How practicing integrity helped Owens & Minor thrive during the pandemic
When Ed Pesicka joined Owens & Minor in March 2019 as president and CEO, the company was struggling. Stock prices had gone from $30 and $40-plus a share down to $2. The health care company also had nearly $2 billion of debt.
Pesicka’s job was to find out why — and fix it.
“We realized that we had lost focus on our customers,” he said. “We had not had that customer intimacy. We did not put our customers at the lead of what was important for us. We lacked internal accountability. You know, people would just not take accountability for what they did.”
The planning process to transform the company was clear, Pesicka told the VCU School of Business’ Investors Circle at its semi-annual meeting.
“We had to fix the culture,” he said. “Our culture here was broken and … needed to be focused on the customer. We had to change the discipline. We implemented what we call the Owens & Minor business system.”
What makes Owens & Minor unique, he said, is it is both a manufacturer as well as a distributor of heath care products.
“The reality is, as a manufacturer and a distributor of healthcare, it’s really a humble mission … to serve our customers,” Pesicka said. “So we had to continually ingrain that into the organization. We did that every time we had a town hall, every time we got an opportunity to, we talked about how we serve the customer. Then we had to launch values.”
The company, Pesicka said, needed memorable values, which started with integrity followed by constantly developing new ideas and solutions. What the company now expects, regardless of the circumstances, is holding oneself accountable.
“As a leader, you have to continue to drive that,” Pesicka said.
Those very ideals proved pivotal about a year after his arrival, when the country was in crisis during the early days of the COVID-19 pandemic — and there was an unprecedented need for personal protective equipment.
“We didn’t have time any longer to use normal business hierarchy to make decisions. We basically said to our teammates, ‘You know what our mission is, you know what our values are, rely on those. Make decisions grounded in our mission and our values.’ And we were able to really drastically improve output production and quickly make decisions because our customers, the hospitals, whether it was in the Northeast or other parts of the United States, needed PPE that we were manufacturing. We manufactured in the U.S. We could ramp up and get the product there much, much faster.”
Continuous improvement was critical during the height of the pandemic. And that started with continuing to find and identify problems and then solving those problems, Pesicka said.
For example, the company had to find a way to increase production of N95 masks, ultimately going from producing 2.5 million masks a month to 50 million. These masks are made from an unwoven polymer-based product with ear loops connected to the mask with a friction weld requiring a lot of heat. Producing such a large quantity of masks caused overheating, which led to a bottleneck in the manufacturing process.
“So, we’re going through a continuous improvement process,” Pesicka said. “And we have engineers that want to create a design. It’s going to cost significant amounts of money. It’s going to have to shut the machine down for weeks, if not months, to deploy it so we can get more productivity out.”
Pesicka’s dad had always advised him to “trust the person on the shop floor,” because “they know what really goes on.” One of the line workers turned and said, “If it’s overheating, why don’t we just go down to Walmart and buy a 20-inch box fan to put on it?” Pesicka was sold.
“We increased productivity by almost 40% because now we could get more throughput,” he said. “So that’s the way we think about practical improvement and continuous improvement here with our business system. It doesn’t always have to be the best solution or the most sophisticated solution. It has to be the best one that just works for the circumstances. During the pandemic, we leveraged this to be able to get more product out the door, and we continue to leverage this across all of our business.”
The pandemic threw a lot of curveballs, he said, but from a management standpoint, it confirmed that having the right mission and values creates the framework to let your team be the best they can be. Having that discipline, Pesicka said, enables the company to drive improved customer service, employee satisfaction and improved financial results.
During the pandemic, Owens & Minor increased its shipping accuracy to 99.9% (up from the low 90s). It improved its delivery times to more than 99% on-time. All of its metrics on customer service were achieved.
“Our stock was the No. 1 performing stock in the S&P 600, again going from two-and-a-half dollars a share in 2019 to this year, as high as $48,” Pesicka said. “We’re now in the mid-30s.
So great performance and debt paid out. We paid down over a billion dollars of debt.
“And again, it doesn’t always have to be the most sophisticated solution. … We deleveraged our business to pay down a substantial amount of debt. We have the ability now to put money back into organic and inorganic investments, really to drive substantial growth going forward, as we expand.”
View the Investors Circle conversation in its entirety here.