Kodak to revamp x-ray film networkin plan that calls for fewer dealers

Program is response to changes in U.S. healthcare industry

Eastman Kodak on Monday lifted the wraps on a new program designedto dramatically change the way its x-ray film is sold and distributedto customers. The plan will cut in half the number of dealerswho sell Kodak film, but will not include a controversial proposalto force dealers to sell only Kodak film.

The changes in the U.S. healthcare market have had profoundeffects on nearly every major x-ray film vendor. As independenthospitals consolidate into larger entities, they are demanding-- and receiving -- large discounts on film prices. These discountsare eroding profit margins, and this erosion has been the rootcause of much of the recent turmoil in the film industry, withDu Pont and 3M divesting or spinning off their film businessesand Agfa rumored as likely to follow suit.

Kodak's plan to restructure its dealer network is an effortto come to grips with these changes by reducing the number ofdealers who sell Kodak film. At the same time, Kodak will increasethe technical expertise and the services available from thosedealers still in the network, according to Kodak spokespersonDawn Beck.

"We want to be able to drive costs out of the procurementprocess, both at the customer's end and the distribution end,from our perspective," Beck said. "We also wanted tobe able to free up some of our account managers to provide someof the business-type services that customers are looking for.That meant that to some extent we would be looking for dealersto take on some of the technical and servicing things that a lotof our account managers have been doing."

Under the plan, Kodak will cut the number of dealers in itsnetwork by half, from over 200 to fewer than 100. The remainingdealers will become part of a three-tiered network, with dealersable to move up to higher levels by meeting certain performancecriteria, Beck said.

How will Kodak decide which dealers will remain in its network?To begin with, Kodak will shape the new network from dealers alreadycertified in the Imagewatch program. Then, Kodak will select thenew dealerships using certain criteria, including the following:

• geographical reach;

• breadth of product-line offerings;

• customer satisfaction levels; and

• financial stability.

Beck stressed that Kodak customers in each region will be ableto choose from among several dealers. In addition, Kodak willnot follow through on a plan to require dealers to sell Kodakfilm exclusively. That was considered as an option but was thrownout based on feedback Kodak received, according to Beck.

"We did some initial research with some sampling of dealersand customers and took another look at it," she said. "Forour own business objectives, we decided that a more flexible approachwas preferable."

That's good news for one dealer, who said that his businesshandled only 30% of its volume in Kodak film. He would have lost70% of his business if he had joined the Kodak network as an exclusivedealer.

"They pointed a gun at us, but they didn't pull the trigger,"the dealer said.

Kodak presented the new network to its customers and dealersFeb. 12. For the rest of this month, Kodak will be negotiatingnew contracts with the dealers to remain in the network, and bythe end of March should have an idea of what the network willlook like, Beck said. The new network should officially be inplace April 1.

At least one dealer, Duffy Kincheloe of R.P. Kincheloe andCompany of Dallas, believes that Kodak's move is necessary towring out structural problems in the x-ray film distribution businessthat are crimping profit margins for everyone.

"The margins for the dealers are paltry, in fractionsof percents," Kincheloe said. "You've got 20 other dealersselling the exact same product. Something has to break one wayor the other. Someone has to have the courage to stand up anddo something."