The Inner Workings of Reverse Distribution | Michael Zaccaro, CEO, Pharma Logistics

Speech to text:

Mike Koelzer, Host: [00:00:00] Mike, for those that haven't come across you online, introduce yourself and tell our listeners what we're talking about today.

Mike Zaccaro: My name's Mike Zaccaro. I am the head of Strategic Execution at Pharma Logistics, and we're here today to talk about pharmaceutical reverse distribution. 

Mike Koelzer, Host: Mike. In independent pharmacies, we have listeners from different walks, but let's say that a good chunk is from there. We hate it. Pharmacy benefit managers just can't stand them, the way they pressure us and things like that. Is there anybody on your side, in your industry? Is there anybody you hate?

Mike Zaccaro: Well, that's an interesting question. What I would say is this, it's the manufacturers, if you will, that don't have liberal return goods policies. Those manufacturers that make it difficult for us or for our clients to recover credit for their expired goods. And so anybody that delays that process or makes that more difficult, simply makes it more challenging for us and more difficult for our customers to put dollars back into their pockets.

I would certainly say also we have to work directly with a lot of manufacturers from different processing components. They have different rules, different regulations. The ones that make it complicated, the ones that don't meet us in the middle, the ones that don't see us as there for our mutual customers who are the pharmacies and see us.

kind of a thorn in their side. Those are the ones that I'd rather not wake up and deal with, but by and large, there, there's a lot of good players, and the industry has come a long way into recognizing the value that reverse distribution provides in the pharmacy space.

Mike Koelzer, Host: Do you think the ones that it's difficult, do you think they do that on purpose to not have to pay back right away?

Mike Zaccaro: My honest assessment is no, I really don't. I just don't believe that reverse distribution or expired pharmaceutical processing at a manufacturer gets the attention it deserves for us. It's all that we do, right? This is for 27 years. This is all I've known. I wake up every day and go to bed every day and thinking about expired goods is what I do.

I think for most manufacturers, reverse distribution is not core to their business, and it's not the number one thing that they wake up putting resources or energy into. And I don't think it gets a lot of time and attention from the c e o at a big pharma company to pay attention to returns. Now, the people that work in those departments and the people that work for those companies that are directly involved, there's some really good people that work really hard to get it right.

I just don't, I just don't think it's a core focus for a lot of manufacturers.

Mike Koelzer, Host: When you talk about the people, from the different manufacturers, are these kinds of faces. Names you're just trying to get in where you can as far as, problems and issues and things like that.

Mike Zaccaro: Yeah. Yeah, II think that's pretty fair. would say that,we've got a team here that works specifically with credit reconciliation and manufacture policies, and those individuals work hard to forge relationships with individuals at the

manufacturers so that we can stay current and stay on top of manufacturing changes, policy changes, dollar amount reimbursements, any of those things.

And so those relationships are important. With that being said, a lot of them are transactional. A lot of them are collections oriented, and the strategic thinkers, the people who are setting policies, the people who are setting reimbursement policies aren't necessarily the ones that we're dealing with on a day in and day out basis.

 There's numerous things that we would change if we could. But by and large, our reconciliation department works hard to forge relationships at both manufacturers and wholesalers to make the process easier.

Mike Koelzer, Host: All right, Mike, you've got a lot less gray hair than I do, but you've got some, and that means you've got employees. Let's face it. take me through the business. How many people do you have on site, and what's the breakdown as far as, people who are actually touching the product versus, people at the computer desk, that kind of thing.

What's your breakdown as far as rough numbers?

Mike Zaccaro: sure. total headcount is about 170 farmers. We don't refer to our staff here as employees. We , refer to everybody as farmers, P H A r m E R S. so about 170 in total,

We've got roughly 40 out in the field. These are our field service representatives, really the front line of our organization.

So we have customers, primarily our hospital customers, but also a lot of retail pharmacy customers who use what we call our on-site service. And we have field service representatives scattered across the country, as well as internationally. We've got a service rep in Japan and a service representative in Germany.

The Germany and Japan representatives are for our Department of Defense customers, and that's our biggest customer right now. So anywhere we have a military treatment facility, we have field service. [00:05:00] The other 38 are scattered throughout the United States, and they're deployed home. To our customers to help start the returns process.

And again, we've got about 40 of those individuals in total from that department. when you come back into the fulfillment center, we've got roughly 50 that work in the fulfillment center. So these are the individuals that are gonna induct a product, capture the c la expiration date, do all of the processing in our fulfillment center.

We then have a credit reconciliation department made up of about five individuals. They set manufacturing policies, do all the credit reimbursement, accounting, and finance. A big chunk of important stuff that we do here. We've got about six people in that department. Got a sales staff of 12 individuals right now, that are out there bringing in new customers and adding new customers.

A customer service department of a couple of individuals. We have heads of all of these departments as well, so I have a total of nine direct reports that come to me. So the head of Fulfillment, the head of Reconciliations, the head of service, all of the department heads report to me and the culture and team.

We've got three individuals that work in that department. I'm feeling like I'm leaving some out, butI'll know about 170.

Mike Koelzer, Host: Right now you have nine people coming to you. Is there ever a time where you're gonna put another layer between that? So you have one person coming to you and they get the pleasure of dealing with the nine?

Mike Zaccaro: Truth be told, I have most of my work coming through me and most of my work down to that team going through our Chief operating Officer, so, so for really four days and call it. Five hours a week. I have one direct report, but every Monday, today is Monday.

I have one big meeting with my entire team and all of those direct reports. So I basically run the organization one meeting a week with my entire team. We discuss the top accomplishment from the previous week, their top priority for the current week. What it is that they have is a hot topic that they wanna address for the benefit of the team.

We process those issues during that meeting. We create an agenda, an attack plan for the rest of the week, and then my chief operating officer goes about managing the day-to-day and working with those individuals. I really do see my direct reports only once a week and spend a good portion of my time working on the business and not in the business, and that's been a very beneficial piece of the company's growth.

and quite frankly, my chief operating officer does it extremely well.

