No Risk, No Reward

Originally Published MDDI March/April 2003GUIDE TO OUTSOURCING

March 1, 2003

2 Min Read
No Risk, No Reward

Originally Published MDDI March/April 2003


"There's a risk in outsourcing, but if you don't take risks, you don't earn rewards," says Joseph Lester, vice president and general manager of Criticare Systems Inc. (Waukesha, WI).

Three years ago, Criticare Systems began outsourcing the manufacturing of its patient vital signs monitors in an effort to streamline costs and boost the bottom line. So far, things are going smoothly.

"We feel we've saved 15% on the cost of our products by outsourcing approximately 90% of our manufacturing," Lester estimates. "But that's because of how we did it."

Lester points to two key reasons why the company saw such savings. First, the company is primarily outsourcing to a contract manufacturer in Taiwan. The Taiwanese company is currently moving the manufacturing of the Criticare Systems' product to its new facility outside of Shanghai, although some work is being done in Malaysia and in Northern Ireland. "We wouldn't have seen the same savings with U.S. contract manufacturers," Lester says.

Secondly, the company cut internal costs by selling its manufacturing plant and renting just a portion of it, and by reducing its manufacturing-related workforce by 40%.

The company chose its partner with care. "We were looking primarily for cost savings, so we looked to the Pacific Rim," Lester recalls. "We searched for firms in a variety of ways, including over the Internet." Criticare Systems then visited several sites to see if they had the capabilities it required, and performed a quality audit of the company it liked the most.

After the contract manufacturer was hired, Criticare Systems held daily meetings with the company, and the two businesses exchanged teams of engineers to facilitate training. The outsource partner originally built just a small number of Criticare Systems' easiest-to-produce product, which was sent to the company's headquarters for dismantling to make sure all parts were built to specifications.

For the first three months of production, all products were inspected and tested for compliance with Criticare Systems' standards, and then a sampling plan was introduced. Now one in 50 units undergoes a functional test to ensure it performs properly, Lester says.

"The keys to our relationship have been trust and communication," Lester says. "We feel like a part of their company, and they feel like a part of ours, so we've ended up with a good solution."

Copyright ©2003 Medical Device & Diagnostic Industry

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