September 1, 2006
thought leaders | The DC Velocity Q & A

Learning the business from the ground up: an interview with Steve Inacker

learning the business from the ground up: an interview with Steve Inacker

Today he heads one of the most complicated distribution networks in the nation. But Steve Inacker started in the business at the ground level—literally—as part of a conveyor installation crew.

By Mitch Mac Donald

Talk about an executive who's not afraid to get his hands dirty. Steve Inacker got his start in the logistics business back in high school, when he worked summers as part of a conveyor installation crew. It was not just a great learning experience (and a tidy little paycheck for a high-school kid); it was an experience Inacker later parlayed into a high-level distribution position at health-care titan Cardinal Health (19th on the Fortune 500).

In the intervening years, Inacker worked in sales, first for a distribution automation company and later for a health-care supplier, where he moved into management and consulting positions of increasing responsibility. But in 1998, managers at the company, which had recently been spun off as Allegiance Healthcare, got wind of his distribution background and promoted him to regional director for distribution in upstate New York.

With the exception of a two-year stint as a sales operations VP, he's been in distribution ever since. Today he's president of Hospital Supply Distribution for the company's Supply Chain Services-Medical operations, a position he has held since December 2004. In this position, he's responsible for the company's medical/surgical distribution business as well as the related sales, marketing, operations, and vendor relations functions. He oversees management of nearly 400,000 SKUs, ranging from surgical drapes, gowns, latex gloves and IV fluids to toxic chemicals used in diagnostic labs.

Inacker recently spoke with DC VELOCITY's editorial director, Mitch Mac Donald, about the challenges of truly time-critical distribution, the need for standardized product ID numbers in the health-care industry, and what it will take for companies like his to embrace RFID.

Q: You really are a textbook example of someone who got into this business right at the ground level, aren’t you?

A: I guess I am.My interest in this business, oddly enough, started when I was in high school doing conveyor installations for Rapistan (which is now a division of Dematic). They needed summer help for installations and it was about the best job you could have because you mainly traveled along the Eastern Seaboard doing conveyor installations in different cities.You would be gone five days and come home on the weekend, pick up a paycheck, get your laundry done and then leave again on Monday. It was almost a dream job and you got to bank a lot of money. It gave me a lot of insight into what distribution, automation, and technology really looked like in some very sophisticated operations. I did that during the summer for a couple of years in high school and all through college. In my junior year of college, I did an internship with Rapistan.

Q: So, unlike the rest of us, you weren't completely unfaA miliar with the idea of logistics as a high school or college student?

A: That's right. I got a good sense of what it was all about from that experience. It wasn't something I specifically set out to do, but I had something of a mechanical bent and I found myself absolutely fascinated with the equipment and the technology. I think that moved me toward the profession, though my degree was in business management, not engineering.

After I finished college, Rapistan offered me a job as an apprentice engineer, which I thought might be interesting. I spent just about two years in that job, doing a lot of drawing—which, back then, was really drawing as opposed to the CAD systems used today—as well as all the field site work for various installations. At that point, my career took an unexpected turn. I took a position as a junior sales rep and then moved up through that part of the organization.

Q: So you initially migrated up through the ranks on the vendor side, rather than the end-user side. When did you cross the fence over to the user side?

A: In 1992, we were living in Grand Rapids, Mich., which was corporate headquarters for what was then, I think, Rapistan Dematic—the company name changed three times while I was there, so it’s a little tough to keep track. One of my neighbors worked for a health-care company, Baxter, which had an opening in western Michigan for someone to sell medical products for use in the operating room. I wasn’t looking for a new job—I had two young kids and I was traveling all the time for Rapistan—but I agreed to talk to them if for no other reason than to see what was going on in that industry.As it turned out, I really got along well with the management team and liked the opportunity and ended up making a career shift. I went from selling distribution automation technology to selling drapes and gowns and custom sterile kits in the operating room. That is about as far afield as you could possibly get.