Mike Koelzer, Host: What mentors, whether it be books or schooling or other leaders have you followed in order to be working on the business versus in and keeping that structured and tasked out all the things you were talking about.

That made a hell of a lot of sense to me.

Mike Zaccaro: one. 

Books that I read early on in my career that really kind of set the stage for the need to establish systems and processes. A book called the EMyth,

Mike Koelzer, Host: Michael 

Gerber. Great book. 

Mike Zaccaro: There you go. Great book. Great book. So, that talks all about the need to establish systems and processes and why, just because you're good at a particular skill set doesn't mean that you know how to run. That was one piece that really stuck with me. I am a pretty avid reader about business books in general, but I will also tell you that the one piece that was really critical for me in my growth and in building out the company were two things early on. I think one of the things I did well was knowing what I didn't know.

and even when I first started the company, I was already working with a consultant who had been there, done that. I did not attend college. I did not have a direct mentor in my career. I was self-taught in many ways. I engaged this consultant early on, and he was pretty instrumental in the first couple of years, and then a real big catalyst for me to continue to work with this group indirectly, and also maintain great friendships with the rest of the group as I joined a peer-to-peer networking group called Vistage.

And I'm not sure if you're familiar with Vistage, but, Vistage is an organization that has chapters all across the globe. I think the Chicago area has three or four of them. It's a group of CEOs, generally similarly sized businesses that meet once per month. And, it's almost an informal board of directors.

And what I've learned in that regard is whether you're in pharmaceutical, reverse distribution, trucking, printing supplies, business is business. And the challenges that we have are the same across the board. And so we would go into these meetings and you'd meet once a month and you're allowed to bring issues and bring topics.

Hey, I'm. Having a struggle with sales, how can the group help? Hey, I'm having a struggle with culture and team. I'm dealing with this issue. What do we need to do? And you're literally learning from your peers. and one of the things that entrepreneurs lack in their own company is the ability to hear from their peers.

you're always hearing from somebody who reports to

you. Going out and [00:10:00] getting that feedback from other peers who have no vested interest other than seeing you succeed, has been invaluable to me. and I did that for close to five years in Vistage. I joined another peer group since then and I still see a number of those members on a every other month basis.

We kind of did our own spinoff of it and continue to meet for those kinds of sessions.

Mike Koelzer, Host: I think probably a ton of people would say, no, Mike, that's good, but we're different. Our business is different. We've got Sally and accounting and Bill over here, and we're different. It's like, no, you're not different. you're different maybe in the dotting the i in, crossing the Ts down in the bottom part.

But people are people and pretty much businesses are businesses.

Mike Zaccaro: I completely agree. The names and faces are different. The challenges are really the same, and I think that was a big takeaway for me after joining that group and being in it for a few months. The reality is, as business owners, we all are dealing with the same challenges. The names and faces change.

It's the same issue.

Mike Koelzer, Host: A lot of times when you think about it. A business, especially for maybe pharmacists who are trying to break off a little bit. I think a lot of people kind of look from the top down and they get freaked out, and I think that a lot of businesses can start from the ground up and it's solving a problem.

You guys obviously solve a problem. If you could look at the psychology behind what you solve, what do you think you are giving people with your service?

Mike Zaccaro: I think it's included really in the brand promise that we deliver for our customers. And if you take a look at our logo underneath it, you're gonna see three things, clean Comply, collect. And those are the three things that we really focus on. So when we've interviewed customers, when we've talked to customers, when we've asked them, Hey, when you're looking at selecting a reverse distribution company or when you choose to work with Pharma Logistics, what are the things that you're looking for?

And those are the three things that our customers came back to us and said, this is what we want. So, the first piece is the clean component. They have these expired goods. They're generally sitting in a box underneath the counter or off in the corner or somewhere where it's just accumulating in many ways, it's kind of garbage in their eyes.

Right. 

Mike Koelzer, Host: It's garbage and it's guilt, like, I should be doing something with

Mike Zaccaro: sure. So, the one piece that we provide for our customers is that clean component. We're gonna give them the opportunity to clean that out, either by shipping it to us or by sending a service representative in to pick it up. the second piece that they're looking for, and this is especially true in.

When you're talking about controlled substances and DEA regulations and state regulations is the compliance component. there's a lot of rules, a lot of regulations. There's a lot of what you can and can't do when it comes to shipping products or disposing of products. And, nobody wants to be in a non-compliance situation.

So they look for us to be the expert there on EPA waste. They look for us to be the expert there on DEA rules and regulations, and they wanna make sure that we keep 'em compliant. And then the third bucket, and, everybody has a priority depending on where they're at in the service cycle.

But the third component in which we really separate from our competition is in the third piece, which is the collect function. And that's for us, really where the rubber hits the road, how many dollars, how many products can we get credit back for? How quickly can we get that money back into our budgets and how are you gonna help us do that?

So those are really, for us, the three pieces that we see.

Mike Koelzer, Host: When you think. The manufacturers and their response when you're collecting and so on. I suppose it's all relative. It's like if nobody allowed it, you would say, well, that's all relative, but if someone was real good and someone else was bad, now you've got a scale to compare the companies that you think are not real friendly to the pharmacist slash you guys, what kind of things are you seeing that are not, as lax as compared to a company that you think is better and I mean better, like giving more money back. What are some companies doing and do you think it's smart they're doing it?

Do you think it's fair? 

Mike Zaccaro: Yeah, well, I'll start with this. I would say that certainly manufacturers can create competitive advantage and can create good service for their customers by providing a fair and reasonable return goods policy. I'm certainly not advocating for nor expecting manufacturers to simply say, Hey, look, everything that you do, no matter what you do,it's,it's not a, everything should be returnable component.

we're certainly not expecting that. what can be done, and the ones that get it right, are the ones that have a very clear, a [00:15:00] very specific return goods policy. They have one that's fair and reasonable. it's not complex. And then they commit the resource to it behind the scenes to actually see it through.

