"Many people in this industry are fed up with the status quo," Keith says. "If you want more for your business, it requires different thinking and different action. If we waited for a lucky break to energize our revenues, we'd be waiting a long time." He often recalls a quote from retired Rep. J.C. Watts (R-Okla.): "If you always do what you've always done, you'll always get what you've always got."
Keith wanted to get business from Novation, the largest medical group purchasing organization (GPO) based on purchasing throughput. It plans to select vendors in late September or early October for contracts that will begin Jan. 1, 2005. He also wanted distributors to win more contracts from Fortune 500 accounts and state and federal governments.
So did 14 other distributors seated in the room. When they left St. Louis, they formed the International Business Solutions Alliance (IBSA), and Keith became its president and CEO. A few months later, he left Best Business Systems and began working full-time on growing IBSA. Today, the group has 106 distributor affiliates. Keith's goal is to have 300 nationwide by 2006. "This will allow us to provide appropriate coverage, as well as work toward our ultimate goal of creating a national distribution network," he says.
Affiliates Join the Cause
Bonnie Boohaker, president of distributorship Innovative Business Products, Baton Rouge, La., received a letter and member application from IBSA in 2002. The group was trying to recruit her as an affiliate. "I was intrigued when I read that IBSA wanted to go after big business in the health care industry," she says. Innovative Business Products sold to medical firms, but Boohaker wanted to expand the company's business to the niche. "National accounts need national service," she says. "As an independent distributor, I don't have somebody in Spokane, Washington, or Utah to serve branches of major companies."
Boohaker believed in IBSA's potential and completed the application. IBSA asks prospective affiliates to provide information about their past and present operations as well future plans. An IBSA review board uses the information to check basic eligibility requirements. For instance, the distributorship must be independently owned. Following a successful prescreening, an IBSA member conducts a one-on-one interview with the applicant. The review board evaluates an interview report along with results of independent background screening (such as a Dun & Bradstreet financial report), then issues an invitation letter if the distributor meets all criteria. A potential affiliate has 10 days to accept or decline an invitation to join IBSA. Boohaker became an affiliate in 2002.
IBSA's typical affiliate has fiscal sales of $3 million a year and handles warehousing and distribution. "More importantly," Keith says, "we're looking for people who are still excited about this industry and want to make a contribution to it." Also, IBSA aims to be geographically diverse. "It's counter-productive for us to have dozens of affiliates in the same area," Keith says.
Financially, distributor affiliates make no commitment to IBSA other than paying a $100 application processing fee. Unlike other consolidation and ownership models in the industry, IBSA doesn't ask distributors to sell their companies, turn over account lists, lose control of receivables and payables, become part of a franchise, or change their firms' names. "The key difference is that you're independent but not alone," Keith says.
Operationally, IBSA affiliates make four adjustments: 1) They direct as much volume as possible (at least $10,000 a month) to a list of 59 IBSA-approved suppliers. IBSA's initial affiliates referred three of their best suppliers to become preferred vendors to the group. (IBSA screened those vendors, and screens new ones affiliates suggest.) When affiliates use IBSA-approved vendors, the vendors send IBSA rebate checks. 2) Affiliates support IBSA-approved suppliers by paying according to terms, including taking prompt-pay incentives. 3) They review their accounts and prospects, analyzing ways to target regional or national businesses that have offices in their areas. 4) They don't compete with fellow IBSA affiliates, choosing instead to foster an open exchange of information and ideas.
IBSA's model provides affiliates with several immediate benefits, including improved pricing levels as a result of combined purchasing power. In late July, IBSA plans to begin a rollout of IBSA-branded products and services, so affiliates can target national accounts while armed with promotional materials and marketing programs. IBSA also plans to offer affiliates joint account review, planning and presentation services; a technology platform that will provide affiliates the uniformity national accounts require; and more. "Our ultimate success hinges on establishing IBSA as a national marketing company, and all affiliates are expected to work toward that goal," Keith says.
