Outsourcing isn’t the only way to cut costs and profit

To the editor:I just finished reading Ron Bourque’s column regarding the true cost of outsourcing and felt compelled to comment (“The true costs of outsourcing,” July 15-28 NHBR).As a president and part-owner of Martel Electronics Corp., a small to mid-sized New Hampshire-based electronics company, we’ve looked hard at moving certain high-volume product lines to Asia over the years with the goal of reducing costs.In our case, we manufacture test and calibration equipment, so the lion’s share of our manufacturing process is electronic assembly, which is well-suited for the skill set of Asian contract manufacturers. Like many U.S. manufacturers, we interviewed several Asian suppliers and reached out to other U.S. companies that they did business with as references.Once we settled on a couple of suppliers, the quoting process took place. To be sure, there were cost savings, which were mainly as a result of lower labor costs, but when we factored in the size of production run needed to achieve meaningful cost reductions, it started to raise a lot of red flags.Concerns like implementing engineering changes, component shortages, high minimum order sizes, surface shipping delays and, last but not least, having to drop everything and get on an 18-hour flight to go address a production-related problem — all of which weighed into our decision to find an alternative method for cost reduction. I believe that companies looking into outsourcing know about these potential problems (frankly most of them are common sense), but I think where most companies make poor decisions is in underestimating the magnitude of these pitfalls and the potential costs associated with them, which can cancel out any cost savings.I also think many managers and executives who make the decision to outsource to a low-cost region (LCR) do so as a result of just “following the crowd” and are hoping that none of the aforementioned problems affect them.With outsourcing to a LCR now looking like a high-risk move for Martel, our plan to improve efficiency and to lower costs was to fully embrace lean manufacturing and automate as many steps in our manufacturing process as possible. This, as we all know, is an ongoing process, but the results are worth it.Over the past five years we’ve been able to continually generate an unbroken string of year-over-year increases in both gross margin and operating profit on mature product lines by focusing on single-piece flow, efficient work stations, visual aids, operator cross-training and Kaizen events. We also use several local New Hampshire subcontractors that can do certain tasks more efficiently than us but are just down the road should a problem arise.To be sure, many of our components used in our products come from China, as that is in many cases the only place that the parts are now manufactured. In those instances we’ve built solid relationships with these suppliers and as needed developed second sources. Today Martel is a $15+ million manufacturing company with 40 employees, including engineering, sales and support staff. That’s nearly $400,000 per employee — not bad for a company in the woods of New Hampshire!Thomas FaturPresidentMartel Electronics Corp.Derry

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