Growing health care revenue by selling direct

Managers at Midbrook Inc. know parts cleaning. For decades the Jackson, Mich., metal fabricator built a reputation as a reliable supplier of high-quality industrial washing equipment. The shop’s 120 employees use lasers, press brakes, and welding cells to fabricate mild steel, stainless steel, and even specialized material such as antimicrobial copper, which resists bacteria growth.

In 1976 the company launched as a traditional job shop, then called Midbrook Products. Several years later managers sought a product line to provide a more consistent revenue stream. “In the early 1980s the automotive industry stopped using solvents in order to remove oil and chips and fines and coolant from their manufactured parts before they were assembled into the car,” said Jamie Crowley, Midbrook vice president. Those solvents, which happened to be carcinogenic, also depleted the ozone. “That was the advent of using water with alkaline cleaners.”

All this helped Midbrook become a prime industrial washing equipment supplier for automotive plants. The fabricator has sold its Hurricane® washers to most major automotive players, including GM, Chrysler, TRW, American Axle, and Nissan.

So many job shop managers dream of launching a product line only to find out that when they do, they’re subject to tumultuous market demand and harsh competition. So how did Midbrook’s venture into washing equipment succeed, particularly with its strong ties to the automotive market?

It’s because automotive parts aren’t the only components that need washing.

Today the company sells industrial washing and related equipment to various markets. “At our core we are sheet metal fabricators,” Crowley said, “and we are experts in washing, whether it’s an engine block, a crankshaft, a substrate for a solar panel, a 5-gallon water jug, or now a surgical instrument.”

That surgical instrument, along with other medical components that require cleaning, represents the firm’s entree into the medical field, a unique sector the company services through its Midbrook Medical division.

In industrial markets, project engineers or purchasing managers perform due diligence on the suppliers submitting bids, “and everybody has a chance to get in there and bid their best price,” said Crowley. “In the health care world, though, there are a few different layers involved,” he said. It’s a place where company reputations and proven track records matter. “That was difficult for a company like us that was trying to get a toehold in the sector. But we’re navigating our way through, and as long as we know how the system is set up, then we have a chance to do what’s necessary.”

This has included an unusual move. “For many products, [companies] go through these distributors that spend a lot of time, effort, and money in order to develop a relationship so they can make a sale,” Crowley said. “To do that, they can justify a larger commission, anywhere from 15 percent to 40 percent.”

Midbrook plays in a different sandbox. Say an automotive manufacturing plant requires an industrial washer built to custom specs. It may request parts be cleaned not every 16 seconds or 18 seconds, but precisely every 17 seconds. Engineers must tailor components for part geometries and cleanliness requirements. For such projects, the sales agent may introduce the lead and manage some customer correspondence, but most of the heavy lifting occurs in-house. This is why Midbrook pays its third-party agents between 2 and 5 percent of the total sale, far less than standard fees in the health care arena.

For this reason, Midbrook Medical now sells its medical products directly to health care facilities. The company remains certified to ISO 13485, the standard for medical device manufacturing, and its service network remains intact. But by selling direct, the firm’s marketing team is tapping into a serious pain point for medical facility managers doing more with less. The company not only offers factory-direct sales, but also remanufactured equipment, which can be less than half the price of a new system.

The company broke the news in an Aug. 31 press release: “Midbrook Medical understands the changes affecting the industry require each individual facility to do more for less … As a result, Midbrook has suspended its agreements with major distributors in order to offer factory-direct pricing to medical facilities … Midbrook understands that the changes facing health care providers today require them to look at issues from a fresh perspective. Buying direct from the factory is a solid model to follow to achieve more for less.”

The transition has been quiet, perhaps proving that the move isn’t as bold as it sounds. According to Crowley, the firm hasn’t heard complaints from other players in the health care supply chain. The reason may be pragmatic. Midbrook sells direct because it makes business sense to do so; the company just couldn’t offer competitive pricing through distributors. Put another way, the model makes sense for many health care products for which distributors work long and hard to bring in a sale; but Midbrook’s equipment—often customized and highly engineered—simply isn’t a good fit for this traditional distributor model.

“We have few repeat systems that come through the shop,” Crowley said. “We’re expensive enough that we get the jobs that nobody else wants. That type of sale does not lend itself to an agent playing a big role.”

Until three years ago, 90 percent of shop revenue came from the automotive business, which isn’t surprising considering the plant is only 70 miles west of Detroit. That revenue stream slowed to a trickle during the recession, but now that stream is growing again. Today about half of Midbrook’s revenue comes from the automotive segment.

Managers know that growth won’t continue forever, though, which is why the company continues diversifying into other areas, sometimes using unconventional methods to do so. It still offers job shop services along with various products for different sectors. “We found that some of our [automotive] competitors who did not diversify the way we did are no longer open for business,” Crowley said. “So though it can be a challenge to get into a new industry, diversification is essential for survival.”