Rich Stienstra, president of distributorship BRIDGE Information Systems Inc., an IBSA affiliate in Arlington Heights, Ill., says he's encouraged by the group's growth and enthusiasm. "Our energy, sense of purpose and commitment to accomplishing goals is very positive," he says. "What will the results be? Only time will tell. But IBSA isn't afraid to give this a shot."
Network Wants Major Medical Contract
IBSA publishes a monthly e-newsletter for its affiliates and approved suppliers. The March issue included a column by Keith that updated the group about its bid to win business from medical group purchasing organization Novation. "Before, we could only read about the Novation bid and think about what it must be like to get in on the action," he wrote. "Now, you are a player in that event. Think about that for a minute: You are involved in the largest bid in our industry."
IBSA and approximately 40 other vendors submitted requests for proposal in March, according to Barry Campbell, Novation's senior product manager for business services. In late September or early October, the GPO will award 3-year contracts with the possibility of two 1-year extensions. Novation hired a former Reynolds and Reynolds executive to spearhead the bid process. More than 80 IBSA distributors spent more than 5,000 hours preparing a proposal that filled an overstuffed, 4-inch ring binder, Keith says. Campbell expects to award 16 to 18 contracts in 12 main product areas, including custom forms, envelopes, medical labels, marketing printing (high-end commercial printing), and electronic print and mail solutions. (Read sidebar to "Good Medicine for a Tough Market" story on page 54.)
IBSA spent 18 months working on its Novation proposal. It created a health care committee to discuss the best way to go after the contract, and its members met eight times in Chicago, Indianapolis and Bowling Green. Boohaker, who was on the committee, says the group discussed topics such as price structures for various products, evaluating vendor capabilities and the importance of seamless technology systems. IBSA made bids for all 12 main product areas, as well as one "alternative" area (promotional products).
"We worked our tails off on this, and I think we've given them a proposal they'll say yes to," Keith says. He says the health care committee tackled tough, specific questions, such as how it would offer print-to-mail solutions nationally and how it would fulfill shredders for HIPAA compliance nationally. "It's easy to think regional and just about your distributorship," Keith says. "But when you're making decisions for what will ultimately be several hundred distributorships and suppliers, you can't take these questions lightly. You have to look at it through a different prism. It was a tremendous amount of work."
If Novation doesn't give IBSA a contract, Boohaker says, she'll consider the experience an important learning process. "If it doesn't come through, I don't think you're going to see people fall by the wayside and drop out of IBSA," she says. "What better way to understand how to go after national accounts than to go after one of the biggest ones?"
Keith says IBSA's model wasn't built solely to gain business from Novation. "We truly believe in our bones that we can change the way business is done in the independent segment," he says. "We feel like we can create a huge channel that funnels business by the tens of millions into the independent segment. Two years ago, that might have been wishful thinking, but we're about to make it happen."
Vendors Play Important Role
Brian Coats, account executive at manufacturer MAR Graphics, Valmeyer, Ill., learned about IBSA through Dan Schroeder, CFC, president of Danville, Ill.-based distributorship Promotek, and his partner Mark Musgrave (an IBSA manager). Coats listened to them talk about IBSA's benefits and soon believed in the group's potential. "For us, the advantages of IBSA are twofold," he says. "One is the potential of affiliates to gain national accounts in the future and send some of that business our way. Two is the potential for immediate business from existing affiliates. IBSA is opening access to a group of people I wasn't in front of before."
IBSA's partnerships with select vendors is a critical component of the business model, Keith says. IBSA provides the leverage of consolidated buying power and, in return, suppliers agree to provide significant economic benefits to IBSA affiliates.
