AmerisourceBergen's Scrimp-and-Save Dave
R. David Yost is acutely aware of tougher times ahead for his customers. Consumers are cutting back on prescription drugs to save money and retailers are struggling with less demand. But the AmerisourceBergen chief isn't worried. The balance sheet of the drug distributor, which acts as a middleman between drugmakers and retailers, is strong. Besides, Yost has been tightening his belt for years.
Even in an industry known for its razor-thin margins, Yost is remarkably cheap. He answers his own phone, flies economy class, and rarely strays beyond a shortie turkey hoagie with provolone from the local deli near his sterile industrial park headquarters in Valley Forge, Pa. Yost, 61, admits that his $66.1 billion company could absorb the cost of getting him extra secretarial help and a more comfortable seat on planes, but that's not the point. "The leader is very important in controlling business costs," says Yost, whose headquarters lobby is decorated with plastic plants to save on watering.
While Yost's zeal to cut costs may strike some as absurd, his efforts have helped Amerisource thrive. And he thinks the current credit crisis won't swing the company off course. Not only has Amerisource held its own against rivals McKesson (MCK) and Cardinal Health (CAH), but leaner operations have helped it grow revenues 8% this year while the broader industry is growing half as fast. In the last quarter, Amerisource profits increased by 30%, excluding one-time sales; McKesson's and Cardinal's were up 8% and 13%, respectively. Yost's total paycheck last year (including stock options) was $4.8 million, less than half that of Cardinal's CEO and barely a sixth of McKesson's chief. "He is not flamboyant or flashy," says Banc of America Securities analyst Robert Willoughby, of Yost's inclination to be modest. Adds John W. Ransom of Raymond James & Associates: "At 1% margins, you have to be."
Now he's under even more pressure to watch the bottom line as his customers struggle to stay competitive. Amerisource relies heavily on smaller, independent chains that are fast being gobbled by big players, who may have contracts with the distributor's rivals. But Yost predicts volume will pick up over the long term. "The older we get, the more drugs we take," says Yost, settling comfortably into a 1970s-era plaid chair (the weathered green leather chair at his desk, which he inherited from the previous CEO when he took over in 1997, looks like a yard sale find).
George Barrett, the CEO of Cardinal's drug distribution arm, says that what matters in a leader isn't frugality but foresight. "I don't want our people to see me as cheap but instead very efficient and cognizant of the environment in which we compete," says Barrett. But Yost insists he can be all those things. While he pays competitive salaries to attract talent, he allows employees to fly business class only if they pay for an upgrade themselves. And they must book 30 days in advance to get the best price. Yost is also investing more than $100 million over the next three to five years to improve customer service technology, and he paid $400 million to spruce up company distribution centers and consolidate operations.
Of course, new technology also brings new ways to save money. Plant employees now wear wrist bands connected to a thimble device on their finger that uses an infrared laser that reads the bar code of what they unload or pick up. Workers who move more product than average receive bonuses for the time they've saved the company.
If that sounds Orwellian to some, Yost doesn't much care. While the Amerisource chief may not be eager to spend a buck, he certainly knows the value a dollar holds for others. Amerisource has returned more than a third of its free cash flow to shareholders for the last two years and used the rest for core acquisitions. "The landscape is littered with companies that think they can do a lot of businesses well," says Yost, adding that he no longer trots out the cliche "stick to our knitting" because he fears it makes him sound stodgy. "We're focused on knitting faster, better, and more creatively than anyone else."