Before 1983, physicians purchased their office supplies from the same suppliers who served hospitals and nursing homes. Physician customers were on those same routes but only saw the supplier once or twice a month. This required them to carry excessive inventory so they didn't run out of things like syringes, table paper and tongue depressors.
Seeing an opportunity, Patrick Kelly started a Florida company called Physician Sales & Service (PSS). It offered faster service; taking orders and delivering them the very next day. They were able to charge more for their products, because the service was so valuable to the doctors they served.
As PSS expanded in Florida and into the southeast U.S., they ran into competition who matched their service, offering next day delivery. PSS upped the service level, providing laptop computers to their sales people who could transmit orders in the morning to have on trucks that afternoon.
Same-day service was a big hit and the company continued to grow. Ultimately they set their sight on being the first national physicians' supply company. Just as they set that goal, competitor Taylor Medical announced it would be the first nationwide physicians' supply company. The race was on.
Taylor Medical was located in Beaumont, Texas. They didn't offer same-day service in the markets they served. In 1991, PSS opened a branch in Houston. They also placed a sales representative in Beaumont, seventy miles away.
One day Kelly met with the Beaumont truck driver and recounted this conversation:
"Todd's (Todd Modi, the sales person) out in Beaumont today," he said. "He might not call in an order, because he probably won't sell anything. But at 11 o'clock you are to drive this van to the city limits of Beaumont. Then you can turn around and drive back."
About twenty minutes later the driver's manager approached Kelly.
"Pat, the driver says you told him to drive to Beaumont."
"That's right," Kelly replied.
"But there's nothing to deliver. He thinks you're crazy."
Kelly then pulled the driver and manager together to teach them two lessons.
First, the sales person needed to see that van coming to Beaumont every day and understand it's his responsibility to fill it.
The second lesson was less obvious but the most important. The truck had to go every day, because PSS's competitive difference was same-day service. They could never offer less.
"Suppose we hadn't sent the truck? And suppose one day the only order in Beaumont was for a single package of thermometers? Any manager would ship the package overnight rather than put it in an empty truck. But right there, our competitive edge would evaporate. Suddenly, we'd be no different from Taylor or any other competitor."
It was some time before those trucks to Beaumont were filled up. As Kelly said, "We always say we've shipped a lot of air from our warehouses to doctors' offices."
Air doesn't pay the bills but service unavailable elsewhere ultimately does.
The Beaumont branch exceeded $5 million dollars annual sales, and PSS acquired Taylor Medical and became the first national physician's supply company.
In an era when FedEx and UPS and the Postal Service are competing to see how inexpensively they can deliver products; when cost improvement trumps value improvement and when quarter to quarter earnings can make the difference between success and failure, the PSS story can sound right out of Mother Goose. I believe, however, that in a world where commoditization of products and services is making it difficult for customers to justify loyalty, there is room for a strategy like PSS's. Find that difference that matters to the customer and defend it. When someone matches it, be prepared with the next difference.
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