Henry Schein 2013 Annual Report Download - page 45

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We have established strategically located distribution centers to enable us to better serve our customers and
increase our operating efficiency. This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our
customers’ needs. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and
complete order fulfillment.
We conduct our business through two reportable segments: health care distribution and technology and value-
added services. These segments offer different products and services to the same customer base. The health care
distribution reportable segment aggregates our global dental, animal health and medical operating segments. This
segment consists of consumable products, small equipment, laboratory products, large equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control
products and vitamins.
Our global dental group serves office-based dental practitioners, dental laboratories, schools and other
institutions. Our global animal health group serves animal health practices and clinics. Our global medical group
serves office-based medical practitioners, ambulatory surgery centers, other alternate-care settings and other
institutions. Our global technology and value-added services group provides software, technology and other value-
added services to health care practitioners. Our technology group offerings include practice management software
systems for dental and medical practitioners and animal health clinics. Our value-added practice solutions include
financial services on a non-recourse basis, e-services, practice technology, network and hardware services, as well
as continuing education services for practitioners.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the current economic environment and
uncertainty, particularly impacting overall demand for our products and services.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is highly
fragmented and diverse. This industry, which encompasses the dental, animal health and medical markets, was
estimated to produce revenues of approximately $45 billion in 2013 in the global markets. The industry ranges
from sole practitioners working out of relatively small offices to group practices or service organizations ranging in
size from a few practitioners to a large number of practitioners who have combined or otherwise associated their
practices.
Due in part to the inability of office-based health care practitioners to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment to office-based health care
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based health care practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.