I mean, we see manufacturers that are able to receive. And process a return goods authorization sometimes in 24 hours. And then we see others that take close to 60 days just to send the return goods authorization to get it back to us. We can't even start the returns process until in many instances we get that return goods authorization.

Right? So, I think being fair and reasonable with their customers is the starting point. and then having policies that are clear, clean, concise, also helps in the process.

Mike Koelzer, Host: It just seems to me like when you manufacture things, people are gonna return them. It's not some oddity, like what are you gonna do in an earthquake if you're a manufacturer in Michigan or something like that. It's not an oddity. That just seems like they would have that more set up.

They're obviously gonna get returns.

Mike Zaccaro: I look at it very much on the bell curve. I think if I'm to assess it, I think 20% of the manufacturers are really good at it. I think 20% of the manufacturers understand it. they grasp what you just said. Hey, we're gonna get it. It's good customer service.

It's a way to separate, right? I think you've got 20% of the manufacturers that just for various reasons, don't put the time, effort, and energy into it. And they're not the ones that make it easy for their customers or easy for us. And then I think about 60% of 'em fall somewhere in the middle, depending on how busy they are, depending on what cycle they're in, depending on if they're.

Getting a lot of returns or not, you're gonna see them fall in some category, one or the other. By and large we work well with our manufacturers and with all of the companies to recover credits from them. There are simply some that are better than others. 

Mike Koelzer, Host: On the other hand, Pharmacists are kind of a captive audience. Most of the pharmacies have the brand name. It's like they're not gonna say to a customer, no, we're not gonna fill the strength of this because this manufacturer doesn't return to us very well.

It seems like that service is pretty far removed and their hands are almost tied that they're gonna do it. Now with generics, maybe because you have different companies that you can choose from, but the brand names, I guess they don't have a real great reason to separate themself because of the captive audience.

Mike Zaccaro: I think that's in part true. I think the other piece to consider is that, there's a lot of products that treat the same disease state. One of the things that we're looking to move into is empowering our customers to be able to make decisions based on return goods policy.

So we think that ultimately evaluating a manufacturer's return goods policy is a good piece to evaluate when it comes to whether it should be in your formulary or not.

If you think about a p and t committee and a hospital situation, the nurses are gonna weigh in, the doctors are gonna weigh in, the pharmacist is gonna weigh in.

We think there's value in having reverse distribution, or at least the data associated with reverse distribution weigh in as well. If there's gonna be a tiebreaker, it might as well be the one that if it expires, we're gonna get money back for it.

Mike Koelzer, Host: Mike, do you have to, I'm just gonna throw some initials out, D S C A something or other with all the following of the barcodes and theQR codes and all that kind of stuff.

 Does that continue through to you?

Mike Zaccaro: We're certainly gonna see it. We certainly have to be. internally have the technology to be able to process those labels and to be able to scan those labels. and quite frankly, in many areas, it's gonna make it easier. you're now gonna have one scan that will include NDC number, lot, number expiration date, and an individual license plate.

Right now, those are multiple points of entry. And so in many ways, that's gonna be simplified. we technically fall outside of compliance, the rules and regulations when it comes to those, end at reverse distribution. But we actually think it's a, again, a really excellent way for the industry to morph into more effective and better inventory management.

being able to understand where the product was sold and ultimately where it ended down to the individual product level. We think there's a good opportunity for our customers to even better manage their inventory with that information.

Mike Koelzer, Host: Now that Mike, your company is built up and sometimes to build a company, you've gotta take a certain path. Is there any other direction that you wish you would've done earlier or a different road like my house, we built our house in 2002, and you should see all the damn cables I got in my basement.

You know, there's. 50 of these [00:20:00] cables come into different rooms and so on for the cable TV and the, you know, computer, the cat fives and all those things. And it's like the only room I need these really in are the two rooms that we didn't put 'em in, So I walk back there and I see dollar signs, and of course you don't need it now because of wifi and so on. If I could have done it over, I wouldn't have done all that. But is there any direction that you kind of wish you would've gone? Or because you're there all the time and meeting with your team and so on, that you could be nimble enough to adjust all the way through From the beginning?

Mike Zaccaro: You know, it really is an excellent question and I think one that's difficult to answer because it's easy to think about what you would've done when you know, when all the cards come out. Right. it's easy to say, oh, I should have bet more when the river card comes out. and it comes in your favor with that.

With that being said, I will tell you that we organizationally had to make some pretty difficult and serious decisions over the last several years to make sure that we continued to put ourselves in a good position to take advantage of future opportunities. And so, Speaking a little bit to that,we really did three things over the last three and a half years to put us in a better position on a go-forward basis.

One is we had moved four times in the history of the organization. Started out of the basement of my house in about 700 square feet. and in June of 2019, broke ground on a brand new warehouse and about 124,000 square feet of total space, about 75,000 square feet of current processing space.

And that was really important because the bigger we got, the more disruptive those moves became. And shifting all of those licenses and. and, getting people to go to a different facility and you lose some if you move too far. So that was a big piece we had to build out of that, that brick and mortar.

The other thing that we had to do is, again, thinking about what we wanted to be when we grew up. we could no longer be as manual as we were. If you would've seen our operation four years ago. It looked exactly like it did when I was operating out of my basement ex, except we just had more people doing it and that just, that didn't work.

it's, it certainly was efficient, but you know, I talked about the number of farmers that we have now. We're at 170 and we're up about 25% over the last four years in terms of customer base. And we're doing it with a lot less farmers than we had originally planned because of that automation.

And so that was important. We knew if we wanted to continue to expand our service footprint, we had to do the automation. And then the final piece was, The tech stack that we had deployed, we were really good at managing our IT spend over 25 plus years, but as you can imagine, accumulated a tremendous amount of technology debt that had to be repaid.

And so we had to literally make a builder's decision on every single piece of technology that we have inside of our four walls as well as what we have out in the field. And flipped a switch on that about 14 months ago. And so what we've really got now is established brick and mortar. We did the automation and brought in the tech stack as well.

And so we are now positioned for the future and positioned to make those decisions. Those were not forward looking decisions that I made for the first 20 years of the organization, but were the decisions that I was able to make as I moved myself into a position where I could think on the business and not in the business.

