You Would If You Outsourced.
Datex-Ohmeda had a tracking problem. Company executives described it with the acronym w.u.w.w. – “which units went where.” The Madison, Wisconsin-based manufacturer of anesthesia equipment couldn’t keep track of some 120 demonstration units it sent to hospitals around the country.
The magnitude of the problem matched the size of the equipment. Each unit weighs nearly 500 pounds, measures six feet tall, and carries a price tag of up to $100,000. The machines monitor patients’ vital signs during surgery.
“If someone from management came in and asked, ‘Where’s our equipment?’ or ‘What hospitals are using them?’ no one knew,” says Teri Elliott, demo inventory analyst. “There was no one to manage the process. We needed a way to get our hands on it.”
To solve the problem, Datex-Ohmeda turned to Technical Transportation, an outsourcing logistics provider based in Southlake, Texas, a northern Dallas suburb. The relationship between the two companies started in 1996, when TechTrans began providing Datex-Ohmeda with basic transportation services that included pickup, shipping, delivery and tracking of the medical machines. TechTrans created a customized, interactive Web site that allows Datex-Ohmeda’s management and sales force to keep detailed track of where each piece of equipment has been and where it is headed.
According to Elliott, the solution has been “a godsend.” Previously, management had no way of knowing how many anesthesia units were needed to satisfy its sales force. Nor did it have a historical record of how long the equipment was used or which sales reps made requests.
Damaged Equipment Is a Concern
Because delicate, life-saving instrumentation is built into each machine, Datex-Ohmeda carefully ensures it repairs or replaces aging equipment. The Food and Drug Administration requires medical manufacturers to show proof of well-maintained equipment.
TechTrans noticed the company was shipping its equipment in blanket wraps. The manufacturer recognized that it “had a problem because the units were damaged in transport,” reports TechTrans President Len Batcha. Tech Trans researched the problem and recommended a solution, proposing that it build customized, reusable shipping crates to reduce the damage. Ultimately, the new crates also reduced space requirements on cargo trucks and cut transportation costs.
Next, Datex-Ohmeda increased the scope of TechTrans’ offering when it accepted the provider’s proposal for an inventory control program. Datex-Ohmeda had no central collection point, so the service provider proposed a software program with multiple tracking abilities. The program acts as a central collection point for information about each piece of equipment and its history.
Datex-Ohmeda can now track its equipment in minute detail using multiple sort and report capabilities, according to model number, serial number, salesperson, region, city or hospital, among several other variables. The program even contains a map of where each unit is physically located. Using laptop computers, the 75-person sales force can instantly access availability of machinery, as well as information pertaining to proof of delivery.
The efficiency gains allowed the manufacturer to reduce the number of demo units required by its sales force, thereby cutting the number of warehouses it uses from 60 to 20, reports Elliott. In addition, management can analyze the productivity of each sales rep to determine whether they need further business development training. Moreover, the company can monitor the equipment for upkeep, damage and repair on a recurring basis, making FDA compliance easier. Most of all, she says, outsourcing has eliminated uncertainty and worry with a single repository for all information about the equipment. “Everyone knows where everything is all the time,” she says, adding that phone calls and e-mails inquiring about the whereabouts of the equipment have been virtually eliminated.
Keys to a Successful Outsourcing Relationship
Successful outsourcing relationships are based on more than the specialized knowledge and resources that the provider brings to the table. Jim Joiner, director of the project management program at the University of Texas/Dallas School of Management, says integrity and trust are “at the top of the list” in creating successful relationships. Joiner, who spent 31 years at Texas Instruments in management roles, says companies looking for a service provider must have “clear guidelines and documentation of what they expect” from the relationship.
Quality, continuous improvement and good face-to-face communication have kept our relationship with TechTrans on solid ground, he says. “We have no problem communicating,” says Elliott. “They address any problem that comes up.” In those rare instances when freight damage has occurred, TechTrans has been “willing and honest” about resolving the issue, she says. The rewards have far outnumbered the occasional glitches.
Surprisingly, there is no service level agreement written into the Datex-Ohmeda program, says Batcha. “People ask us what our guarantee level is, and we simply tell them that we’ll get their equipment there and alive; and if we don’t, they can stop using us,” he says. “We measure our success by each shipment we make. We’re only as good as our last shipment.”
Elliott is pleased with the outsourcing arrangement. “We have a lot of management tools we didn’t have before including a better understanding of what equipment we need out there to satisfy our sales force. It’s a good snapshot of where we stand at any given moment,” she concludes.
Lessons from the Outsourcing Journal:
- Service providers earn their clients’ trust by developing a track record of continuous innovation and superior performance.
- A buyer must give clear guidelines to its service provider. Successful outsourcing relationships occur when the service provider understands what the buyer expects.