OIT Times: Contract Manufacturing--Will Trend in Electronics Manufacturing Spread?

March 22, 2001

Panel moderator Dr. Joe Wirth of the National Research Council points out that, although contract manufacturing has long been an option, it has only become popular in the last few decades. Panel members Jerry Labowitz and Brian White of Merrill Lynch, Vincent DePalma of Solectron, and Michael Reardon of Dow Chemical Co. testified to the benefits contract manufacturing offers companies of diverse size and focus.

Contract manufacturer Solectron, the first two-time winner of the Malcolm Baldrige National Quality Award, has enjoyed an annual growth rate of 45% since 1999. By providing fast turnaround and high quality, they enable major electronics manufacturers to streamline operations and still meet manufacturing and market goals. Streamlining allows both Solectron and its customers to eliminate major capital investments at the time of plant design and construction and provides flexibility to help reduce labor inventory costs.

Michael Reardon of Dow Chemical observed that electronics is the driving force in contract manufacturing, but pharmaceutical companies such as Merck, Pfizer, and Proctor & Gamble, are the largest users in the chemicals industry. Within the last five years, virtual pharmaceutical companies have emerged on the scene and are growing rapidly in the Boston and San Diego areas. These virtual companies do not manufacture anything themselves, but just develop products. In many cases, virtual companies do not even market their products; they partner with larger pharmaceutical firms to perform that service.