Mike Koelzer, Host: What is a technology that you maybe drop over a little bit, whether. AI to do something or some robotic arms to do this or that. 

Mike Zaccaro: You touched on two of them. Right. So, we're certainly looking at AI and what impact that could have on our space. and quite frankly, that's really in its infancy for where we're looking at it. But we've already brought in robotic processing automation on a couple of different fronts.

We've talked a little bit about return goods, authorizations. Our farmers are highly skilled,and excellent at doing fulfillment work. and we want them working on higher value, more important things. We're not looking to do it with less of them. We're looking to deploy their resources on more value-added functions.

And so the process of having a farmer sit in front of a computer and key in addresses and DEA numbers and information over and over again for eight hours was something that we,did away with by bringing in robotic processing automation, which now does that automatically and it runs 24 7 and allows that individual to, to focus more on areas that they can provide more value to our clients.

So, that's a big one. we continue to see the opportunity now that we've created this tech stack that we have to really deploy this solution. Inside a pharmacy and inside a pharmacy management tool. So again, we're really looking to give our customers cradle to grave when it comes to pharmaceutical products right now, and expired goods have traditionally been that black hole in inventory management.

What am I losing? What's going out the door? Can I track it back to where it was purchased? That doesn't [00:25:00] exist right now and we're looking to move into that space as 

well. 

 We've deployed the automation in technology and the center warehouse in three phases. We're through two phases of it. What we are focused on internally.

In those first couple of phases, it was really eliminating the number of touches that our farmers had to have on a particular product. And so, bringing in a conveyance system, bringing in scanning capabilities, bringing in the ability to capture images of product and the weights of product. A big piece of what we focused on was when we process returns for customers, how can we ensure that our customers are getting back the dollar amounts that we expect them to get back?

And what are the reasons those credits are being denied? typically those came back as, we don't believe that the package size was correct. We don't believe that the quantity was correct. We don't have a proof of delivery, so we've automated a good chunk of that. and that's eliminated the challenge that we have in obtaining some of those credits for our customers.

So that's really helped. you see some instances of, and it's down the road, quite frankly, not a focus for us because we're really not a fulfillment center in the sense of like an Amazon. but you look at automated forklifts and automatic material handling. Is there a possibility?

Yeah, we're not super focused on that piece. We're really focused on how we can capture as much of the data integrity on the item as possible and ensure that data integrity is maintained throughout the reverse distribution process so that our customers can ultimately collect the dollars that we believe that they're owed.

Mike Koelzer, Host: Do you see any blockchain in the future? And here's why I asked. I was talking to one of my guests about blockchain and they were just saying that for these long things that happened, A to Z and they were talking about, drug trials and they said it was so important there because if person B enters their weight as two 70, it's an, well, that's pretty big. Let's say one 70. It must be getting dinner time. if someone there says one 70, but it, by the time it gets to the end, it's like 1 0 7, something got inverted. It really messes up the trial. I know I brought up those initials that I'm sure I botched earlier, but, will that be something where, or maybe it's already been handled with this QR code, is that gonna be something that, you can actually blockchain it to see exactly where something is?

Mike Zaccaro: I'm not the expert on the whole blockchain piece in that element of technology. What I can say is the drug supply Chain Security Act, D S C S A is creating and has created for the first time an individual license plate for every item.

 If you think about it, before a manufacturer would have a production run, they'd spit out 10,000 bottles a day, and all of that would be lot number 1 23. Now what you're gonna have are 10,000 units produced, and each of those 10,000 units is gonna have its own license.

Mike Koelzer, Host: Really?

Mike Zaccaro: Yes. And so that gives you really what you just described. it doesn't have the blockchain component as you mentioned, but it does give you the ability to track that product, more completely. And really that was the whole point

of it.

Mike Koelzer, Host: You mentioned with AI those sorts of things, not affecting the workforce as far as numbers go, and that's so true. It's like just with this podcast, for example, it used to be that Mike, after you and I talked, my show notes would be, Mike and Mike talked, show notes I don't think are as important as people think and so on. Now, I can use AI to improve that, but it's not taking me any more time. I had to write, Mike talks to Mike. That's the same amount of time it takes me to put the transcript into AI and say, gimme a show note. It's the same amount of time, same amount of human time, but the product is that much better.

Mike Zaccaro: I totally agree.we're relatively new as are most organizations into using features, like chat G p t and seeing how that's impacting things. But, what we have found internally and as we continue to look at ways to integrate it, it's really what you just described.

it's an opportunity for us to make things more efficient and allowing individuals to spend time on more value 

added work. And look, we don't believe that there's any shortage of value added. We believe there's a lot of time and effort that goes into redundant non-value added type functions, and AR is really doing a nice job of being able to eliminate those types of things.

 Even meetings that we now have, we're, we'll put on the transcribed feature and as opposed to somebody having to sit there and take notes, if you're taking notes, you're not paying

attention.And so if you have it recording, you can just have that dialogue be really engaged, that ultimately creates better thought flow and better creative ideas, and you're still gonna end up with the same result at the end, quite frankly.

Better cuz I can 

read 'em. 

Mike Koelzer, Host: Yeah. That's amazing. I was talking to one of the guests and, I forget what it was, it was [00:30:00] a similar thing with the board meeting, and I said, is it, just a bunch of people sitting around or is it official where you've got a transcriber and, uh, you can't call 'em secretaries anymore?

What do you call 'em? Executive assistants or something like that. And within few months, that's a moot point, 

Mike Zaccaro: 

Mike Koelzer, Host: put on the recording and get a transcript of it.

Mike Zaccaro: you got it. You got it.

Mike Koelzer, Host: Mike, if you came into work today, and for some reason it's 2033 versus 20, 23, 10 years later, what would shock you about your business? I'm basically talking about technology and ideas that are out 10 years, not just marching year by year. What do you think would shock you the most in 10 years?

