Medline Industries, Inc. Business Information, Profile, and History

Company Perspectives:

Medline's primary mission is to provide quality products and cost containment solutions to health care providers while enhancing the quality of patient care.

History of Medline Industries, Inc.

Based in Mundelein, Illinois, Medline Industries, Inc. is the largest privately held manufacturer and distributor of medical supplies and equipment in the United States. More than 500 sales representatives support its cost management services and product line of 100,000 items, 70 percent of which it manufactures at its five facilities in North America. Medline distributes products to hospitals, extended care facilities, surgery centers, hospital laundries, home care providers, and agencies from its 27 distribution centers.

The Early Years of Medline's Predecessor: 1910-61

In 1910, A.L. Mills founded Northwestern Garment Factory, a business that sold garments for meat cutters to wear in Chicago's meat packing houses. Looking for a way to expand sales for his company, Mills branched out into nurses' uniforms in 1912 and changed the name of his company to Mills Hospital Supply. In 1918, Irving Mills, then 12 years of age, joined his father's business; six years later, at age 18, Irving Mills took over as head of the company.

A.L. Mills left Chicago for his native Arkansas in 1930, leaving the business to his son and his wife, Jennie Mills. Irving Mills attended Northwestern University at night while running the family company and graduated in 1939 with a degree in business. During World War II textiles became hard to get, and industry employees stopped wearing uniforms. As a result, Mills shifted the focus of the company to concentrate on manufacturing and marketing textiles for hospitals.

In 1946, one of the company's sales representatives, working with a group of hospitals in Colorado, came up with the idea of consignment shipping. According to Jon Mills in a 2003 Chicago Tribune article, "You couldn't ship into Durango, Colorado in winter because the roads were dirt. So we would ship the supplies [before the winter] and then bill them the next spring or summer [for what they actually used]." Consignment shipping helped Mills Hospital Supply grow beyond its midwestern roots, and by the time Irving Mills sold the company in 1961 to Cenco Scientific, it had branches in Houston, Texas; Norfolk, Virginia; and Columbus and Toledo, Ohio.

The Early Years of Medline Industries, Inc.: 1966 to the Mid-1980s

Five years later, in 1966, Irving Mills helped his sons found Medline Industries, Inc., a hospital supply company. Jon Mills and Jim Mills became company president and chief executive, respectively. First year revenues reached $1 million. With this auspicious start, the company began evolving from a distributor to both a manufacturer and distributor.

Medline went public in 1972, and then, in 1977, became a private enterprise again. Over the years, as it grew its manufacturing capabilities, Medline developed a reputation for offering inexpensive products. This reputation proved something of a double-edged sword. While some hospital materials departments appreciated the fact that Medline would reveal its costs to customers, others perceived Medline's products as being substandard because of their lower price. In an effort to make the point that Medline sold high-quality goods and to increase customer familiarity with its products, Medline came out with a glitzy and unconventional catalogue in 1979. The catalogue, which cost the company $300,000 (about a third of its profits in 1978), was reminiscent of the glossy ad pages of a popular and upscale magazine and featured doctors and orderlies in uniform in such venues as a law library, jazz nightclub, disco, and Old West saloon. There was a Betsy Ross figure sewing surgical drapes and winged laparotomy sheets; a magician secured by postsurgical restraints and bindings; a young man playing tug-of-war with a white-uniformed nurse who was tugging on his sheet; and belly dancers veiled by surgical masks.

Although the approach offended some people, Medline's textile sales increased by 40 percent the following year, and it was not until 1985 that the company retired its unique catalogue. The new catalogue of that year, the size of a telephone book, featured black and white photographs except in the textiles section and focused on providing technical information about Medline products.

Medline--by then the second largest national distributor of healthcare products--had about $120 million in revenues for 1984. Although this figure represented a 225 percent increase over 1980 revenues of $53 million, the company still only generated half the profits of the nation's largest healthcare products distributor. Confident of its status with customers, however, Medline opened a 435,000-square-foot combined headquarters, distributing facility, and manufacturing plant in Mundelein, Illinois, in late 1984.

Continued Growth: Mid-1980s to Mid-1990s

Beginning in the mid-1980s, healthcare professionals began taking greater steps to protect themselves against the risks of exposure to disease, such as AIDS. This move was backed by federal and state health agencies that mandated more safety measures. The emphasis on protection spelled increased sales for Medline; so did increased concern for the environment and the increasing cost of infectious waste disposal. In January 1990, Medline formed a sterile pack division to take advantage of the growing move toward reusable prepackaged, sterile linen surgical gowns, drapes, and incontinence products.

By the early 1990s, Medline had four manufacturing facilities in the United States, an assembly plant in Mexico, and 14 distribution facilities. In 1990, it added to its capacity on the East Coast with a new 100,000-square-foot distribution facility in Allentown, Pennsylvania. In 1993, it began a five-year contract to supply Veterans' Administration hospitals. In 1995, Medline, then the largest privately owned medical supplies manufacturer, added a new 130,000-square-foot production facility for surgical and medical trays in Waukegan, Illinois. In the early 1990s, Medline also formalized its inventory consignment program under the name ACCESS. ACCESS allowed customers to have Medline-supplied products on the shelves of their warehouses, which they paid for only after using them.

