Ohmeda’s Dealers Network

Ohmeda sales and service functions are combined into their North American field operations (NAFO) in 1985. They operate a bifurcated channel. Ohmeda’s primary marketing channels are ‘dealers network’ and ‘direct sales’. The overall market can be categorized as ‘Urban’ and ‘Rural’. The customer for Ohmeda is exclusively hospitals in these urban and rural markets. Ohmeda practices intensive distribution style of marketing that has overlap in sales that originate from the direct sales personnel but are marked as dealer channel. The dealers did not manage/provide service on the equipment.

There was no real management of the dealer networks. The dealers operated with independence in the amount of the inventory they held, product lines they sold/targeted and the nature of product education they provided. This reduced sales since the hospital specialists often needed a knowledgeable sale person. Most of the product categories were either in the introductory or growing markets with a few products in the declining phase. The dealer channel did not add any value to the business.

The organization was not structured to focus on either specific product lines or hospital sizes. Ohmeda’s sales function was organized into a sales planning group and five sales regions. Each region

* had approximately 23-30 reps each

* was divided into three districts with 5-11 reps each

* sold the entire product line for Ohmeda

* had only 3-4 specialized sales reps to sell architecture products

*had an exclusive territory that comprised of 30-160 hospitals which varied in sizes.

* dedicated/loyal reps that were with the organization 10-20 years with strong relationships with the hospital staff.

Ohmeda had 14 national accounts which was managed by the sales planning group but the sales commissions rolled into the territories.

The bifurcated channel does not align with the end user’s demand for channel services. The demand for services is described below.

● Only 36% of sales originated from the dealers due to the overlap between Direct sales and the dealer network.

● 70% of equipment sales by dealers was contributed by “built to order” and hence shipped directly to the customer

● Ohmeda offer the dealers 21% discount as compared to the 6% they give the direct sales reps thus eroding the margins

● The dealers don’t bring specialized knowledge to support sales

● Ohmeda can pocket 10% of the sales if they converted from a dealer based distribution to a direct sales channel.

The sales team also has a list of current deficiencies that include:

● Knowledge and training are lacking, particular across all product lines

● Commissions are set up to encourage dealers sales while reducing profit to the company

● Territory distribution

● Segmentation, no classification of product lines on accounts.

● Sales reps lose 64$ on the sale of each 25k m/c and the company loses $3750 per sale booked by the dealer.

Hence, Ohmeda would not meet its growth targets unless the channel strategy is revamped.

Rountree should design the channel strategy based on the projected growth (95.2 million to 158 million in equipment sales (11% growth rate YOY)) for the product categories. They have 3 product lines in a growth mode and the rest of them in a maintain mode (improve margin focus). In addition Ohmeda is divesting its medical supplies business and transferring its gas revenues to a different unit. This will result in a 31% reduction in revenues of approximately 49.848 million

1. Growth in Anesthesia from 45% to 65%

2. Patients monitors from 4% to 15%, Monitors have been traditionally add-on accessories

3. Architecture products from 22% to 42%.

To enable growth Ohmeda should

* Move from the bifurcated model to a predominantly direct model.

The information above is specific