Mike Zaccaro: Yeah. Well, I don't know that I would be shocked necessarily, but what I would tell you is the direction that it's going and the direction, quite frankly, that it needs to get into, and industries have been at this for a while, is just better analysis of the why when it comes to expired pharmaceuticals.

what is the reason that this product is expiring, pre covid? I would argue that health systems were not as focused on every single corner of a hospital's expense. And since then, there's no stone that's getting left un. 

and making sure that they are paying attention to that spend and making sure that they're paying attention to those credits are things that we're having conversations with customers all the time.

And it's really shifted in that regard. So we again, think that the shift that we made towards the enterprise level data systems that we have will ultimately allow us to play a critical role in how pharmacies are setting formulary and how pharmacies are ultimately managing inventory. And we think the function that we provide will be integrated with those in, in terms of what else it will look like in 10 years.

Our investment into those areas, automation, technology, and brick and mortar, are allowing us to pursue customers that we could not pursue previously. So we certainly think we're going to be, servicing larger and larger customers with greater and greater volumes. and more and more efficiency. I think the accuracy will continue to get better.

One of the things that prevents reverse distribution from being as automated as forward distribution is we're dealing with products that have already been handled. So you're dealing with barcodes that might be nicked, or you're dealing with stickers that might be over a barcode or you're dealing with a damaged product, right?

We think that there will be technology that continues to evolve that will allow optical character recognition or will allow those types of images to still be captured in and connect the dots much the way that AI is completing your thoughts right now in an email. We think those are gonna be things that are gonna be able to happen from a processing perspective.

Mike Koelzer, Host: you brought up about,keeping expired products down to start with. When I hear that as a pharmacist, the future of pharmacy is that pharmacists get remunerated for not dispensing medicine. by not having someone take so much where now you only. A profit when you sell something.

When you get to that point more and more of helping the products not to expire in the first place, is there any revenue in that? Would that be some kind of a consulting thing, or are you just doing it to stay competitive in losing that stream?

Mike Zaccaro: People ask me if that's where it's going, aren't you putting yourself out of business? and this is what I would say, you've gotta figure out where the industry is going and you can. Beer, your head in the sand, all you want about where it's going and say, well, it's always gonna happen.

Now this is what I would say. I think expired goods aren't going anywhere. I think expired pharmaceuticals will continue to happen for all kinds of reasons. Drug recalls will continue to happen for all kinds of reasons. The need for reverse distribution isn't going away. I would also tell you that the business model for us includes as we continue to get better, is continuing to use the technology and the data that we have to better manage the inventory and to then begin providing that software as a solution to customers.

And so, if you're processing a hundred thousand dollars worth of expired goods, and we can show you how to reduce that down to 50, but then we're going to bill you for a subscription service that shows you how to. That's one of the ways that we see the industry and quite frankly, us being sustainable.

With that being said, volumes of expired goods continue to be the same. We continue to see the products come in. we're not seeing fewer and fewer products come in. So we're not worried about it from a sustainability perspective, but it does make sense for us to partner more closely with our pharmacies and as we're perhaps losing margin on one side to be able to continue to demonstrate value, but to bill [00:35:00] for it on the backside.

And my feeling is that customers want us to earn a fair and reasonable profit, and we think everybody should earn a fair and reasonable profit. And so paying for those services and using different services to accomplish the same result we think is possible by helping to manage inventory and process expired goods.

Mike Koelzer, Host: We're not with a wholesaler anymore, because once you stop buying brand names, you're not really invited to the table. It seems to me there was something said that if you're not buying from a big wholesaler, you can't return goods bought unless you go through a wholesaler.

Maybe that was it. you have to somehow go through the wholesaler. Do you recall that? Is that old fashioned? What might I be there? 

Mike Zaccaro: A lot of this comes down to, Manufacturer return goods policies, and ultimately how the credit flows and how the manufacturer wants the credit to flow in those situations. and so generally speaking, the majority of our customers are gonna be using one of the big three.

they're certainly using some of the smaller wholesalers as well. But the manufacturers have to have a way to issue the credit to those

wholesalers. And if they don't have a way to issue credit to those wholesalers, then they're going to deny those credits to, to be issued to begin with. So, really this is driven by manufacturer policy.

a lot of times what you'll see, and this does dictate a lot of returnability or non-return ability, particularly at the independent level. products bought on the secondary market or products bought from a, from a non-primary wholesaler, which are actually sold without return goods privileges because they're sold at a discount because they're short dated to 

begin with. And so those will be sold on a non-returnable basis. And a lot of times those are secondary wholesalers that are providing that opportunity cuz a lot of the bigger wholesalers their agreements with manufacturers are, they're not getting anything that has less than, 12 or 24 months worth of shelf life to begin with.

And secondary wholesalers, they get a good chunk of that

Mike Koelzer, Host: It's coming back to me now because yes, if you return, let's say there's a thousand dollars that the manufacturer owes you, they don't cut you a check. They want to reimburse through the wholesaler and the wholesaler credit you kind of 

Mike Zaccaro: You got it. You got it. Now that's morphed itself a couple of ways, and again, I've been at this for 27 years, but, that's morphed itself a lot. But generally speaking, the credits are initially issued to the wholesaler, and 

Mike Koelzer, Host: Yep, 

Mike Zaccaro: big piece of what drives that policy.

Mike Koelzer, Host: All right, Mike, I know you're a positive guy and I know you got things set up well. But there's gotta be one day a week or one day a month where you say, ah, crap, I gotta do that today, or I gotta do that this week. Is there anything like that?

Mike Zaccaro: Sure. this is what I would say, what that looks like from my perspective. There's a lot of things that I get excited about on a Sunday night that get me motivated to get here into work. And then there are those things that drive me nuts here. Here's my number one thing that I don't like doing, fixing the same problem the second time around.

Mike Koelzer, Host: There you go. 

Mike Zaccaro: It is extremely frustrating for me to process an issue to create it. To create the system in process to then find out that, three months later, we've kinda lost our way a little bit and we have to go back and do that. And so, one of the things that we've done fairly recently is added ahead of continuous improvement to our executive management team to actually do away with that.

