Step inside the manufacturing facility at Jabil Circuit Inc., St. Petersburg, and you'll see rows and rows of computers wending their way down the assembly line -- each constructed for an OEM that has contracted with Jabil. As workers attach the various boards and components and slip the electronic guts into a case, a personal computer takes shape -- complete with the OEM's nameplate. Yet there's one important distinction that could easily escape even the most exacting scrutiny: Jabil Circuit not only has built these PCs, it has designed them from the motherboard up. Early on, engineers and designers at Jabil developed the technical specifications that helped mold the look, shape, and feel of the units through the use of computer-aided design (CAD). Under the watchful eye of the PC manufacturer, they fashioned prototypes and then tested the equipment to ensure that it met quality standards. Finally, Jabil, which contracts with a slew of PC companies, began rolling the machines off the assembly line and into the hands of retailers. In an industry beset by pricing pressures and constraints on time to market for new product designs, electronic contract services (ECS) have emerged as a way for OEMs to stay competitive. According to Technology Forecasters Inc., an Alameda, Calif., consulting firm that tracks the contract manufacturing industry, the market for ECS will increase from $60 billion in 1998 to $149.4 billion in 2003. However, a growing number of companies no longer are satisfied with merely reaping the gains of outsourced manufacturing: They're turning to contract manufacturers to design circuit boards, components, cases, and sometimes entire computer systems. "The goal," says Pamela Gordon, president of Technology Forecasters, "is to more tightly integrate the design and manufacturing processes. In many instances, a contract manufacturer can recommend design changes that allow for greater automation, higher yields, and better quality. Since they are already involved in manufacturing, they have intimate knowledge of what it takes to get it right." Adds Jenny Ryan, general manager at the Chelmsford, Mass., design center for Celestica Inc., a provider of contract design and manufacturing to Dell Computer Corp., Hewlett-Packard Co., IBM Corp., and Sun Microsystems Inc.: "Design outsourcing can bring tremendous value to the process. It can serve as a competitive advantage." Contract manufacturing originated in the early 1970s. At that time, a handful of firms began to recognize that they could save money and pump out products faster and better by outsourcing. Yet, only during the last few years have these same companies turned to design outsourcing to complement, and in some cases replace, internal development. The beneficiaries of this trend have been contract manufacturers such as Solectron Corp., SCI Systems Inc., Flextronics International Ltd., Celestica, and Jabil Circuit, which have grown rapidly and extended their reach throughout industry. At the same time, Taiwanese original design manufacturers (ODMs) such as Compal Electronics Inc., Tatung Co., and Quanta Computer Inc. have emerged as heavyweights in PC production -- particularly notebook models. Today, most U.S. PC makers rely heavily on these contract manufacturers to engineer and build systems -- and for good reason. Combining design and production can boost manufacturing speed by 10% to 40%, while allowing a firm to manage costs and resources far more effectively. "Contract manufacturers have made enormous strides. In the past, they were known as a place to turn for manufacturing support but not design excellence," says Tony Bonadero, director of product marketing for Latitude Notebooks at Dell Computer, Round Rock, Tex. However, over the last several years, he says, "They have ramped up design and production capabilities to the point where they now offer world-class design teams and a thorough understanding of what it takes to manufacture high-quality, high-volume products." According to Celestica's Ryan, OEMs turn to design outsourcing for three main reasons. First, they're aiming to lower the cost of engineering by leveraging the knowledge and skill of contract manufacturers, which "can adapt existing designs from several manufacturers to create a customized device that is perfectly suited to an OEM's needs." Second, the contract manufacturer can design for tight supply-chain integration -- something that can cut costs, streamline logistics, and boost overall quality. Finally, it is possible to design for optimal manufacturability. "When you are producing boards and components for high-volume production, you must ensure that there are no flaws in the design that can reduce yields," Ryan notes. Basic components and generic circuit boards are only part of the picture, however. Many OEMs are now turning to ODMs to handle more sophisticated needs, including the design of cases and even entire desktop PCs, notebooks, and personal digital assistants. Compaq Computer Corp., for example, works closely with Taiwanese firm Inventec Electronics. Typically, engineers at Compaq specify the chipset and components that go into a system and draw up basic mechanical designs. At that point, specialists at Inventec take over, producing detailed schematics and CAD layouts. "We have developed a relationship in which Inventec operates as an extension of our design and manufacturing capabilities," states