July 05

PartsSource

Founded in January, 2001, PartsSource was recently named Entrepreneur magazine’s “23rd Fastest Growing Company in America”. In addition, Smart Business magazine named them one of the “Five Best Companies in Northern Ohio” and Inside Business magazine awarded them the prestigious “Manny” award for job creation. Topping off these awards and honors, PartsSource’s President and CEO, A. Ray Dalton was named “Entrepreneur of the Year” in 2004 for the Central Region by the accounting firm Ernst & Young. Recently the Medical Dealer had a chance to sit down with Ray and ask him and some of his management team about the key ingredients to the PartsSource success story.

Tell us about how you came up with the idea for PartsSource.
A. Dalton: Many of your readers know I have started a few companies during my career in the medical industry but the two most prominent were National MD and OneSource Services. Throughout my leadership of these healthcare service companies one problem arose time and time again and that was finding inexpensive replacement parts for the equipment we were servicing. There was simply no one place we could call to get parts quickly and without significant hassles and calling the OEM with their constant price increases made that option unattractive. I felt that if there was one company that could service both Biomed and DI/Imaging parts needs quickly and at a lower cost the market would respond favorably.

What were some of the initial obstacles you had to overcome?
A. Dalton: When we first started PartsSource we made two assumptions that proved to be incorrect. Fortunately for us, both “errors” worked in our favor. The first mistake was assuming that we could run PartsSource as an ASP model where we would connect customers and vendors via the internet. We quickly discovered two things – one, that our customer did not generally have ready access to a computer while working on a machine (which led us to develop our outbound call center where we developed proactive relationships with our customers) and that over 95% of our vendors did not possess “real time” inventory on-line (which led to us develop a buying group that developed relationships with our vendors). The other benefit from our incorrect assumption was that we created a robust internal software application, PartsFinder, that has been invaluable in aiding our growth. The second “mistake” was in assuming that one of our Account Executives could manage a portfolio of 250-300 hospitals efficiently. We soon realized that when a hospital or ISO sent PartsSource a majority of their parts requests our people could only manage 50-75 and keep our customer satisfaction at a high level. But this too worked to our advantage as it meant our growth would be limited only to the number of qualified people we were able to hire and train.

What are some of the key drivers that have made PartsSource successful?
A. Dalton: Without question the #1 driver in our success has been our people. We believe that creating real, sustained relationships between our customers and our staff is the biggest secret to our success. When a customer orders a part from us they work with the same person every time, not a faceless overseas call center. And with every employee in our company on performance-based compensation it matters to all of us that our customers are happy with their purchase. We also support their efforts with tools such as our software application “PartsFinder 2.0.” Quite frankly, there is nothing else like it in the industry. It allows us to match requests with key suppliers instantly making it possible for us to find needed parts faster and cheaper than anyone else in the marketplace. We also continue to lead the industry in developing new and innovative programs like our newly launched “PartsSource Preferred” program and the “PartsSource Promise”. We have also developed an internal training department to ensure our staff is properly trained prior to connecting with our customers or our vendors.

Who are your customers?
A. Dalton: We believe we essentially have two customers on every transaction. We have the buyer of the part (usually either a technician or a purchasing agent based within a hospital or an ISO) and the seller of the part (usually either a second-source supplier or the OEM). On each transaction we must satisfy both parties in order to keep our customers satisfied. For our buyers we assign a dedicated customer service representative whose job it is to both manage and enhance the customer relationship. For our sellers we have developed a dedicated buying group who are responsible for maintaining the vendor relationship. Both parties have their own unique challenges and by assigning a dedicated group to each we feel we have the best chance to have both customers feel good about enhancing their relationship with PartsSource.

Why is PartsSource different from other companies selling parts?
A. Dalton: Where are we NOT different would be a better question. We are the only company who supplies parts for both BioMed and DI/Imaging for all makes, models, manufacturers and modalities. We are the only company who guarantees a two hour call back on all parts requests. We are the only company with an internally developed database/software application (PartsFinder 2.0) that instantly matches a parts request with the most probable supplier. We are the only company with both a physical inventory of parts and a virtual inventory of parts via the National Parts Alliance. Also, because we do not have a service group, we are apolitical and represent no threat to our customer base. And, in October of this year, we will be the only company with an desktop internet application allowing our customers to order parts on-line and have access to the same robust reporting features we now possess internally.