Doug Glass Blas came to us from Motorola, with a big Six Sigma background, and this is what he does all day, every day, is work on continuous improvement. It's gotta be such a pain point for me, Mark, that I finally had to hire a guy to help take that pain away from us. and Doug is doing a great job with it and helping us eliminate those types of things.

I think that to me is the biggest challenge. I would also, say this, I'm at my level really, blessed to have a really good team underneath me. And so a lot of the day-to-day and, and a lot of the working in the business is handled by a lot of staff. But back in the day when I was doing a lot of it myself, accounting and finance.

That was not my jam. the numbers and the ledgers and the balancing, that's not what got me up in the morning. I love solving problems. I love fixing things. I love operational focus. I love figuring out how we can do things in fewer steps and how we can be more efficient.

Those excite me. But when I was working more day to day, accounting and finance, not my strong suit and repetitive problems that we don't fix right the first time are my two biggest frustrations.

Mike Koelzer, Host: Well, that's what Gerber was saying in his book that we mentioned earlier. The EMyth especially for new people in the business and in order to both grow, but also maybe not to go crazy. you might be wearing 12 hats or 20 hats, but his [00:40:00] method would be to at least name all those hats.

at least say, all right, someday when I'm big enough, I'm gonna do this. But right now I'm the VP of cleaning the bathroom, or 

Mike Zaccaro: Yeah, 

this or that, for sure. and we've really adopted that and carried that forward. So, we are, at 170 employees we're, we're still a very small company and by and large, right? In the reverse distribution space, we're arguably the second largest reverse distributor. But in terms of company size, 170 employees is still relatively small.

And so because of that, we still have a lot of leaders at the executive level that have what we call. A role, and then they wear a hat. So you have your primary focus. So as an example, Joel, and that's our head of fulfillment, and that's his primary role. He also wears the hat of compliance, and he has a compliance team that reports into him in a future state as the company continues to grow.

That's a spot in the org chart that somebody will ultimately assume. but for right now, he wears a hat and then he also has a

Mike Koelzer, Host: What other new roles are there, let's say in maybe bigger companies? Are there other board spots or people like that that you would dream about or bring in if you had the room for it and so on?

Mike Zaccaro: A really good question. We think about it organizationally because it starts first with structure and then people, so as opposed to first focusing on what's wrong with or why we are not getting such and such input. The first question that we always ask ourselves is, do we have the correct structure in place?

Do we have the right environment for people to succeed there? And generally speaking, once we solve for the structure, s slotting, the right person in there becomes second nature and works very well. So I would say a big thing for us is, Starting first with the switch structure and then with people.

With that being said, right now, we identified an opportunity to improve the organization by adding, it depends on the industry. Some people call it customer success, other people call it account management. We've traditionally had field service, customer service, and sales, and what we realized is that structure isn't allowing us to work as close with our customers as we'd like it to be.

We're not spending enough time with our customers right now, really understanding the challenges that are happening in their pharmacies and what they're being asked to do. we're providing good service and we're providing good field service, and we're being responsive and we're delivering on expectations.

But having a conversation with a system director of pharmacy at a hospital and asking him what are the. Strategic initiatives that you're working on in your pharmacy over the next 12 to 24 months, and how can we help, is something where we wanna be. So the one piece that I would say that we're looking to add to the structure right now is that account management role.

and these are gonna be people who are really focused on going deep. They're gonna have the ability to go a mile deep and six inches wide with every customer. And understanding what the opportunity is for us to better support them with what we do. We think that's a piece that's been missing.

Mike Koelzer, Host: 

Mike Zaccaro: I think it's a piece that we can improve on. So that's one that's coming.

Mike Koelzer, Host: From my side, I'm seeing the customers as some old guy like me who's got the dusty box in the corner. But as you said, your customers run the gamut. I mean, you've got some really big accounts and having that to go deeper seems like a good idea.

Mike Zaccaro: I totally agree. And our, in our customer base is, spread out across the board from, really small physicians offices all the way up to, as I mentioned, the Department of Defense is arguably in terms of geography, and arguably customer size as well. Number of locations is our biggest customer, and then everything in between.

And so we have to be able to provide the service to, to suit all of those customers. And as we continue to grow and as we continue to expand service offerings to include other classes of trade. Those skills are gonna be more and more important for us. and again, different strokes for different folks.

a large chain doesn't have the same needs as a small compounding pharmacy, as does a small veterinary hospital. and it's being able to understand the world that those customers live in and be able to deliver the service that they're looking for,is what we're looking to do as we continue to.

Mike Koelzer, Host: Mike, do you ever see a need? Well, probably the best way to explain it would be like gm, they've got the, I don't even know the names of 'em, but they got the Corvette for this kind of person, and they've got the van for this kind of person. I can't think of all the different brands they have there.

Has there ever come a point for you where you would think that you would [00:45:00] need to rebrand a part of your business and not even associate it with your name? Not to hide it, but it's its own brand and people don't even know it's related and what market level might that be if there was such a thing?

Mike Zaccaro: It's a really interesting question and I appreciate you asking it, and we don't necessarily see that happening at the brand level. We think about everything. Is pharma logistics

and can fit into pharma. With that being said, we absolutely do believe in creating specific solutions for the various classes of trade and creating solutions that can do that.

I'll give you a very recent example of us doing that. So we had provided a lot of service to the veterans, health hospitals across the country for many years and for a lot of reasons, that contract has not been reissued and a lot of those customers are still looking for solutions. And so we invested, and Doug, our continuous improvement guy, came in and said, let's take a look at what they're looking for.

And we took recommendations. The pbm and we took guidance from the VHA directive and we took guidance from the OIG report and we created a solution that checked off literally all of the challenges that VA had, which were very specific to the

va.they don't operate,all hospitals are different, but the government facilities have different ways to contract.

