One of these clinics was run by an Air Force type, and the whole operation was a “tight ship”, to mix metaphors.  The other was run by an agent of Kaos, the nemesis of Maxwell Smart both in name and in general resemblance to the 60's generation.  Both clinics had formalized purchasing systems for supplies and equipment.  Someone recently asked me to set up a medical supplies “storefront” Website, triggering a retrospective on my days in the medical community.  Presumably this site was going to compete on price, a scary thought to me since competition in the medical supply field is about like Wal-Mart vs. Smith’s and Sons Main Street General Store.

At any rate, “Major Healy” kept his supply room stocked with bulk supplies purchased well in advance in quantities designed to assure the lowest price.  I ran reports every six weeks showing projected understocks and estimates of cash flow required to replenish them.  Purchasing was done every three weeks, and some items were stocked for six month contingencies.

“Dr. Feelgood”, in comparison, bought stuff when he ran out.  Sometimes the same van from the same medical supply operation would grace his parking lot three times in one day.  The only other truck that showed up more was the roach coach.  A credit card was dedicated to supplies purchases; reconciling this statement was our exercise in cost accounting.

I remember that Maj. Healy and his staff spent about $50,000 a year on supplies.  One other thing I remember was the time we had to empty out the stock room to make space for a newly added physical therapist.  We had to move a bunch of this stuff to an unimproved area of the building, which took up about 250 square feet.  This means we spent $250 a month on the supply closet, or about $3000 a year.

Feelgood, by comparison, bought “just in time” and paid dearly for it. For some strange reason, however, I remember that his credit card statements didn’t come out to any more than $3500. This would have annualized to $40,000 or so. Since he didn’t really inventory his supplies, he didn’t pay for any space, so he hadn’t tied up $3000 a year in real estate.  These clinics were more or less the same size, so they should have had the same costs.  Healy should have been cheaper, since his was well managed, but I retrospect I realized this wasn’t true.  For awhile, I didn’t get it.

Both of the doctors tended to pursue the “state-of-the-art”, which was changing pretty rapidly, and something finally began to penetrate my thick skull.  Healy bought in advance, and then had to throw out stuff that was obsolete.  This got even worse. . . Healy spent a lot of time designing and maintaining inventory control, which meant he lost $200 an hour in revenue opportunity for every hour he spent “managing” clinic inventory.  This was laughable for Feelgood, all he managed to do was show up.

I had this recollection in particular of a cart with a plastic bin on it, where we were emptying some items off a shelf to dispose of.  Maybe it was a hundred here or a hundred there, but it added up.

Feelgood, in essence, used his supplier’s warehouse space and inventory management skills, which he paid a premium for in same-day, small quantity deliveries.  Therein is a lesson for any Internet based supply house: Speed Saves.  Competition on price is a disastrous mistake, since it forces planning and management into the hands of people who have better things to do with their time.  In retrospect, the supply house should have opened a “carry out” at the end of our professional building.  Or maybe a vending machine behind the gift shop.  Whatever.

Our Web “storefront”, then, would be able to capture orders from the local MDs, but the genius in our business would have been getting the stuff there in an hour.  How much we invested in Web development would be less important than what we invested in fulfillment.  The more I thought about this, the less I, as a participant in it, mattered in the ultimate outcome.  People who know me know I like to matter a lot.

The Japanese taught us a crucial lesson about inventory, which was that excesses could hide problems on the factory floor. As inventories of semi-finished goods become smaller (and are thus used up more quickly), over- or under-capacity is identified in various parts of the factory.  As these distortions are corrected, fewer resources are tied up in inventory, lowering costs and (hopefully) raising profits.  Technology innovations can be brought to bear with greater speed, since there are no “leftovers” that have to be consumed with outdated processes, or written off.

Some service businesses have similar issues.  While the local taco house looks to you like goods, it is a service, since they cook the food and clean up afterwards and even in some cases entertain you, even if it’s just a TV perched in the corner.

America is a “just-in-time” economy, unless you live in West Texas and have to drive 200 miles to the grocery store.  The Internet will, over time, make it more so, perhaps in combination with a “tube” or pipeline running into every household.  My idea is ordering a Supersized Combo to go, without me or anyone else having to get in a vehicle to get it or deliver it.