(FORTUNE Magazine) – SMART TAGS FOR TRACKING PARTS AND PRODUCTS

The standard way to identify and follow a product on its journey through factories and down the supply chain has long been the familiar bar code. Used for 25 years on everything from cans of beans to car bodies, it is a passive identification marker like a license plate. Each of its stripes stands for a coded number, but the stripes are as unchangeable as your thumbprint. If the contents or the destination of an industrial part or product change, a new bar-code label must be printed and attached.

The use of bar codes also requires a lot of labor. According to industry figures, as many as 60% of the workers in warehouses spend time validating bar codes. Items have to be lined up individually for scanning, even in highly automated identification systems such as those at major package-handling firms.

Increasingly, industry is turning to a better method called radio-frequency identification, or RFID. "Radio frequency" stands for electromagnetic waves of a wavelength suitable for wireless communication. In place of a bar code, an RFID system uses a plastic tag, sometimes as small as two matches laid side by side. Embedded in it is a digital memory chip the size of a pinhead.

The tag contains far more information than a bar code. Because radio is used, tagged products don't have to be aligned carefully for scanning. In its more sophisticated "read-write" version, RFID has an even more stunning advantage. Without touching or removing the tag, a user can alter the information on it. He can change the itinerary of a component on the factory floor, for example, or the destination of a shipment or break it up into smaller segments headed for various cities.

Compared with the brainy RFID, the bar code is a dumb bunny. "RFID is one of the hottest topics in supply-chain management," says Craig K. Harmon, president of QED Systems of Cedar Rapids, Iowa, a consulting firm in the field of data-collection technology. According to Venture Development Corp., a research firm in Natick, Mass., the RFID business is currently running at $900 million a year and growing more than 35% annually. About 59% of the tags are of the read-write type, the firm says.

In a typical read-write application, a product with an RFID tag moves down a conveyor or through a warehouse door aboard a forklift truck. The tagged product passes a "gate," or checkpoint, with a stationary antenna the size and shape of a small dinner plate. A transmitter sends a burst of radio waves through the antenna to the chip inside the tag to read the information stored in it, to change the information, or to impart a new message. The tiny RFID tag has an antenna of its own, a loop of copper plating.

Most RFID tags are "passive" in the sense of having no batteries or power source; information from the chips rides on signals bounced back to the dish antenna. From the dish antenna, the data flow through an electronic reader, which decodes the tag's ID and other information and sends it on to a host PC or workstation, where it can be viewed on a screen.

The information on RFID tags can be picked up by dishes placed as far as 100 feet away. Users are spared from lining up the product for scanning because the radio waves from the antenna fan out in a cone and find the tags no matter where they are--even inside parcels buried under other boxes on a pallet. (One exception is metallic objects that radio waves can't penetrate; their RFID tags must be placed on the surface.) RFID systems can read as many as 50 tags a second--40 times faster than bar-code scanners.

Bar codes, especially those printed on paper labels, often get damaged. The plastic RFID tags not only are tougher but also remain readable despite dirt or other substances that accumulate on them. RFID chipmakers say the chips can be read and "written to" at least 100,000 times, but that figure is simply a guarantee. Since there are no mechanical parts to wear out, a chip can theoretically last forever.

While the latest bar codes can contain the equivalent of 1,000 numbers and letters, an RFID chip can hold 64 times as much information. Thus, the read-write tag is a small database in transit that can be managed and synchronized with a company's other databases. For movement along today's fast supply chains, this capability opens up intriguing possibilities.

Consider, for example, the new concept of "in-transit inventory merge." By using RFID tags throughout the supply chain, configure-to-order assemblers could closely coordinate the arrival of components for final assembly. A report from the Gartner Group, a computer industry watcher in Stamford, Conn., cites a hypothetical example. A customer orders a computer, specifying the type of keyboard, monitor, and central processing unit (CPU). He wants it assembled and delivered in Rotterdam, the Netherlands. The keyboard comes from Puerto Rico, the monitor from Malaysia, and the CPU from Cork, Ireland.