Q: OK, so far you've been a conveyor installer, an apprentice engineer, a material handling systems sales rep, and a health-care products salesperson. Where do we go from there?

A: After about three years in that job, I moved to Detroit to take a job as a regional manager within the same division. During this time, Baxter spun off the distribution and manufacturing businesses to concentrate on its biotech businesses. The division I worked for became a new company called Allegiance Healthcare, which both manufactured health-care products and distributed supplies to acute-care hospitals. After a stint as a cost management consultant for our surgical division, I migrated back into distribution after the organization found out that I had a distribution background. There was an opening for a regional director of distribution in upstate New York. We packed up and went off to the Buffalo area, where I managed distribution, sales and operations for the upstate New York market.

After operating as a separate entity for almost three years, Allegiance was acquired by Cardinal Health in 1999. My next move was back into manufacturing, running sales operations for what was the custom sterile pack and procedure- based delivery business in Chicago. From there, I went on to oversee the technology side of the distribution business, which included responsibility for DC network design. At the time,we had a 54-DC network.My job was to decide where to put DCs, where to add annexes, how to refine the network, and what the transportation system would look like. The neat part for me was getting back into distribution technology with responsibility for all of the supporting technology, all of the infrastructure, all the conveyor systems and racking, all those kinds of things.

Q: Coming right back to that fascination that you had as a teen.

A: Exactly. It is probably one of the best jobs I've ever had because we got to re-evaluate and change what we were doing with what was, at the time, Cardinal Distribution. We had a very diverse mix of facilities—ranging from small (100,000-square-foot) manual operations to large (700,000-square-foot) metro centers with traditional conveyor technology to highly sophisticated facilities with mini-load AS/RS technology.

Q: Describe Cardinal Health and the operation that you are responsible for today.

A: Cardinal Health is a $75 billion health-care conglomerate based in Dublin, Ohio. The majority of our revenue (about two-thirds) is generated through pharmaceutical wholesale distribution. We play both in the retail space with traditional retail drug chains and the acute-care space, shipping into hospital pharmacies. After that, the medical/surgical distribution and manufactured products segments represent the next largest portion of the business.

Cardinal Health really isn't that old. It started in 1972 as a food distribution business, migrated to wholesale drug distribution and has continued to grow through acquisitions.

Q: I’d guess you face some logistics challenges that are unique to the health-care industry?

A: Absolutely. Probably the biggest one is the wide array of SKUs that we support in our 49 DCs. In our medical- surgical distribution business, which is the business that I have responsibility for, we actively manage about 390,000 SKUs.

I will complicate it a little further for you. There are really a couple of different elements to our distribution centers. You have what we call bulk deliveries, which are basically deliveries of medical-surgical products on pallets to a hospital. We also have a unique low-unit measure offering.We deliver totes of products to hospitals that can be taken directly to the stocking area for replenishment purposes as opposed to going into the storeroom.We also have a laboratory business called Scientific Products, so you are storing and managing all of the products, which include reagents and chemicals and toxic materials and refrigerated materials that are used in both standard diagnostic laboratories and in acute-care hospital labs.

On top of that, we are also a 3PL [third-party logistics service provider].We manage all of the IV fluids and associated products for Baxter, which we used to be a part of, for distribution into the health-care space, so we are a true 3PL. We don’t own the inventory. We don’t handle their customer service or invoices. All we do is pack and ship.We are a private-fleet distribution company. About 80 percent of what we ship goes out on our own trucks.

Q: Wow! How large is the fleet?

A: We have 650 power units and about 800 trailers. Again, this is specific to the medical-surgical hospital supply distribution business—we only handle the medical-surgical products, laboratory products, the IV fluids ... those types of things. It is about a $6.5 billion business.

Q: I'd guess your fleet handles a lot of time-critical shipments?

