Contract manufacturers define role in total solutions

Contract manufacturers have not been immune to the effects of the current economic slowdown. Solectron Corp. (Milpitas, CA) recently announced that it will cut 8200 jobs and expects revenue to fall by 24 percent in its fiscal second quarter. The world's largest outsourced-electronics maker, Solectron builds products and electronic parts for Cisco Systems Inc., Hewlett-Packard Co., and Compaq Computer Corp., all of which have experienced a reduced demand for their products. 

In other news, Jabil Circuit Inc. (St. Petersburg, FL) reported fiscal earnings that slightly exceeded expectations, but the company lowered its financial targets for the next two quarters. Jabil builds products for Cisco Systems, Dell Computer Corp., and Lucent Technologies. 

Flextronics International has also seen its stock take a hit. However, Paul Santina, vp of business development and global plastics, noted in a recent presentation at Plastics Encounter that the overall business outlook continues to be strong for the contract manufacturer. Santina noted that Flextronics currently outsources some $200 million in plastic molding to custom molders, yet this is only the tip of the iceberg in terms of available outsourcing. 

"Less than 20 percent of all electronics products are currently outsourced, so that leaves 80 percent untapped," he said. "Outsourcing creates the virtual corporation. There's nothing a company can do that has a greater effect on its P&L than outsource its production." 

Total Solutions 
Santina said that the success for the major contract manufacturers lies in their ability to provide total manufacturing solutions. "We're not just going after plastic parts, but for the whole solution," said Santina. "OEMs look for a global, total product solution, the lowest cost of acquisition, and that's what we provide." 

Fundamentally, the plastics industry hasn't changed significantly over the past 30 years, Santina remarked. "It's still a regional manufacturer selling plastic parts," he said. "But, plastic parts to us are just one aspect of manufacturing." 

This additional responsibility of taking on the whole enchilada has its downside. Santina admitted that there's "more and more spillage over who's liable for the product" as contract manufacturers become increasingly involved in product design. 

Another way in which contract manufacturers differ from custom molders is the way in which they approach their customers. "We don't see buyers or engineers," said Santina. "We see CEOs and presidents, and talk about what we can do to provide a low-cost solution to their manufacturing requirements." 

Santina said that contract manufacturers are not a threat to custom molders, but, he adds, "We're a threat to OEMs who aren't outsourcing." 

He also predicted that all the "high-volume cherry work will go away [from the United States] to countries such as Mexico, Brazil, and China." However, he believes that medical and automotive will stay here, "at least in the short term." 

He urged molders to form relationships with the contract manufacturers to take advantage of the outsourcing they do. "There's a lot of room for partnerships," he concluded.