At present, the assembler cannot easily and inexpensively track components in transit. As a result, the scheduling of assembly is put off until all the components have arrived from their far-flung points of origin. Because the manufacturer often doesn't get paid until the computer is assembled and delivered, this kind of delay costs money. But if the movement of incoming components could be closely monitored with the help of RFID tags, the Gartner report says, no time would be lost. The assembler could schedule the job for the day the components are expected to arrive.

RFID is a child of the World War II invention of radar. Its commercial use began in the 1970s with read-only versions for tagging cattle, which don't lend themselves to bar coding. Read-only RFID tags for railroad freight cars and locomotives, chosen partly because they require no line-of-sight scanning, came next. More recent read-only RFID tags enable your car to pass through electronic toll booths. In Florida, a read-write version goes further, instantly telling the motorist his current toll account balance.

RFID extends to tagging show dogs and cats, whose regular metal tags can get lost or stolen. Alton J. Brann, CEO of Unova, a $2-billion-a-year industrial conglomerate in Woodland Hills, Calif., has put read-only RFID tags not on but inside his two Labrador retrievers. Brann's use of the tags is appropriate because a Unova subsidiary, Intermec Technologies of Everett, Wash., is a leader in the newest RFID applications. Compactness makes it possible to get those chips inside the dogs: The chips are injected under their skin with a syringe. (UFO-ologists, interestingly, have claimed that visiting denizens of flying saucers have implanted pinhead-sized RFID-like pellets to track the whereabouts of some earthlings.)

In manufacturing, the use of RFID tags started on a fairly large scale in the 1980s. The big automakers began using what became known because of their size as RFID "bricks," made by Allen-Bradley and others. Those big read-only tags were attached to car bodies going through paint shops, and are still in use at some automakers. Companies like Intermec, Siemens, TI, Philips, and Motorola have since reduced the bricks to the size of a thumbnail.

The tiny chips being built into RFID tags sell in large quantities for 30 cents apiece. That's far more expensive than a bar-code label costing a penny. Other RFID-system costs--such as antennas, transmitters, and readers--exceed those of a bar-code scanner. But in the long run, the comparative costs are a wash because of the unlimited reusability of RFID tags and their versatility.

For one thing, RFID tags save money because a lot of frequently used information can be stored right on the chip. They also save time. When bar codes are used, information about a particular item has to be stored on a server and looked up via a local area network or the Internet. The delay in connecting to a server and finding the information may consume several minutes.

RFID has another big advantage. When companies exchange goods along a supply chain, they can limit the information on RFID tags to what outsiders need to know. If, on the other hand, customers or suppliers read a company's bar codes, they often have to tap into its computers to look up information relating to that "license plate." That risks the disclosure of competitive information unless access is tightly restricted.

The smart tags could be a boon to shippers of sensitive products, such as medical supplies and explosive chemicals, that want to know who last "touched" a shipment. The extra memory on the RFID chip allows each shipper to update a tag so that there's a record of the entire transit history right on the package. In an emergency, such as a chemical spill, it's also advantageous to have information such as so-called materials-safety data sheets, required by the federal government, available on the scene--right there inside the RFID tag--rather than in a remote database. As a precaution, trucks that haul chemicals can be equipped with handheld readers.

Such selling points have enabled companies like Intermec to open new markets for RFID. Intermec is a relative newcomer to the RFID scene but an old hand at automatic identification and data collection: It makes bar-code readers, handheld inventory checking instruments, and other devices. A few years ago Intermec bought an advanced read-write RFID technology developed at IBM's Watson Research Center in Yorktown Heights, N.Y., and dubbed it Intellitag. Intermec's RFID business really began to boom about a year ago, when it cleverly inserted RFID inside some of its bar-code tags. The company's strategy is to introduce RFID without tearing out the bar-code infrastructure.

Bar codes are not going to die overnight, especially not at giant retailing companies like Wal-Mart or even at some industrial companies. Barba Pier Hickman, Intermec's vice president for industry relations, notes that the first big use of RFID tags has been in big trading companies' warehouses, where pallets or packages go through RFID gates for fast, automatic processing. RFID instantly identifies these batches of items as they pass. But bar codes still play a role in keeping track of individual packets of chewing gum, say, or small industrial parts.

On some manufacturing floors, Intermec and its rivals are pushing RFID tags as the sole tracking system. Intermec alone has 70 pilot projects in progress, many in industrial companies. Also promoting the concept are Siemens, Omron Electronics (a Schaumburg, Ill., subsidiary of the big Japanese controls maker), and a number of smaller companies.

