Simple Plan Makes Sunrise Medical a Wall Street Star
Big businesses usually grow from simple concepts, so Richard H. Chandler keeps his corporate credo to six words: “Products go down in price forever.”
As chairman of Torrance-based Sunrise Medical Inc., Chandler has built a $235-million medical-goods company in nine years by slashing costs, raising quality and investing heavily in the development of new products that ease the lives of disabled and older people.
And while many of Sunrise’s wheelchairs, hospital beds and patient aids are now considered top-of-the-line worldwide--and priced accordingly--Chandler still runs the company as if it were constantly under severe pressure to reduce prices and gain market share.
It’s the Japanese management and manufacturing model, and the 49-year-old Chandler admits that he stole it on a March, 1987, visit to that country. Awe-struck after touring Toyota and Matsushita operations there, he says, “I realized we had been missing the boat with excuses” about quality.
Chandler’s Saint Paul-like conversion has produced a windfall for Sunrise shareholders. The firm this week is expected to report record earnings of $1.77 a share for its fiscal year ended June 30, versus 7 cents in fiscal 1987.
Sunrise stock, meanwhile, has rocketed from $8.50 in 1988 to a close of $35.75 on the New York Stock Exchange as of Friday, nearing the all-time high of $38.25 reached late last year.
This year, Chandler has launched a global expansion program that he expects will make Sunrise a $1-billion company by the year 2000. His competitors may have something to say about that, but Wall Street awards Sunrise a high probability of succeeding.
“You have to describe management as fanatical about producing the highest-quality products and about being innovative,” says Geoffrey Harris, analyst at Smith Barney, Harris Upham & Co. in New York. “It’s a very strong corporate culture.”
Chandler, a Princeton graduate and University of Chicago MBA, founded Sunrise in 1983 with $4.5 million (mostly from venture capital firms) after a long career as a corporate trouble-shooter for conglomerate Sara Lee Corp.
Chandler’s vision at the time was almost business textbook-simple: He reasoned that an aging America and an increasingly active disabled population would provide growing demand for rehabilitation and recovery products such as wheelchairs, walkers, crutches, bathroom aids and special mattresses.
Because that industry was--and still is--largely made up of mom-and-pop businesses, Chandler saw an opportunity to buy small companies and put them under a national marketing umbrella.
But he also understood that merely being a large company in home health care wouldn’t guarantee success. Ten years ago, the biggest name in wheelchairs was Everest & Jennings, formerly based in Camarillo and now in St. Louis, Mo. Since then, E&J; has shrunk dramatically. A New Zealand investor is trying to revive the company, but its future remains iffy.
Chandler believes that E&J;’s mistake was mostly a failure to innovate. In the wheelchair business, for example, Chandler saw early on the opportunity to pamper disabled people with custom-built chairs--designed for the individual’s height, weight, personal color preferences and other variables--rather than offer them the clunky, black, one-size-fits-all chairs that were standard.
Today, Sunrise’s Fresno-based Quickie division is the U.S. leader in lightweight manual wheelchairs. In 1990, it launched a battery-powered wheelchair line, attacking the prime turf of Ohio-based archrival Invacare Corp. Analyst Paul Brown at brokerage Volpe, Welty & Co. in San Francisco says Sunrise has already grabbed 18% of the U.S. power chair market.
Overall, Quickie’s sales have grown 21% a year since 1987 and accounted for 39% of Sunrise’s $203 million in total sales in 1991.
“We sell more of their chairs than anybody else’s,” says Jimmy Scuffil, manager of Bay Area Medical, a health care products retailer in Santa Monica. “Their customer service is excellent,” he says.
Still, Chandler admits that until 1987 he continued to sense a void in his corporate game plan. Neither product quality nor employee motivation were what they should have been, he says. He began to understand that “people don’t want to work to improve earnings per share. That doesn’t turn anybody on. You have to define a greater purpose.”
The 1987 trip to Japan changed Chandler’s life and Sunrise’s business plan. Chandler found in Japanese manufacturing and management techniques the answers to problems his MBA training and Sara Lee experience couldn’t solve.
His remake of Sunrise concentrated on three areas:
* Manufacturing: Chandler persuaded his managers and line workers to adopt Japanese-style “just in time” manufacturing, which means keeping in inventory only the parts you need for immediate production. It also means shipping everything you make the same day or the following day.
At the firm’s Guardian Products unit in Arleta, which makes standard wheelchairs, crutches and other patient aids, workers were reorganized into self-directed teams. When a problem arises--say, a product defect--such teams can solve it far quicker than the old manager/floor foreman/worker line system, Chandler says. And by empowering workers in that way, they begin to see “the company” as themselves, he adds.
Sunrise’s adoption of the Japanese inventory system alone has saved the company $20 million in four years, Chandler says, adding “you can do a lot with $20 million.”
* Research spending: Sunrise doesn’t pay cash dividends to shareholders. Instead, Chandler has copied the Japanese devotion to research and development by plowing profit back into product innovation. Research spending has climbed 138% since 1987 to $4.21 million last year, or 2% of sales. Chandler’s long-term goal is to spend 4% of sales on R&D.;
The payoff so far has been enormous, Chandler contends. For example, use of advanced metals and plastics in wheelchairs has slashed chair weights nearly in half, to 25 pounds--giving the disabled far greater mobility.
By spending $600,000 to develop an all-plastic bedside commode chair, Sunrise created a better--and rust-proof--product, and for $28 versus $35 for a standard metal chair, Chandler says.
That kind of progress makes Sunrise potentially more a beneficiary than a victim of the national push to control health care costs, Chandler notes. (Even now, only 8% of Sunrise’s sales are Medicare/Medicaid reimbursed. Most of its customers rely on private insurers.)
* Worker loyalty: Sunrise’s workers aren’t highly paid. The average wage at the Arleta plant is $8.50 an hour. To get workers at that pay level to buy into an enhanced quality and customer-service program, Chandler and his managers developed a host of programs to reward special effort.
A companywide suggestion program netted 6,000 ideas last year, or three per factory worker. Hourly workers’ suggestions earn them entries in a yearly sweepstakes for cars, vacations and other prizes. The more entries, the greater your chance of winning.
Managers, meanwhile, compete for Gorilla Awards, which Chandler describes as rewards for “someone who crashes through doors to succeed in the face of all obstacles to change,” generally to improve customer service.
If some of this sounds hokey, Chandler doesn’t apologize. The proof that it works is in the firm’s rapid earnings growth since 1987, he says. A father of three daughters and an avid tennis player, Chandler also notes that no one has a bigger bet on Sunrise’s future success than he: His family owns 1.1 million shares, or 17% of the 6.3 million shares outstanding.
Now, Chandler is making a major international push. Sunrise’s products already sell in 60 countries, and international sales have grown 31% a year since 1987. This year, Chandler expanded the company’s manufacturing operations to Europe by purchasing two wheelchair manufacturers, Uribarri in Spain and Sopur in Germany.
Long-term, Chandler sees international growth as key to delivering his minimum target of 20% annual earnings growth.
Given the demographics of an aging population in the industrialized world, Chandler believes that his constituencies--older people and the disabled--give Sunrise limitless opportunities to make good and do good. “We’re on the side of the angels,” he says.
Payoff for Sunrise Shareholders
After pulling back from an expansion program in the mid-80’s, Sunrise Medical concentrated on niche markets, including custom wheelchairs and hospital rehabilitation products. Result: Since 1989, earnings have doubled and the stock has tripled. Fast Earnings Growth. . .Keeps the Stock Flying. Friday’s close: $35.75.