Chuck Dourlet, vice president of marketing for the firm's PC division. At Hewlett-Packard (HP), it's a similar story. "The companies that specialize in design and engineering for a living can manage the process faster and cheaper than we can," says Dave Zabrowski, vice president and general manager of HP's North American Business division. The goal, he adds, is to harness HP's internal expertise to develop new products: "Things that are more revolutionary than evolutionary." However, he is quick to point out that contract manufacturing doesn't eliminate the need for control. "You simply cannot 'throw a project over the wall' and come back to collect it later. If you do it right you have to be actively engaged without going so far as to micromanage the process. Ultimately, it's a very different way to develop a product than if you handle everything in-house." Sometimes, that can lead to problems. Nicholas Brathwaite, chief technology officer at Flextronics International says that OEMs occasionally approach electronics contract manufacturers with the idea of mirroring their own internal processes. "At that point, I have to ask them, 'What's the advantage if we do everything exactly the same way as you?' Over the last decade, we have watched market windows shrink and product cycles become more compressed. In today's environment, if you don't get the design right the first time or take advantage of all possible gains, you can miss your opportunity," he explains. Flextronics, which produces motherboards, PC enclosures, and other devices, handles design work at its own offices but also places staff in the offices of OEMs as well as at its own campuses around the world. That way, it's possible to better synchronize design and manufacturing, which require both parties to adapt and tweak processes. "Success comes from total trust and a willingness to work together to resolve constant problems and frustrations," Brathwaite explains. "Even under the best of conditions, contract design and manufacturing aren't simple." Not surprisingly, the Internet is increasingly at the hub of collaboration and project management. At Flextronics, for example, engineers use CAD systems to develop designs and share them through a secure Web site. It's then possible to make changes and corrections from anywhere in the world -- even on a real-time basis. That allows, say, a team in Singapore to design a circuit board and another team in the UK to develop the enclosure for the board. Meanwhile, the OEM in the U.S. can check clearances and technical specifications before approving the design. However, online capabilities aren't limited to collaboration. Many contract manufacturers now offer sophisticated Web-based project management tools. When an OEM logs onto a private site, it's possible to determine the exact status of the project and check on various stages of the development process. A few companies also allow customers to automate the change-order process. "The Internet has made it possible to offer far more sophisticated products and capabilities within today's compressed time frames and highly competitive environment," states Jeff Lumetta, vice president of design services at Jabil Circuit. That's certainly true at Dell Computer. Although the basic design of its Latitude line of notebook computers takes place at the company's Round Rock headquarters, it relies heavily on partners such as Taiwanese contract manufacturer Quanta to refine design elements and handle virtually all component manufacturing. In-person meetings, collaborative software, and videoconferencing all play a role. A core issue, says Bonadero, is for Dell to maintain tight control over the process but allow the partner to leverage its knowledge for continual design improvements -- whether it's shedding 4 oz from a notebook PC or figuring out a more efficient way to lay out ports and connectors. Although some firms outsource all design and manufacturing, Dell has tried to balance the speed and cost advantages of outsourcing with the need to develop unique, high-quality products. "It's not a make vs buy decision," Bonadero points out. "It's about leveraging internal resources and tapping into partners that can add value beyond what we could achieve internally." Sometimes that's easier said than done. Outsourcing design and manufacturing can present more than a few challenges, experts agree. For one thing, designers and engineers on opposite sides of the fence can wind up bickering and, ultimately, undermine a project unless everyone clearly understands his or her role. For another, it is crucial to choose a contract manufacturer that has the expertise and resources to handle the project, and ensure that solid agreements, controls, and monitoring systems are firmly in place. Still, Technology Forecasters' Gordon believes that the PC industry is in the lead of a nascent trend. Over the next few years, scores of other industries -- including automotive, consumer electronics, wireless communications, medical instrumentation, and industrial electronics, to name a few -- are likely to embrace contract design and manufacturing in a big way. "Contract manufacturers are offering increasingly sophisticated solutions to complex challenges," she says. "They're redefining the way production takes place and playing a key role in designing, engineering, and modifying products. When it is done right, everyone comes out ahead."