For competitive reasons, most manufacturing companies are reluctant to talk about their use of RFID. At a recent Intermec-sponsored conference in Colorado Springs, for example, engineers from only one company, Ford Motor, gave a presentation on a pilot RFID project and a rather guarded one at that. They said that Intermec's Intellitag system was being tested at four Ford plants but declined to name their locations. Later, Ford allowed FORTUNE to photograph the use of RFID at its Windsor, Ontario, assembly plant across the river from Detroit.

According to Alan F. Hyrila, Ford's principal staff engineer in advanced manufacturing, his company is interested in tracking parts to improve manufacturing process control. On the tags, Ford enters such data as a unique tag ID, part type, plant location, and a time-date stamp. The pilot studies have gone well, Hyrila says, with 100% data accuracy and no reported system downtime. About the only problem Ford has encountered is difficulty attaching RFID tags to metal products such as car engines. Ford also concluded that better packaging was needed to protect the tags from washing fluids used in the plant. The solution Ford adopted in the pilot runs, as shown in the photo earlier in this story, is to wrap the tag in a strip of cloth.

Ford's general satisfaction with the pilot project doesn't mean the automaker lacks a long wish list for RFID: It wants the technology to be available at a price similar to that of bar coding and to be more reliable than vision systems or bar codes. Ford also wants RFID tags to operate in temperatures ranging from minus 40 degrees to plus 200 degrees Fahrenheit, and to withstand exposure to motion and shock.

Another Intermec client, Weyerhaeuser, the $12-billion-a-year forest-products giant, plans to use Intellitag technology to streamline manufacturing and distribution processes. Initial applications will focus on improving inventory flow at Weyerhaeuser's mills. Finished paper rolls with RFID tags will be tracked from manufacturing through shipping. The company also wants to provide RFID to its customers. Applications at customer sites will include tracking raw materials and packaging to improve supply-chain management. Jim Keller, vice president for containerboard packaging and recycling, says he hopes RFID will meet customers' needs for "instant, automatic, and accurate data."

This trend can only accelerate. Some "channel masters" such as Texas Instruments and Procter & Gamble already demand that their truck, rail, and air carriers collect and share item-level information on inventories in transit. Says a report by the Gartner Group: "To achieve pipeline visibility, each trading partner will have to collect and share more data than it does today." What better way than to do it with "smart" RFID tags they can talk to?

BETTER BRAINS FOR THE BEHEMOTHS OF METAL CUTTING

Anyone under the impression that industrial production is a primitive anachronism in the age of infotech should behold one of the most impressive new manufacturing software technologies at work. Called OpenCNC, it is supplied by Manufacturing Data Systems (MDSI), a small, privately held company in Ann Arbor, Mich., whose sales have grown at an average rate of more than 300% annually since the mid-1990s. The software is as breathtakingly advanced as anything in the dot-com world.

OpenCNC is a new way to direct the operation of computer numerical control (CNC) machine tools, the versatile workhorses of metal cutting. It is a breakthrough in several ways. For one thing, it is an open system. It replaces hard-wired proprietary controls, which differ from one type of CNC machine to another, with PC-run software that can direct any machine. Secondly, it extends the life of old CNC machines. It can also put machine tools on the Internet or corporate intranets, enabling a company with multi-city manufacturing operations to run its machines as a network.

CNC equipment, which comes in great variety, includes machining centers, lathes, boring mills, and a multitude of other complex devices that cut and shape metal to make parts as well as molds and dies. In their internally synchronized actions, CNC machines can be as complex as any symphony orchestra, sometimes performing as many as six different machining operations simultaneously while automatically changing worn-out drill bits and loading pallets.

An overwhelming 95% of CNC machines are controlled by proprietary electronic boxes supplied by the toolmakers and widely referred to as hardware controls. They take such forms as old-fashioned programmable-logic controllers (PLCs), which are difficult to program, and costly "motion-control cards" that work somewhat like the drop-in rolls that enable a player piano to plunk out a tune. In a world moving toward networking, nearly all the world's three million CNC machines are stand-alone islands in the Internet revolution.