What benefits does a supplier get from selling parts to PartsSource?
A. Dalton: The biggest single benefit a supplier gets from selling to us is the reduction of their marketing/sales cost by using PartsSource. We currently have over 50 full-time Account Executives (and we’re adding six per month) who make 30-40 outbound sales calls per day to hospitals and ISO’s throughout the world. On each call the value proposition for the customer is pretty simple. If you call PartsSource whenever you need a part we will call you back within two hours (sooner if needed) with the current OEM price and other second-source pricing options that are available. There is no cost and no obligation to use our services. And because we are generalists as opposed to specialists, the technicians can call us on everything from a $200k CT Tube to a $50 finger probe and all points in between. It is difficult for many suppliers to sell a specialized product line directly due to the intermittent need the customer has for their product. But by partnering with us they get the benefit of our 1500 outbound calls and 700-900 parts request per day!

Do the OEM’s view PartsSource as friend or foe?
A. Dalton: Our relationship is rapidly changing and it’s been universally positive. Initially the OEM’s viewed discounted pricing to PartsSource as nothing more than cannibalism of a parts request that would end up with them anyways. But as we were able to prove to them that we were able to fill parts requests without having the OEM as a potential supplier they realized that we actually represented a channel strategy that they had overlooked. Let’s face it – if a customer is calling PartsSource they have already made the decision to go into the secondary market to reduce cost. And if we don’t possess a discount on new OEM parts, we simply do not present the OEM as one of the options to our customers. But many of the more progressive OEMs have recognized this and have begun to offer us discounts on their new parts in an effort to be part of our customer’s options when they call. OEC, for example, has partnered with us on not only new parts but on a fairly aggressive “end-of-life” strategy as well. By allowing us to manage their end-of-life inventory on their 9000 and 9400 C-Arm lines they not only eliminated their warehousing costs they also allowed their customers to keep needed equipment in service until they are ready financially to make an upgrade to a newer model. Kodak is another major OEM who has recently seen the value in a PartsSource partnership and has awarded us the first National distributor status in their company’s history. We view the OEM’s as a key strategic partner in our long-term growth strategy.”

What is the #1 problem PartsSource faces today?
A. Don Hubbard: Growing too fast. “Our customers have told us that they support the PartsSource concept, like saving time and money with no contractual obligation, like the overall quality of the parts they receive and enjoy dealing with the same person on all their transactions. What they’ve told us they don’t like is not always getting a callback from us within two hours. Our solution to this problem is to guarantee a call back within two hours of the initial request with an update or a solution or we’ll buy them lunch if we fail! We call it “the PartsSource Promise” and if the customer calls us back on the same day to let us know we broke our “promise” we’ll send them a certificate for a free lunch and we’ll still deliver the needed part at a lower cost!

How do you define success?
A. Dalton: I define success in two terms – professionally and personally. Professionally I view success as having a growing, profitable company with a positive cash flow where our employees enjoy coming to work each day and are paid well for their efforts. Personally I view success as being able to keep my priorities in line. And those priorities are God, family and then work and in that order. And I strongly believe my work has never suffered because of my priorities!

What’s next for A. Ray Dalton?
A. Dalton: Great question and it’s the one everybody thinks but few actually ask. Actually PartsSource is the end of the entrepreneur operations road for me. I have recently made a three year additional commitment to PartsSource beyond 2005 and at that time I plan to transition the day-to-day management of the firm to my executive staff. I will take on a more consultive role in 2008 and leave the nuts and bolts management of PartsSource to the other key individuals helping us grow today. I love this company for so many reasons, not the least of which being its located five minutes from my home and virtually my entire staff is under one roof unlike my previous service companies. But PartsSource is my last operating role. My next “job” will be in establishing a foundation whose sole purpose is to aid those organizations both here and abroad who are committed to making available quality health care to those in need and to partner with organizations to help them grow their companies profitably. That is my true passion and it’s my hope and prayer to be able to pursue this dream someday. But that day has not yet come!

For more information about PartsSource,
contact them at 877-497-6412 or visit www.mypartssource.com.