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Riding the Trend
Outsourcing Key to Delta Group's Success

by Anne Straub
Brevard Technical Journal

Sherri Pittman of Palm Bay does some touch-up rework on a mixed board on the production floor at Delta Group Electronics in Rockledge. Photo by Craig Rubadoux, © 2002.

Don't look for Delta Group Electronics to hawk its wares.

"We don't sell products," said Ron Reed, director of marketing for the company, which has a facility in Rockledge. Instead, the company is a contract manufacturer, producing a variety of electronics on specific orders from other companies.

Reed sums up the firm's niche succinctly: "We know how to make things."

Among those things are circuit cards and cable harness assemblies used by contractors who don't want to spend the resources needed to make every component that goes into their product. Increasingly, they choose to hire contract manufacturers - also known as electronics manufacturing services, or EMS, companies -- to make parts for them.

"There has been a significant trend toward outsourcing, and we're riding that trend," Reed said.

In fact, EMS firms accounted for about $100 billion, or 10 percent, of the $1 trillion electronics industry last year. By 2004, EMS is expected to become a $205 billion market, though the current economic climate might slow that growth.

"There's a lot of room for growth to become a bigger part of that $1 trillion," said Bob Kula, spokesman for Solectron Corp. The Milpitas, Calif., firm is the EMS market leader, accounting for $18 billion of the industry's sales last year.

For companies that choose to outsource, the decision comes down to economics and core competencies.

"You only have so much money," Reed said, speaking from a business perspective. "Companies want to invest in engineering and product development. Rather than hire the people (for assembly) and invest in inventory, they let us do that. They don't have to add people or reduce them. That's our problem."

Delta Group kept employment steady locally through the current economic downturn, helped in part by its lack of a presence in the struggling telecommunications field. The recession might eventually help business for contract manufacturers, Reed said: Prime contractors got hit with extra expenses because of excess inventory during the slump, a situation they might address by outsourcing.

To make that step, companies have to change the way they think about making their product. "Many of these companies have done a lot of this on their own," Kula said. Though that might be something to be proud of, companies need to realize when it no longer makes sense. "Mind-set change is probably one of the biggest hurdles" in growing EMS market share, he said.

J.R. Virgo of Palm Bay does some Speedline Screen printing on the production floor at Delta Group Electronics in Rockledge. Photo by Craig Rubadoux, © 2002.

At Delta Group, about 40 of the company's 50 Rockledge employees are assemblers. Delta Group acquired its Florida presence when it bought the Rockledge facility in 1996.

The company employs about 40 people in San Diego, primarily manufacturing circuit boards, and about 100 at its main facility in Albuquerque. Founded by two friends and a brother-in-law in 1987, the closely held company doesn't release financial information. Reed said sales grew 30 percent last year and should grow 50 percent this year.

Delta Group's boards are used in products including rugged computers, devices used to measure electrical current, and systems that make the Internet available to commercial sailing vessels so they can communicate things like timetables, needs for spare parts, and payroll information.

The products are used in everything from "the auto industry to garage-door openers. You name it," Reed said.