Now, at a stroke, OpenCNC does away with a rat's nest of wires in the back of CNC machines and with other cumbersome paraphernalia. Fitting on a single CD-ROM, the new CNC software costs $4,000 to $17,000 per machine tool, substantially less than hard controls, and runs on a PC with a Microsoft NT operating system. Even if the machine needs a separate "developer's kit," costing up to $6,000--generally not the case--OpenCNC is far cheaper than the alternatives. And unlike hardware controls, it can be updated via the Internet.

Users of OpenCNC include Boeing, Caterpillar, Detroit Diesel, GE, Lockheed Martin, Emerson Electric, the Big Three automakers, and many others. The software opens the door to a plethora of benefits. Training time for CNC machine operators is cut because they no longer have to learn convoluted proprietary control languages. Furthermore, because OpenCNC is a generic program, once an operator has mastered it, he can operate any CNC machine.

"We can take an operator from any of our areas," says James F. Curley, corporate director of manufacturing engineering at Tecumseh Products, one of MDSI's biggest clients, "move him to another area where we need him, and he's going to get on that machine and be comfortable with the controls. He's going to take off and run with it." Headquartered in Tecumseh, Mich., Curley's company is a $2-billion-a-year maker of pumps, components for air-conditioning and refrigeration systems, and engines and power components for lawn and garden equipment.

Bob Burroughs, vice president of the PIA Group, which owns Precision Industrial Automation, a Cincinnati machine-tool maker, lauds the fact that the new software is widely available anywhere and works with any CNC machine. "The fact that OpenCNC makes us hardware-independent," he says, "means that if there is a failure, we can go down to the local computer store, replace the component or subsystem, and be back in business in minutes, not months."

OpenCNC turns a machine tool into an information-generator, recording and displaying thousands of data points about the machine's operations even as it cuts metal. No longer is it necessary to count parts by hand. The same data can be automatically transferred for use in statistical quality-control programs, production-scheduling operations, and maintenance schedules.

With more information available, machine operators gain flexibility. "With OpenCNC, I can manipulate the machine any way I want," says Thomas N. Payne, CNC electronics technician at Dana Corp.'s Spicer Off-Highway Products Division in Statesville, N.C. Dana is in the middle of a multiyear upgrade of a large number of CNC machines to OpenCNC.

The ability to gather so much data in real time, something not easily done before OpenCNC, points to a not-too-distant future when manufacturers with widespread production facilities will be able to tie their machine tools into a single network. That would quickly allow managers to check machine utilization and available capacity so they could respond rapidly to changing customer demands. This is no pipe dream. Tecumseh Products is in the midst of trying out just such a scheme, first linking its factories in the U.S. and then extending the tieup abroad, where it has 30 plants in seven countries.

OpenCNC began to catch on when manufacturers saw it as a way to modernize their aging CNC machines. Industry figures show that 60% of CNC controls are more than nine years old and ripe for replacement. The worldwide market for CNC controls was $3.8 billion in 1998, with 220,000 control units sold. Conventional hardware controls, especially aging ones, have their limitations. Among them: CNC machines must often halt metal cutting when new parts-making programs are being loaded into them.

That spelled opportunity for Jim Fall, MDSI's CEO, who is now 44. Fall started out by offering OpenCNC to companies looking to retrofit their machines with new controls. To many of the manufacturers Fall approached, OpenCNC looked too good to be true. "I didn't believe it," says Kevin Smith, Dana Corp.'s process engineering manager. Not only did OpenCNC solve the retrofit problem, Smith says, but also "to my surprise, they had the machine running in three days."

Melling Tool of Jackson, Mich., was able to save a bundle when upgrading a CNC machine. In 1995 the company, which makes a variety of parts, fittings, and assemblies for the aerospace, automotive, and other industries, was trying to sell an expensive three-axis CNC vertical machining center with unreliable and out-of-date controls. Though it was asking a measly $13,000, it found no takers. The ten-year-old machine still had good iron, as tool users say, meaning that it was fine except for the brains. But because of control problems, it was usable only 20% of the time.

A conventional control unit would have cost $35,000, plus $5,000 in materials and $8,000 of installation labor. Scrapping the machine seemed the only way out until Melling heard about OpenCNC. By putting in the software, Melling brought the machine up to 100% efficiency at one-tenth the cost of a new CNC machine.

