology take a look at your customer base - the ability by hand, particularly in this industry- are large customers that are complex. They buy lots of different products and they exist in discreet market segments - whether it's a small biotech company that's just doing pure research or if it's a large university, or if it's a hospital system. That ability to have those discrete segments that tie back to what the real envelope of pricing should be, a lot of that happens and has historically happened in the field. You have specialized sales reps that know their territory. They know their geography. They know their customer. And they bring that to bear in terms of how they do their pricing.

This is just continuing to be more complex as more products and more market dynamics get brought into place. Using AI and machine learning to help envelope micro-segments where you can really develop a pretty specific [00:12:00] price envelope based off of where maybe their current price hits, maybe it's list price, or maybe they get a general discount, when they come through and put in a request for a quote, and you have systems in place that can look at that customer, understand where they fit in the segment, understand the potential elasticity around the price, and then just deliver that pre-negotiated price automatically, maybe it's through eCommerce or a quoting tool, that's powerful.

There's a lot of dynamics that go on that are tough to account for, even for folks that have been in the field for a long time. And this environment is one that I think proves that out. Having a tool that allows that to happen and be able to deliver a spot price on a product that's within the bounds of where it should be bought by a customer is just so powerful. And you're going to see more and more moves in that direction.

Rick Chappel: Mick, is speed of reply particularly important in this space? You think more than other distribution industries? [00:13:00]

Mick Naughton: Absolutely. This is a highly competitive, high-demand, high volume industry. The ability, particularly in the area I was in which was research supplies, to speedily bring a quote back to somebody that needed a product was paramount. And, if you could do that in an automated fashion - and not wait for a sales rep to have to enter it into the system, to maybe get price approvals, and workflow through their system.

Yeah, absolutely. It’s critical.

Rick Chappel: That really emphasizes the need for a tool like automated negotiation. If you're trying to preserve business in a highly competitive environment, I'm thinking about what you talked about earlier. Right? You have distributors that are competing for business amongst hospitals that have a minimal volume of elective surgeries happening right now.

You could imagine some distributors trying to poach maybe at [00:14:00] ridiculous prices, just to try to get some volume. You have to respond quickly to a quote request. And this seems like a great way to do that.

Mick Naughton: Yeah. And I think you made a great point particularly with these parts of the industry that are down. I think that being able to speed the response is great. But I also think that's where the tools and technology can really help, as far as dropping price in an area that's just down because of the current environment isn't necessarily going to perk up demand.

And you might have some folks that come in and do some bottom-feeding and scraping. But from a strategy standpoint, that's almost where using guidance using historical transaction data you can say that's what that is. That's somebody that is coming in and trying to poach some business.

But even from a strategy perspective, you can use these tools to make some decisions about the business you don't want to participate in. That [00:15:00] maybe, it's not time to try to get that volume back in, or to try to drop prices to get volume back. And having price guidance inside of a tool when you're quoting, even if you're quoting quickly, allows companies to make better long-term decisions for themselves.

Rick Chappel: I love that call out. Lower price doesn't always stimulate demand. If there's no demand, you're just giving away margin on transactions you would have won otherwise.

Mick Naughton: Right. Absolutely.

Rick Chappel: As we talk about maybe being in this situation where distributors are competing for limited business, are there some other ways that distributors can sell more to existing customers or will prevent customers from defecting in the face of maybe ridiculous offers or short-term offers from your competitors?

Mick Naughton: Part of it is the ability to have a full offering. A lot of what we're seeing, particularly in this PPE space, is that you've seen the states going out and trying to do direct sourcing from overseas, potentially. And they're dealing with somebody that may be a little bit more fly by night.

They might be doing a little bit more lowering the price, but the quality is not there. I think that's where the ability to stay focused on your service, make sure that you're staying consistent with your pricing. But really where it can come in and where the opportunity is, is something that helps them really provide that broader offering and make recommendations. Somebody that is experienced in the field knows your customers and then can use tools and technology that give them things to cross sell, to upsell, and to make recommendations.

If you've got somebody that is competing against you at a very lower price, maybe there's an offering within your portfolio that you can offer. And tools and technology that bring that insight to a sales rep are going to be great tools. [00:17:00] And they're going to be things that allow them to provide a much more full-service offering and support for their customers.