They have different ways to get credit to be issued. And so we created a very specific program designed specifically for the VA, it's our VA drug liquidation program. And it's an opportunity for us to help them. they're taking product right now and disposing of it as opposed to returning it for credit.

and there's a lot of reasons for that, but our solution has been solved for that. So, if you think about the hotel chains, Marriott's got the bonvoy label and then everything underneath that is a Marriott. we see Pharma Logistics as being the overarching brand, but us creating very specific service components for individual classes of trade and branding those separately.

Mike Koelzer, Host: Yeah. You've got the long confidence of the company and then you can individualize with the different targets and almost have little logos for the department thing, but they all know it's part of this bigger thing. 

Mike Zaccaro: For sure, I think that's more the direction that we're headed as opposed to, creating a separate hotel chain, if you

Mike Koelzer, Host: Mike, tell me about your thoughts now, maybe it's just in the shower or driving, into work or something, but do you have structure for that? Do you have little signs on your door to say, this is Mike's, think time. Do you plan this? and if so, how?

Mike Zaccaro: Again, great question, and I'm blessed to have a really good team underneath me, and I do structure that time as much as I can. Again, I run the organization these days on one meeting a week, Monday morning from nine to 12: 30. And that really allows me the rest of the week to spend thinking about the business and not working in the business.

Now, of course, things happen and of course I'm gonna make sure that I'm available. a couple things that I do, I tell everybody that I have an open door policy, which is only partly true. what it means for me is my door's always open, but you gotta schedule it. so I don't take random meetings throughout the day.

I ask people to come to me with the important stuff, not the urgent stuff. The urgent stuff can wait, bring me the important stuff

Mike Koelzer, Host: Kind of the different quadrants 

Mike Zaccaro: You bet. You bet. And so that allows me to do that. I would also say,I'm a big believer in people in my role not having to make a million small decisions. If I make one or two really big decisions a year, those are the ones that we need to be able to get behind.

I tell everybody, my, my job is to figure out what we're gonna be when we grow up. And I can't be doing that if I'm constantly thinking about tying my shoes. And so, I have a good chunk of time to do that. A great team,a lot of structure behind it to support that, and that has allowed me to do it.

I also told you about the peer groups that I'm a part of and really I find. By looking to spend time with other entrepreneurs and other business owners as much as possible in disparate industries, because of the types of conversations and the type of information that comes from there, I can almost always bring something back into my organization and implement it.

My, my team, as an example, used to hate Wednesdays because Tuesdays were my Vistage meetings and so they knew every Wednesday when I showed back up, there was going to be something new that I picked 

up on that, that we were gonna start working on.

Mike Koelzer, Host: oh, my dad got his soul rest, but I was fairly organized compared to him. And so my thought time was during the week I'd come on Monday, I'd have a list of things to think about through the week. And I would [00:50:00] give myself some goals and so on. His time was Sunday. You can imagine what Monday morning was like for me when you're busy as hell in the pharmacy. And his day was Sunday. And I think the day's not gonna start till about Tuesday. 

It was really something. Alright, so Mike, I gotta go deeper though. Sketch this out for me.

If you had a great idea, I know it's a lot of different things, but if you had a great idea, would you be sitting at your desk with the door closed and your hands back behind your head and an idea comes to you? Would you be on a bike ride? Would you be talking to somebody else? If you could think of a really great idea physically, where are you?

And I know 

there's a lot of different ways, but if you could picture one, where would you be?

Mike Zaccaro: I dunno how many of these would classify as great. Okay. But I can tell you where a good majority of my ideas come from. I'm a big walker. I'm a 10,000 step, a day guy at least. The headset that I'm wearing right now is the same headset that I use when I'm circling the neighborhood.

and I will put this on, noise canceling headphones. I'm out there, the sun is shining. I'm taking steps and I spend the first 15 minutes just to kind of get centered. And then I just let what comes to me come to me. And I find that if I'm doing that three or four times a week, I generally come back from those walks with, Hey, I should look into, or, Hey, this is something that we should look into.

And I come back and I've got a board that we call the parking lot. and all of these ideas make their way into the parking lot. And then we discuss them as a team and say, Hey, what about this one? Or Hey, can this dog hunt? Not everything makes the cut and not everything's a great idea, but the majority of my ideas come when I have that alone time.

I'm an introvert by nature. I'm comfortable alone. I'm comfortable by myself. Gosh, I think when you run a company you gotta get kind of used to that at times. But I really do find value in that alone time. And, things have changed when I first started the company and I was much more involved in the day-to-day.

that time came between 1230 in the morning and three o'clock in the morning 

Mike Koelzer, Host: yeah. Right. 

Mike Zaccaro: the only time I wasn't getting emails and the only time I wasn't getting bombarded. So it's shifted and changed. It's now happening on those kind of long walks around Butler Lake, when those ideas come to me,

Mike Koelzer, Host: No music or podcast coming through your headphones. It's silent.

Mike Zaccaro: Yeah,, not always, but generally speaking, if I'm going for a walk, if I'm looking to get centered, if I'm looking to spend some time there, I literally have soundscapes on my noise canceling headphones. I generally find that just not having headphones on, you hear the lawnmowers, you hear the

cars, you hear them, you're still not quite out there.

so I put the noise canceling on and then, pick, generally I like the, my favorite sound is the, fish aquarium. Just the bubble. Yeah. The bubbling of the water coming up for me is an extremely calming one.

Mike Koelzer, Host: Well, I'm glad you mentioned the lawnmowers. I thought you were like a bird hater or something like that 

Mike Zaccaro: No, it's the landscapers that are doing it. 

Mike Koelzer, Host: All right. So Mike, we talked about what you guys need to grow and so on, and you're the second in line behind a competitor. What things are you either doing, or maybe there's some things you're doing that the customers don't really care about, but what are the hot points that they seem to like hearing?

What shifts the advantage to your favor?

Mike Zaccaro: Yeah, we talked about it a little bit. I think in years past pharmacies looked at reverse distribution as kind of found money, and I think they're now looking at the credits that are coming in as a necessary part of running a pharmacy profitably.

 And so a big piece of that comes down to where's the dollars, where is the money and how can you prove that it's coming back? And we've done a lot of analysis of our competitors and done a lot of analysis of the industry as a whole. And what we've basically learned is that about 60% of credits are gonna come through no matter what reverse distributor you use without a lot of effort.

