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This article was originally published in The Gray Sheet

Executive Summary

U.S. SURGICAL'S ACCELERATED MOVE TO JUST-IN-TIME DISTRIBUTION includes a "large number of JIT accounts added during the first quarter" of fiscal 1993 ended March 31, the firm noted in an April 7 press release. U.S. Surgical Chairman Leon Hirsch explained that "for approximately one year, the company has been experimenting with a just-in-time distributor program. As a result of the positive reaction of its test hospitals, the company accelerated significantly its JIT program during the latter part of the first quarter." The company, which issued the statement "in response to growing investor speculation," said that the change in distribution patterns would depress revenue in the second and third quarters. The JIT accounts "will result in significantly reduced sales for the second and third quarter of this year as hospitals use up their inventories. The company expects second quarter sales to be flat or slightly down from the prior year's comparable quarter, followed by an improving trend in the third quarter and a strong fourth quarter," Hirsch said. The company said that despite the revenue shortfall, it "will continue its aggressive surgical training programs and will expand further its R&D expenditures to ensure future growth. These continuing expenses will result in sharply down second quarter earnings." However, the company predicted "sequential improvement in the third quarter and strong improvement in the fourth quarter." Earnings for the year will be off compared to 1992, the firm said. U.S. Surgical reported earnings of $34.8 mil. on sales of $304.8 mil. for second quarter fiscal 1992. The company netted $36.5 mil. from $293.3 mil. in revenues for the third quarter of that year. While acknowledging that the "short term sales and profit impact of this program will be negative, we believe long term JIT servicing will put us in a more competitive position in dealing with our customers." U.S. Surgical maintained that hospitals have found that the distribution system helps "reduce inventory levels and the costs connected with handling large inventories." In addition, the firm said that it finds the distribution system beneficial because distributor handling of hospital inventory frees up more time for the U.S. Surgical technical sales force's support and teaching activities. Hospitals that participate in the Just-In-Time program select a distributor that will supply them with all of their U.S. Surgical inventory. After a participating hospital has reduced its inventory, its distributor delivers U.S. Surgical supplies daily. The distributor also orders sufficient supplies each month to replenish inventory used by the hospital during the previous month.

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