A: There's no question about it. We are hitting about 90 percent of our customers the day after they place their order. Think about it. You've got such a wide array of products. You've got frozen drugs that you have to deliver, uniquely packaged. You've got operating room (OR) procedure bundles—if a doctor schedules, say, an open-heart procedure, we bundle virtually all of the consumable disposables for that procedure into a kit and deliver it. It is obviously very time-sensitive for customers who are not keeping a lot of inventory. You've got all of the refrigerated product and cool room product. You have all the laboratory and reagent-type products. You have your IV fluids, so just about anything that you can think of in a hospital that is not equipment-based would go on our truck. We do sell equipment—light stands and poles and all those things—but it typically goes direct from the manufacturer as opposed to going through our distribution network.

Q: I'd also guess that some of the products you distribute require special handling because they're classified as hazardous materials or biohazards. Correct?

A: That is correct. We are regulated by the Food and Drug Administration (FDA), which means we must meet some pretty stringent requirements for the special packaging and special labeling for products. But more importantly, we have to track every product even down into our DCs so that in the event of a recall, we can tell the customer and the FDA exactly where and when and how much of each one of those products we shipped to a particular customer.

Q: You have to be able to track items right down to the unit level?

A: Yes, and what is difficult about that is that the healthcare industry lags behind most other industries when it comes to technology, especially with unique identification numbers. We have no standardized numbering system and thus, no standard bar-code symbology. As a result, we often wind up labeling product ourselves when it arrives at our DCs so that we'll be able to track it for FDA purposes should there be a recall.

Q: Do you see that problem being resolved anytime soon?

A: We have a lot of committees working on it, I will tell you that. It is frustrating because this has been a bone of contention for over 10 years. But because there are so many different health-care manufacturers, there has been very little collaboration in [moving industry toward adopting] a unified numbering system.

Since we are distributors, we don't drive that decision. We try to facilitate it, but our primary agent is our trade group, the Healthcare Industry Distributors Association. We have been working on this for years and years. I think we are starting to get some traction because HHS (the U.S. Health and Human Services Agency) and some other government agencies have stepped in and said you really need to do this. Big companies like Johnson & Johnson, 3M and Becton Dickinson are very compliant, but they're in the minority. I mean, they've got huge volume, but there are literally thousands of other manufacturers that don't see a need to comply at this point in time.

Q: And complicating all of that, you’re trying to do this at a time when the health-care sector is seeing some rather substantial growth.

A: You can’t deny the demographics. In the United States, every eight seconds, somebody turns 50 years old. That is when you start your largest consumption of health-care services.

Q: So business is going to be on an upswing at least through the next eight to 10 years when the tail end of the Baby Boomers hit that half-decade mark.

A: You're absolutely right. It is a good trend.

Q: With all the talk about RFID or this new thing I'm just learning about called RuBee, what do you see as the next big technological breakthrough for logistics?

A: I think RFID is certainly one that has everyone testing the waters. The Department of Defense mandated that its distributors use RFID and we are compliant with that, so we are using that technology. I'm not sure if that is going to be the game changer for health care. I would like to see something else that doesn't cost as much because we literally ship millions of boxes a month. The [RFID] tags just aren't cheap enough yet. We're not going to rush ahead with this until you see the price point for tags come down quite a bit.

Q: How do you define excellence in supply chain management?

A: What we're striving for is more seamless movement of product all the way back from the manufacturer through to the end user. It is what we call "from the dock to the doc." In other words, when the day comes when we can move the product smoothly through our channel with the fewest possible touch points, then we will have achieved supply chain excellence. Our supply chain is certainly not there today, but that is what we are striving for. We want to minimize those touch points that add cost, while still providing excellent service and value to the customer.

Q: Here's another question out of left field. If you were giving career advice to young professionals, what would you say is the single most important skill they need to succeed in the logistics profession?

A: I would tell them they need to be open-minded. They need to be flexible and they absolutely need to be willing to collaborate. Within our business, you serve so many different constituencies that there is no "one size fits all" model, so you can't go in with preconceived notions about what's going to work. You really have to listen and understand the needs of the customer before jumping to any conclusions about how you can successfully meet that need.

About the Author

Mitch Mac Donald
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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