Rick Chappel: I love that. I hear you saying there's technology available that can deliver this information right to the rep that says, “Hey, you're losing volume at a customer” or “There's categories that this customer could be buying” and hook up those productive conversations.

And that helps protect you and this ultra-competitive, no lack of surgery side of environment, and maybe even provide opportunities to sell some things that you weren't before and take that business away from a competitor.

Mick Naughton: Absolutely. And that's where there is an opportunity where maybe you weren't selling a particular item to a customer. And, based on the kind of customer they are, based on where they are, what they do, they should be buying. If they're buying product A from you, they really should be buying product B and C. But [00:18:00] historically you may not have been selling that to them. I think you're in a time and a period where, if you have tools and technology that allow you to understand in a much more comprehensive way what are the range of products that this customer can buy, and you can make that offering, you might be in a position to pick up that business because you're bringing that insight to them.

Rick Chappel: Great. I love that. We touched a little bit on process earlier. We talked about how important in this medical and life sciences distribution space being able to respond quickly is. Do you have other ideas, Mick, for our listeners, that have to do with the quoting process, closing more deals, decreasing manual overhead? Any other thoughts about how they could improve their quoting approach?

Mick Naughton: The automated deal negotiation is a great one. And I think that there's a real opportunity. One of the things that we've looked at and I know is there is a lot of quoting, but [00:19:00] does there necessarily need to be, and could we use some of the tools that are out there to actually help build matrix pricing that doesn't necessarily require quoting that you've captured and forecasted? What are the types of products this customer might buy that didn't necessarily hit their hot list? And can you provide a discount right out of the gate that just hits the matrix of the discount schedule? That automatically is attractive to them and allows them to buy that product and maybe not necessarily reach out and ask for a quote. I think that's where there's some opportunities there to structure some of the agreements ahead of time. We know there's always going to be the very high-volume items that they're going to need a super competitive price on, and they're going to hit a hot list. But maybe some of the other things that they're not going to use a ton of, but still feel like they've been conditioned to reach out and get a quote. I think if you can start building agreements that have a discount right out of the gate that are attractive enough., you might be able [00:20:00] to reduce some of the quoting just through that process alone.

Rick Chappel: Great. I love that advice. I especially love it if you think about pairing that advice with your eCommerce advice, right? So, if a customer can log into your eCommerce site, and they're able to see appropriate prices that they find compelling, they don't necessarily have to be pre-agreed or negotiated prices. They can be matrix prices that are appropriate for those products for that customer and those prices they might think are good to go. What a great way to get a buy decision quickly using matrix prices and eCommerce aligned!

Mick Naughton: Yeah, absolutely, particularly as the technology becomes better and better, where you can really create a specific segment for every customer.

You can really understand the buying behavior and the patterns. And you can anticipate, ahead of setting a long-term agreement, what that customer is likely to buy. They've got [00:21:00] their high-volume items that they can identify pretty quickly, but if you can create a profile and really specifically put a customer in a segment that anticipates what their buying behavior is going to be down the line, you can capture that much more efficiently. And save yourself a lot of time in terms of manual overrides and the different quoting that might go on a daily basis.

Rick Chappel: Yeah. Thanks. That makes total sense. Mick, it's always fabulous to talk to you. I think we're about out of time here, but I wanted to ask one more question. Are there any last thoughts you'd have for folks in this industry who are trying to navigate a turbulent time? Are there any last things that we didn't touch on that you wanted to share with folks?

Mick Naughton: It's about making sure that you are sticking to a strategy. That you're working with your technology partners - particularly for companies that are out there and using tools to help them make some of these strategic decisions. The models [00:22:00] that are there to help you are good, but they require both science and intuition. And you usually have technology partners that are there to help and support that.

And making sure that you're sharing your strategy with your technology partners, that you’re using the tools appropriately and gut checking against where you're trying to head. If you have that combination of a strategy, plus a good technology and a good technology partner, you're going to be significantly further ahead than a lot of your competitors.

Rick Chappel: That makes total sense. Well, Mick, thank you. It's been great talking to you. I think that brings us to the end of our podcast.

I wanted to mention, you talked a little bit earlier about intelligent automated negotiation. You have a great white paper about that at Zilliant. We'll be sure to put that in the notes for this podcast. If you're interested in reading that white paper, you can certainly find it there. And thanks so much for tuning in and listening to us today. [00:23:00]

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