Cessna Aircraft's components-manufacturing plant in Wichita, Kan., offers a particularly telling example of rejuvenating old equipment. Engineers there were grappling with the problem of how to keep using three key CNC machines called Trumpf routers.

Like big cookie cutters, these intricate German-made machines cut aircraft parts ranging from speaker panels to various structural parts out of half-inch-thick aluminum sandwiches measuring four by eight feet. Those three routers make no fewer than 30,000 different items, representing 60% of all aircraft parts at Cessna. But the controls had become unreliable. The Trumpf machines were running only 40% of the time, forcing Cessna to outsource router work at a cost of almost $1 million a month.

OpenCNC was the solution chosen by Philip L. Campbell, Cessna's supervisor of manufacturing engineering fabrication systems, and his subordinates. By switching to the new software, the Cessna engineers gained about three hours a day of production time on the routers. One big timesaver: The parts programs could now be downloaded in seconds even as the routers continued their work. Router utilization has doubled to 80%, and Cessna has been able to halt outsourcing.

On top of that, Cessna engineers can solve 95% of router problems that arise during the night without leaving home. A router with a problem automatically sets off a beeper. Not long ago Curtis Cook, an engineer in Campbell's department who was alerted in the wee hours, saw on his laptop screen that an input-output port on a router was not responding as it should. An error in the control logic appeared to have been caused by a switch that was not closing properly. Cook sent a command, forcing the switch to open and close a number of times. It turned out that a metal chip was stuck under the switch; Cook's remote command dislodged it. The router resumed normal operation--and Cook went back to sleep.

Cessna is planning to retrofit other machines with OpenCNC. More efficient production should reduce the planemaker's $5.8 billion backlog, which forces even the richest dot-com youngster with a yen for owning an $18 million Cessna business jet to wait at least two years for delivery.

It took nearly a decade for two brilliant individuals at MDSI, computer scientist Bruce Nourse, 58, and mechanical engineer Charles Hutchins, 66, to create software that could take over CNC control. They knew all about CNC machines because MDSI, in its original incarnation, was a pioneer in CNC programming languages in the late 1970s. MDSI was sold to Schlumberger, but the men resurrected it as an independent company in 1995. Nourse is VP for technology and Hutchins is chairman.

They overcame gargantuan challenges. They had to devise software controls and synchronize work streams inside the machine tools with millisecond precision. Like a symphony conductor leading musicians, their software had to control all the axles, spindles, servomechanisms, and motors that power the tools and work surfaces in a three-dimensional "symphony" of turning, churning, spinning, and moving.

The fruit of their work is the current version of OpenCNC, for which they received a patent last year. Seven years of experience with earlier versions and almost two million hours of production time have shown that, yes, Virginia, you can control a machine tool entirely with software. Not too long ago, some people in manufacturing feared "the blue screen of death"--a PC crash--showing up on their computers if they used Microsoft's then-new NT operating system. But OpenCNC using NT has been running on several hundred machine tools at 210 manufacturing plants in seven countries, and not a single PC has crashed. It helps that, unlike computers in offices, these PCs are used in a way that makes them less vulnerable to going down.

Big traditional control manufacturers such as Allen-Bradley, Fanuc, Siemens, Mitsubishi, and some smaller suppliers are now offering partial software controls. But some industry observers detect a lack of enthusiasm. "The control vendors view software control as a threat to their traditional hardware sales," says Kevin Pouty, an analyst at AMR Research in Boston. Nevertheless, the control makers are beginning to feel pressure from DaimlerChrysler, Tecumseh, Dana, and others, which now require that their new machine tools come equipped with OpenCNC.

OpenCNC gets high praise from industry analysts. "MDSI's open controllers are delivering what has been promised by others," says Gartner Group vice president Dan Miklovic, who has had firsthand experience on the factory floor. As of now, MDSI faces only three small direct competitors, each based in Germany. All in all, a dream situation to be in.