The year 1996 saw some unfortunate publicity for Medline. The company's former vice-president for international sales brought suit against Medline under the False Claims Act, stating that Medline had bilked Department of Veterans Affairs by selling it foreign-made, inferior products, breaking a contract that required that it sell domestically manufactured goods to the government. Medline paid the United States $6.4 million in settlement, but the company was not deterred in its growth.

The following year, the company's leadership changed with Andy Mills, Jon Mills's son, assuming the role of president and Charlie Mills, Jim Mills's son, becoming chief executive. The company purchased land in Orlando, Florida, and soon built a 163,000-square-foot distribution center, the twin of another distribution center it had recently completed in Dallas. In 1999, in a move to expand its online presence into the physician offices marketplace, it purchased the latex exam glove business Kendall Healthcare Company (a division of Tyco International, Inc.) and began listing and selling products on Neoforma.com.

The emphasis by the end of the 20th century on cost-cutting throughout the medical industry provided further opportunities for Medline, which by 2000, was earning revenues of $1 billion. According to Mills in a 1999 Chicago Tribune article, "The more hospitals are squeezed to cut costs, the more receptive they are to products that can help solve their problems." In a shift to provide those products and take advantage of some of the growth opportunities technology introduced, Medline added several higher-tech items to its traditional line of low-tech goods. Rather than investing in research and development to come up with new product ideas, however, Medline tapped into its longstanding customer relationships. Most of its new offerings were in the area of advanced wound care, such as a product with controlled-release silver to fight antibiotic-resistant bacteria and a new wet-therapy dressing that both rinsed and debrided chronic wounds.

Despite attempts on the part of Wisconsin and Iowa to entice Medline to relocate to their state, the company made a firm decision to stay in Illinois and broke ground in 2000 for a $14 million, 124,000-square-foot corporate headquarters. The decision was in part the result of Illinois's "Economic Development for a Growing Economy," whereby the company received 3 percent of the income taxes its employees paid to the state.

Expansion continued at Medline's facilities as well. It purchased Sun Healthcare Group in 2000, one of the nation's largest nursing home operators, which had fallen into bankruptcy. To meet its ever growing manufacturing and distribution needs, Medline also purchased a 225,000-square-foot building in Monroeville, Alabama, for cutting and embroidery operations and warehousing. The company increased its number of employees as well, adding a call center in Dubuque and absorbing Carrington Laboratories sales reps after signing a five-year distribution licensing agreement in 2000 with Carrington that awarded it exclusive rights to sell and market Carrington's wound care and skin products.

The September 11, 2001 collapse of the World Trade Center in New York afforded Medline other opportunities for growth as well. Sales of rubber gloves, safety masks, and other protective medical clothing soared in the wake of the terrorist attack. The company went from a few calls a day to hundreds as schools, fire departments, police departments, and the everyday consumer sought precautions against anthrax and other feared biological weapons. Medline saw a 40 percent increase in the sale of medical exam gloves between September 11th and mid-November 2001. Other "hot" items included high-filtration masks and a personal protection kit that included a pair of exam gloves and mask.

In 2001, Medline posted sales of $1.2 billion and opened a 276,000-square-foot distribution center in Lathrop, California. It also signed an agreement with Ascension Health, the nation's largest nonprofit healthcare network of almost 80 Roman Catholic facilities in the United States, to supply medical and surgical products and act as distributor for products it did not manufacture.

In 2002, Medline signed a distribution agreement with A & A Medical Supply to distribute Medline's line of medical and surgical products to physician offices throughout the United States, thus furthering the company's move into the physician offices marketplace. Medline also acquired the healthcare apparel business of Angelica Corporation, a business that had provided uniforms for healthcare workers since the 1800s. Despite the national economic slowdown, the company was in so strong a financial position that it self-financed the building of a 145,000-square-foot manufacturing and distribution facility in Waukegan, Illinois, a 400,000-square-foot distribution facility in Baltimore, Maryland, and a 290,000-square-foot warehouse in San Antonio, Texas. Company estimates put projected annual sales at $2 billion by the year 2005.

Principal Competitors: Allegiance; American Hospital Supply Corporation; Owens & Minor, Inc.; Tyco Healthcare.

Chronology

• Key Dates:
• 1910: A.L. Mills founds Northwestern Garment Factory.
• 1912: Mills shifts the focus of his business and changes its name to Mills Hospital Supply.
• 1924: Irving Mills takes over management of his father's business.
• 1961: Cenco Scientific buys Mills Hospital Supply.
• 1966: Irving Mills founds Medline with sons, Jon, who becomes president, and Jim, who becomes chief executive.
• 1972: Medline holds its initial public offering.
• 1977: Medline once again becomes a private company.
• 1984: The company moves from Northbrook to Mundelein, Illinois.
• 1997: Andy Mills, son of Jon, becomes company president; Charlie Mills, son of Jim, becomes CEO.
• 1999: Medline purchases Kendall Healthcare Company's latex exam glove business.
• 2000: The company breaks ground for a new 124,000-square-foot corporate headquarters; purchases a 225,000-square-foot building in Monroeville, Alabama; and increases its workforce.
• 2001: Sales of rubber gloves, safety masks, and other protective medical clothing soar in the wake of the September 11 terrorist attacks.
• 2002: Medline signs a distribution agreement with A & A Medical Supply; healthcare apparel business of Angelica Corporation is acquired; new distribution facilities open in Illinois, Maryland, and Texas.