MANAGERS ON MANAGEMENT:ANYONE WHO runs a high-volume, low-margin business knows that the difference between success and failure comes down to one factor alone: managing costs.
"No matter what state the economy is in - whether there's an upturn or a downturn - our business model means we simply have to be efficient all the time because of our tight margins," says Gary Collins, managing director of pharmaceutical distributors Cahill May Roberts (CMR).
CMR is a wholly-owned subsidiary of Celesio, a German multinational with 34,000 employees in 16 countries and turnover last year of €22 billion.
The Cahill May Roberts Group - including the Unicare chain of 16 pharmacies - had a turnover of €800 million in 2007.
But for the story behind those figures, look at the margins: "We work to a gross margin of about 15 per cent," says Collins. "But when you take into account the discounts payable to customers and our operational overheads in terms of staff and trading costs, our net margin comes down to just 2 per cent.
"So for us as wholesalers, success is all about putting high volumes through the business, achieving the best productivity we possibly can, controlling our costs - and constantly using innovation, particularly in the form of new technology, to give ourselves a cost advantage."
The backbone of CMR is its "just-in-time delivery" service. It's a huge logistical exercise that involves picking and packing 180,000 product lines a day in three locations and then making 2,500 deliveries to 200 hospitals and 1,200 pharmacies - the majority of which receive deliveries twice daily.
"It's a highly complex system, and technology is the key to managing it efficiently. Up to 97 per cent of the orders from retailers are placed electronically, and we in turn order electronically from the manufacturers. Goods are scanned in as they arrive and then the top volume sellers are picked and packed by an automated system.
"We're constantly trying to reduce the amount of paperwork and administration. For instance, we've just started using technology called Vocollect, which converts orders received electronically into voice messages that are then transmitted to staff wearing headsets.
"So instead of dockets spewing out of an unmanned printer in the corner and people wandering around an enormous warehouse looking for the products, the system server automatically locates the product and tells the employee where to go, right down to the batch number and the expiry date. And of course it's cross-checked right up to the time it's dispatched."
Because CMR is dealing in medicines, every batch can be traced throughout its journey to the retailer. Products such as cancer drugs are refrigerated at 2- 8 degrees and go right through the distribution system at the same temperature, monitored every half-hour - including while they're in the delivery van - until they reach the pharmacy or hospital fridge.
Any product can be withdrawn within 24 hours. In a system as delicately balanced as that, making savings is not just about cutting costs.
"Sure, we can cut costs, but that's not enough," observes Collins.
"The danger is that cutting costs all too often reduces productivity and quality of service - and as a high-volume, low-margin business, our whole ethos has to be based on the excellence of our service. That's how we survive.
"So ideally, what we need to do is to make savings that actually generate an increase in productivity, have a positive impact on the bottom line and improve quality of service. Well-managed innovation through technology allows us to do just that. It's the real challenge - whether the economy is up or down."
Name:Gary Collins.
Organisation:Cahill May Roberts.
Job:Managing director.
Management advice:Never stop improving your efficiency and productivity through innovation and new technology.
Next week: David O'Meara, chief executive of Havok, on why managers have to go beyond their jobs - and make a real personal contribution. petercluskey@yahoo.fr