Okay? So, you can pretty much, and this includes us, you can put us all in a hat, you're gonna get 60% of it. But what that means is 40% of the credits are not going to come back unless there's a dedicated effort to reconcile those credits and to chase those credits down and to work manufacturers and wholesalers to deploy those credits.

And that's really where we separate from the competition, anybody on the front side can say, Hey, look, we, we say you're gonna get back a thousand dollars, and just about everybody will get you back 600. But we work hard to get you back the thousand. We have a service fee guarantee that says, if we don't get you back the thousand, we're gonna refund our service fee on the amount that we haven't done.

We don't have a competitor that does the same thing. And this is the delicate balance that we strive to reach with our trading partners, wholesalers, and manufacturers. 

Mike Koelzer, Host: Mike, you guys come into your Monday morning meeting, you and the team, and for some reason we'll make it a [00:55:00] positive reason, but for some reason, you're no longer associated with medical, no pharmacy, no medical, no government, this and that. What industry would you talk to your team about and say, all right guys, let's go.

Mike Zaccaro: Again, a great question, and I would tell you it would be the same industry. It just would be non-pharmaceutical. We would stay in reverse distribution. 

Mike Koelzer, Host: What company is that? what kind of things.

Mike Zaccaro: anything you buy online, give a thought to it. So I don't know about you, but if I'm gonna buy a pair of shoes from Zappos, I'm gonna buy an 11 and a half, a 12 and a 12 and a half, which automatically means that I'm gonna be returning two boxes of shoes.

And the entire process of handling online returns from those types of fulfillment centers has skyrocketed. It was already increasing pre covid. It increased significantly during covid. Companies like Amazon struggle with this from multiple components.they get to the point, as an example. They deal with it on multiple fronts to the point that if there are customers that they have that are generating too many returns, those customers get blacklisted.

They have challenges with ensuring that the same product that's being returned is the same product that was sold. Sometimes the cost of returning that item 

is higher than the cost of doing the return. So they just tell you to. These types of things, the reverse distribution on hard and soft goods on the front end of a pharmacy as opposed to the back end of a pharmacy is exactly the area that we would play.

And I'm not tipping my hand here, but I will tell you that that's in the parking lot.

Mike Koelzer, Host: Boy, it was today or yesterday, I read about Amazon starting to put a buck on something like just to get people to think about it. I know there was more to the article, but it was something about a dollar they were gonna start 

Mike Zaccaro: Yeah. Well, you got it. the benefit to the consumer has been, and the benefit to the retailer has been, free return goods, you buy it from us, you can return it without issue. But there is a real insignificant cost to processing return goods and manufacturers and fulfillment houses like Amazon are looking for ways to minimize that cost.

And to your point, just putting some dollar amount on it as opposed to free is enough to change the buying patterns for customers,

Mike Koelzer, Host: I feel bad with Amazon because I'll send something back, let's say a router extender for my computer or something. I'll send it back and I'll feel bad for them. not bad enough for me to keep it and not return it, but I'm 

Mike Zaccaro: right? 

Mike Koelzer, Host: the stuff that I've caused,

Mike Zaccaro: Well, and if you think about it then too, and get involved in the environmental component of it, a lot of this product can't be resold. A lot of it doesn't get redistributed. And so a lot of it ends up in landfill. There is opportunity, and this is the difference between pharmaceutical reverse distribution and hard and sopha, its reverse distribution.

A lot of times you can find an aftermarket for products like that. Right. you can take a gift basket that gets returned and break it down and the CD can go in one component and the chocolate can go in another component and you can find the aftermarket for that. Pharmaceutical is the end of the line.

So there's a lot of that that goes on, but it's a really, important and ever increasing portion of our economy, 

is reverse 

Mike Koelzer, Host: and they're doing crazy things. I know they've got these gaylords of, boxes, you know, where the returns come back and they like sell this to

Mike Zaccaro: Yeah. 

Yeah. 

Mike Koelzer, Host: of the reason for selling it is just to get it the hell out of their warehouse

Mike Zaccaro: You got it. You got it. You got it. So that is where we would play. You know, we, we also think, you posed the question if it was non pharmacy and non-medical, but you know, we're exploring other opportunities to find ways to help our customers better handle their expired inventory on, on the medical side, the med 

surg side, other ways as 

well. 

Mike Koelzer, Host: Alright, Mike, now you wake up and you don't have your team, and you don't have your assets of the business. You've got your skill, you have your history. No team, no building. What is your next step?

Mike Zaccaro: Well, personally speaking, I'm, I turned 54. I have an 18 year old senior who is my son at home. And so my wife and I will be empty nesters at the end of this year. And so those questions are coming, though those questions are real. Right? And, what does that next step look like?

I have a passion for golf. I couldn't golf seven days a week. I love it. What I would tell you is that I enjoy business strategy. I enjoy the science of business. And so for me, I've worked hard over 27 years and I'm fortunate I don't work for money anymore.

I continue to work because I enjoy what I do. And so I wouldn't have to go get a job, but what I would do is find advisory board positions and try to find people in a position that I was in [01:00:00] when I started this company 27 years ago because I was so devoid of any knowledge of what I was in for, that if I could have been around more of those individuals, I would've got it.

So it's kind of a way for me to both give back and keep my competitive business juices flowing. I would find the opportunity to be part of advisory boards and help young companies and young entrepreneurs navigate the next 5, 10, 15 years of their career path.

Mike Koelzer, Host: Well, Mike, golly, thanks for your time. Thanks for giving us a glimpse behind the scenes, which once the box gets out of our place, we don't give a damn about it.

And so it's cool to see what's going on in your world. So thank you very much for joining us.

Mike Zaccaro: Yeah. Mike, it's been a pleasure., I appreciate the time that we spent together. Really enjoyed the time and really enjoyed the engaging conversation. It was a lot of fun.

Mike Koelzer, Host: Thanks, Mike. We'll keep in touch.