E-LEARNING HAS ARRIVED ON THE PLANT FLOOR

The 1,100 assemblers of workstations and computer servers at Sun Microsystems' big plant in Newark, Calif., across San Francisco Bay from Silicon Valley, have entered the world of e-learning. Formerly, when the plant had an "active process alert," which usually involves a change in assembly methods, an engineer would come down to the plant floor and explain it to a technician called a manufacturing training specialist. The technician would then approach the team most directly concerned and instruct the workers how to go about complying.

The assemblers now receive such instructions electronically. They get a flashing alert on the screens of Sun workstations hanging at their workplaces. Then they learn of the change, which may be as minor as using green wires instead of blue ones, spelled out in a sentence. A more complex change might bring with it graphic instructions onscreen and sometimes even TV clips.

All alerts are now dated and recorded in an easily accessible database, which pleases John Aleck no end. As Sun's worldwide manager for manufacturing training, operating out of the Newark plant, Aleck has been concerned for some time about the spotty paper record of the alerts and how the workers responded. "It was a nightmare looking for those scraps of paper," he says. "They would get lost or misfiled. It was dig, dig, dig in somebody's filing cabinet. Sometimes those cabinets would be locked."

Dealing more efficiently with process alerts is just one small part of the new e-learning and e-training system at Sun. For the first time, assembly workers can sharpen their knowledge of their jobs by tapping into a large selection of company-created electronic courses. Finding e-learning subject matter is easy. If an assembler wants to know how to avoid scratching the cabinets of workstations and servers being assembled, for instance, he or she simply types in the word "scratches" in the TITLE box under ALL CURRICULA on a workstation screen. In seconds, the course appears.

Generally the courses take about 30 minutes, though some run as long as ten four-hour sessions. Without leaving their assigned spots, workers can take the courses during downtimes on the assembly lines. The way the workers are organized at the Newark plant--into independent teams of 21--makes it possible for a team and a technician to schedule as much as four hours of uninterrupted e-training during working hours.

On slow days a team could be taking a course on how to avoid electrostatic discharges from workers' bodies to products being assembled. A natural high-voltage spark from the body can ruin a new $1,200 hard drive inside a computer server. The course tells an assembler how to wear anti-spark gear, and to keep his or her feet on an antidischarge platform.

E-learning is also known as distance-learning or on-demand learning. Unlike classroom training, it is available anytime, day or night. "If there's a swing shift or a weekend shift, they can do it at any time," says Aleck. Electronic learning offers unmatched shortcuts to training workers both individually and en masse. Adds Aleck: "You can inform the work force via a mass e-mail message that they need to take this course. They can take it, and immediately their skills are enhanced."

The company, moreover, can easily keep track of what its employees have learned. Students are tested online both before and after an e-learning segment. This has special advantages. If a student misses a question, says Jerry Neece, manager of Sun's "network academy," the e-learning program can present the material he didn't absorb over again and retest until he comprehends it adequately. Says Neece: "You can't do that in a classroom without embarrassing the heck out of a student and taking an extraordinary amount of time."

A leader in e-learning, Sun has been training its computer programmers for some time via electronic courses offered by Sun University, its corporate teaching system. Bringing e-learning to the assembly line is much more recent, but Sun is not alone. Cisco Systems, whose assemblers have access to electronic learning like Sun's, has transformed 90% of its courses from paper to e-learning in the past 12 months, says Thomas M. Kelly, vice president for worldwide training.

Along with on-demand learning, Cisco offers live training programs that are scheduled for specific times. In an Internet version of a classroom, these programs allow direct interaction of a student with a live instructor via audio, video, or e-mail.

This trend is not confined to Silicon Valley companies bursting with workstations and PCs. It's spreading fast among such old-economy industrial companies as Kodak, Motorola, Rockwell Collins, and Cutler-Hammer. A Pittsburgh-based subsidiary of Eaton Corp. that makes electricity-controlling equipment for industrial use, Cutler-Hammer has just established a corporate university to train new hires and refresh the knowledge of older technicians and engineers.

Cutler-Hammer's online courses include such subjects as Basics of Motor Control and Fundamentals of Circuit Breakers. The latter course features graphics such as a drawing of a hand (representing voltage) pushing along a ball (which stands for current) to indicate that it takes the pressure of voltage to keep the current moving.

