Contract manufacturing: The definition expands

Among custom molders that are reinventing themselves as contract manufacturers, Mack Group, headquartered in Arlington, VT, presents a great benchmark. When we previously visited this company ( October 1999 IMM, pp. 31-35), it was expanding to beef up its already successful contract manufacturing and product design/development services. A recent move to add metalworking equipment at its Arlington facility proves that Mack remains ahead of the pack in embracing this newest of business models. 

With a customer base composed partially of H-P, Sun, and other heavyweights in the IT industry, Mack found that it needed to respond to the market’s trend toward outsourcing. "We saw the same customer demands that automotive molders were experiencing," says Jeff Somple, vp, sales and engineering. "OEMs wanted to give us the specs, have us design the parts, and then source and assemble them. They now give us cost and performance targets, along with a deadline for product launch." 

After acquiring a product design and development firm (Mack Design, 1997) and prototyping capabilities (Mack Prototyping, 1999), Mack examined the idea of in-house fabrication for a large share of the metal components it was purchasing. "For computer equipment, an enclosure is a hybrid," explains Somple. "OEMs are no longer interested in one material over another. As the equipment gets smaller and faster, it also gets hotter and requires more shielding. As a result, the designs are favoring more metal and less plastic." 

By adding two automated sheet metalworking centers for punching and laser cutting along with four CNC press brakes, Mack will be able to offer soft-tooled sheet metal parts with no vendor-to-vendor markup. 

Having its own metalworking equipment, circuit board fabrication, design, prototyping, assembly, and molding capabilities, however, doesn’t mean that Mack will start fabricating all of the components needed for assemblies or subassemblies. "We recently opened a supply management office in Hong Kong," adds Somple, "to identify suppliers in Asia that can provide high-quality metal components at lower cost." Mack currently buys 15 percent of outsourced supplies from Asia, and expects that amount to grow. 

Somple says the evolution toward service above and beyond pure molding started in the 1990s when Mack was asked to do more manufacturing. Also, quality, once a competitive advantage, had become a given. Revenues grew rapidly, but margins declined as prices went down with costs. Outsourced manufacturing became more common, and short-lived programs were the norm. 

"Today," says Somple, "we see consolidations producing mega-molders with full-service capabilities. Margins are fast eroding, yet molders must make major investments to compete. Contract manufacturers are becoming a way of life, with quality and service being the cost of entry. The reward lies in being able to participate in current and new markets to increase revenues."