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America has a bright future as a manufacturing power, so long as the goods being manufactured are complex and labor costs are tiny portion of the value created. One company succeeding nicely on that front is Intuitive Surgical, a Sunnyvale, Calif., company that makes wildly sophisticated surgical robots that can remove a patient's prostate or repair a heart valve by translating the slight hand movements of a doctor sitting 20 feet away.
Intuitive Surgical's ( ISRG - news - people ) device has three or four extendable arms that a surgeon controls from a console in the operating room. The software, circuits and motors controlling these arms must not fail when an eight-millimeter scalpel is inches inside your chest. Intuitive’s system is a significant refinement over conventional laparoscopic surgery--the great medical advance of the late 1980s--in which surgical instruments move in the opposite direction of a doctor’s hands. "When you put a long instrument into the abdomen, there is more of the instrument inside than outside. So when you move your hand a little bit, it magnifies the movement like a seesaw," says New York surgeon David Samadi, of conventional laparoscopic surgery.
That's not the case with Intuitive's da Vinci machines. It uses sensors and algorithms that smooth jerks and errant shifts of a surgeon's hands. Intuitive called it the da Vinci in honor of Leonardo da Vinci, who had drawings and plans for the first robot.
Since its introduction in German hospitals in 1999, Intuitive has sold 1,171 da Vinci systems around the world at an average price of $1.5 million. Hospitals have been willing to invest in this equipment because minimally invasive surgery avoids large incisions and thus means shorter hospital stays, quicker patient recovery and less blood loss from procedures such as prostate surgery, mitral valve repair, gynecological procedures and other general surgery.
Last year, surgeons performed 136,000 procedures with the da Vinci; the system has found its greatest success with prostate surgery, where doctors used it in more than 70,000 cases in 2008. Over the last 12 months, the company netted $188 million on $875 million in revenue, up from $600 million in 2007.
Intuitive is the model of a modern manufacturer. The da Vinci's 33,000-square-foot assembly plant, down the road from corporate headquarters, brings together components, many of them custom-made, from suppliers all over the world.
"We are talking about hundreds of thousands of parts, mechanical systems, optical systems, electrical harnesses and software," says John Major, senior director of manufacturing at Intuitive. "It is a very complex piece of equipment, and it all has to work together." For example, the surgeon's console has 18 motors, while the patient side cart has 27 motors. Each motor has redundant sensing technology and fail-safe amplifier technology to help prevent any accidental or unwanted action.
According to Gus Castello, senior vice president of manufacturing operations, foreign manufacturers contribute 12% of the value of a da Vinci system. Most of that is from German and Japanese suppliers, which supply some of the complex vision technology. High-definition video display monitors come from Philips' Femi Division, while the image-acquiring size of the video train comes from Toshiba ( TOSBF.PK - news - people ) and Panasonic. From Germany, they get an optical stereoscope, the only one of its kind in the world, according to Intuitive, manufactured to their specifications. Ethicon Endo-Surgery, a division of Johnson & Johnson ( JNJ - news - people ), supplies the harmonic shears, which use ultrasound to cut tissue. Maxon of Switzerland makes some of the precision motors in the da Vinci.
Intuitive now has a small plant in Mexicali, Mexico, that produces some of the disposable instruments for the da Vinci, but the company insists it will keep the bulk of its assembly in America.
"There is some low-cost leverage to manufacturing the instruments in Mexico, where labor is $6 an hour vs. $30 in U.S.," says Gus Castello. "On the robotic side, it doesn't make a difference. The learning curve is quite steep. We are the only ones doing this. It costs us millions of dollars to learn how to do systems integration. We have complex algorithms to test for final assembly. There is no leverage in having this thing done in China," he claims. In its latest fiscal year, Intuitive spent 9.6% of sales on research and development, more in line with a mature software company than a manufacturer.
And it's best not to have an ocean separating people. "The huge advantage in having manufacturing close to engineering resources is that whenever something happens, we have engineers right here," says manufacturing director Major. "In a remote situation, it would cost a lot of delay in the process to be away from engineering resources."
Core components of da Vinci come together in work cells, where technicians typically spend one to three hours building an individual subassembly. Intuitive cross-trains its factory staff (200 people, all non-union) so that they can work in various work cells within an assembly as well as across different assemblies. Each cell has the necessary tools, supplies and assembly instructions, which in some cases are in electronic format.
"Manufacturing a da Vinci is like building a Swiss watch," says Castello. Completed subassemblies move to a different work cell, where workers attach them to a larger assembly. The company keeps track of crucial components down to the serial number or lot number. "Many of the instruments involve blood contact," explains Major. "So we want to make sure that we can trace back to the certification that the supplier gave us for that particular lot of product to ensure that the right materials and manufacturing methods were used to make the part."
The company can customize the da Vinci device and ship it with three or four robotic arms. One arm contains the endoscope--the tiny camera and light--while the optional fourth arm gives a surgeon the flexibility to switch tools during an operation without removing the arm from the patient's body. Intuitive just announced a new, higher-end da Vinci, which has four arms standard, enhanced high-definition stereo visualization, an upgraded surgical console and the ability to add a second console for an assistant surgeon or student.
What does it take to work for Intuitive Surgical? "We look for people who are excited about technology, passionate in what they do," says Major. Castello remarks that hand-eye coordination is crucial for some tasks, where such skill is more important than having an advanced degree. At the supervisory and managerial levels, Intuitive looks for people with mechanical engineering or manufacturing engineering backgrounds, whereas as high school degree is acceptable for entry-level technicians.
Major says the company keeps a small inventory of the robotic devices and that it accumulates inventory in the first two months of a quarter. "The sales cycle is not smooth. We sell the majority of units in the last month of a quarter," says Major. Such an irregular sales cycle could be a problem for some companies, but it's not for Intuitive, thanks to its robust recurring revenue stream from sales of disposable instruments, service contracts and accessories.