E-learning is expected to grow rapidly. According to Brandon Hall, president of Brandon-Hall.com, a consulting firm in Sunnyvale, Calif., and author of Web-Based Training Cookbook, about 10% of all corporate learning currently takes place on computers, a figure he predicts will reach 50% by 2003. Much of today's computer learning is done with CD-ROMs, but Hall expects online e-learning to grow much more rapidly because it's a cheaper way to disseminate knowledge and can be updated quickly.

Computers still won't completely eliminate classrooms, which according to Hall will account for most of the other half of corporate learning three years from now. Sun's brand-new manufacturing workers still get a week of classroom instruction, and some complex manufacturing tasks, such as the assembly of a jet engine or the operation of a computerized machine tool, are still taught best with the help of a live expert using real engines and machine tools.

Hall and other experts say that properly designed e-learning can be more effective than most classroom instruction. If so, it could fill a major need, because today's workers have more to learn. Both products and the production methodologies to make them are getting more complex. At Sun a new product is introduced every four months, and new assembly techniques must be mastered. On top of that, workers must learn government safety rules and international ISO9000 quality-control standards.

For many industries, efficient training is the only road to survival, because they will need to recruit legions of new workers. A University of Michigan study shows that half of today's autoworkers will start drawing their pensions in 2003, leaving an astounding 240,000 job openings. Shortages of skilled computer operators, in manufacturing plants as well as offices, are already severe. To alleviate the shortage, Sun, Cisco, and other Silicon Valley giants employ what they call "pick teams," which roam such areas as poor neighborhoods in East Palo Alto, and even homeless shelters, to recruit trainees.

E-learning is growing faster than CD-ROMs for a variety of reasons. It takes time to create a CD-ROM, sometimes as long as nine months. "By the time it's ready," says Sun's Aleck, "the information on it may be outdated." He doesn't plan to use CD-ROMs at the Newark plant. Production costs can run as high as $200,000 for a one-hour CD-ROM whose course material is embellished with fancy graphics and TV animation.

The cost of setting up an hour of e-learning--including course content--runs $100,000 at the most and as little as $5,000. Because of its limited bandwidth, online learning can't match the richness of material it's possible to present on a CD-ROM.

E-teachers get around that limitation by simplifying their graphics, as Cutler-Hammer has done with its hand and ball images.

To reduce e-learning costs further, companies often farm out the setting up and running of a training program to a so-called applications service provider. Sun has enlisted VeriLogix of Torrance, Calif., a leading name in a niche that's bursting at the seams as e-learning booms. CEO Thomas W. Kristy predicts that privately held VeriLogix will register 300% sales growth in revenues this year.

VeriLogix concentrates on the transmission of e-learning programs for the plant floor. Kristy grew up in manufacturing and still owns a small semiconductor equipment maker in Los Angeles. Setting up e-training on the manufacturing floor, he says, is a lot more difficult than sending a group of executives to a weeklong training seminar. One reason is the complexity and flexibility of manufacturing. For each manufacturing client, Kristy has to customize his software, charging up to $600,000 for an especially difficult job. His clients range from a GE jet engine plant in Ontario, Calif., to the Robert Mondavi vineyard in the northern part of the state.

By signing up with such service providers--which include big companies like Hewlett-Packard that are entering the scene--corporations don't have to purchase costly servers to store instructional material. Companies like VeriLogix do it for them. VeriLogix typically maintains a battery of its own Sun servers with enough capacity to handle 300,000 student users; 2,000 can simultaneously log on to a specific course.

The course content--the "water," which flows through the electronic pipes installed by VeriLogix and others--comes from many sources. For Sun's active process alerts, the content is created in-house. Dozens of vendors supply course content for e-learning. Those that specialize in manufacturing training include ITC Learning in Herndon, Va., Meridian Knowledge Solutions in Chantilly, Va., Mastery Technology in Novi, Mich., and General Physics Corp. in Troy, Mich. Subjects include machinery operation and repair, the handling of hazardous materials, and plant safety.

Corporations know that by making this kind of knowledge instantly available through e-learning, they gain an edge. When every competitor has the same production equipment, the winner can turn out to be the one whose workers learn fastest how to use it.

Stories from FORTUNE's Industrial Management & Technology section can be found at www.fortune.com/imt. feedback: gbylinsky@fortunemail.com.