Supplier membership is by invitation only: IBSA selects new vendors based on the best referrals from affiliates, as well as the suppliers' willingness to partner with all affiliates. Before adding a preferred supplier, an IBSA review board performs a "Vendor Gap Analysis" to analyze product areas for which affiliates most need sources. The review board also considers where suppliers' plants are located, realizing current suppliers don't want competing firms in their backyards. IBSA is looking for envelope manufacturers in the South and West, and Keith recently tried to fill in those "gaps" by talking to vendors at DMIA's TradeMart in Irving, Texas. The group also needs more expansive commercial printing coverage, he says.
IBSA conducts an ongoing review of its approved suppliers. Vendors are hungry for increased volume, prompt payment and clean orders, and "IBSA can deliver that winning formula," Keith says. But trying to negotiate better prices from vendors isn't the group's mission. "We're not trying to lower costs 2 percent or 3 percent; we're trying to double your company's sales," he says. "We don't beat ourselves up trying to look like a buyers' group and selling the idea of volume. That's not to say we don't work on that--we do. But we want companies to join because they want to sell to national accounts and go where they haven't gone before."
Boohaker says she doesn't mind shifting some volume monthly to IBSA vendors. "Actually, we've found a few great vendors we didn't use before," she says. "As distributors, you get in a rut sometimes, and it's difficult to change--that's always a hassle--but change can be positive."
Coats says MAR Graphics has noticed periods of "heavy quote activity" from IBSA affiliates. The company doesn't offer discounts specific to IBSA affiliates, he says, but it encourages affiliates to take advantage of prompt-pay discounts. "When affiliates pay promptly, companies like us don't have to finance anything--labor and paper purchases are paid for faster," he says. "If they don't take advantage of prompt pay, there's no rebate, so there's a big incentive for them to pay faster. Part of the beauty of the IBSA model is that everyone wins."
Scott Townsend, marketing manager of manufacturer DSFI, based in Addison, Ill., says marketing and buying groups work in other industries, including paper and office supplies. "There's nothing like this in business forms channel to focus on national account business," he says. "I've certainly bought into the idea, and I think it has been a long time coming." Townsend says DSFI had "the best month we've ever done with [IBSA affiliates] in March, and "the longer distributors are in the group, the more they're believing in the concept."
National Account Program Set for
July
IBSA affiliates and suppliers will meet
July 23-25 in Bowling Green to strategize and view tabletop displays from the
group's suppliers. Part of the meeting's purpose is to launch what Keith calls
the "IBSA sales pipeline" to major accounts. By then, he hopes IBSA will have
150 affiliates who will "look at their accounts and tell us honestly which
prospects they could take from $100,000 a year to $6 million if they just had
more resources." Those are the types of accounts IBSA will pursue. In the
meantime, IBSA's 7-member staff in Bowling Green will plan for the sales rollout
and track progress of the Novation bid.
Part of that planning is the
organization of marketing support for IBSA affiliates, who will gain access to
direct mail, telemarketing and e-commerce services to promote their businesses
and the IBSA brand. Coats recently suggested a cost-efficient marketing method
IBSA likely will implement. MAR Graphics would develop post card templates that
affiliates would personalize with their logos or special offers. The
manufacturer would digitally print and mail them, and numerous affiliates could
share the cost.
When IBSA gains national accounts, Keith
says, the group will be able to fund itself instead of relying solely on
supplier rebates. He says IBSA's headquarters will handle billing for national
accounts only, and the group is still working out the details of a
profit-sharing plan. Keith also says IBSA is working on attaining a
national-account software solution that includes the ability to export data from
other systems into IBSA's ASP system from Xetex Business Systems Inc., West
Lawn, Pa.
Keith expects combined annual sales of
IBSA affiliates to be more than $400 million when the July meeting begins. "With
good news from Novation, my guess is that everyone will be here. If we get bad
news, who knows? It could be a disaster," he says. "Either way, I think the
future is positive for us. Enough smart people understand that we're about
getting business collectively that we can't on our own. If you get that, you get
IBSA."
Darin Painter is managing editor of
Print Solutions. Email him your comments at dpainter@PSDA.org.
