(FORTUNE Magazine) – Fifteen minutes after Vicky Combs, in her Las Vegas office, transmits her design for a custom $30,000 motor control center intended to run fountains at the Mandalay Bay casino, a big, angular machine in Fayetteville, N.C., springs into action. Amid a clutter of drills and presses on the factory floor, the spider-like Finn Power robot lifts steel sheets the size of tabletops and places them one after another on a conveyor. Rollers move the sheets to drill heads nearby. Other machines shape the steel into housings, and workers along the assembly line combine these to build the control center, which consists of adjoining bins crammed with motors, switches, circuit breakers, and other devices.

This is electronic manufacturing at its most advanced. Combs, whose firm, Grove Madsen Industries, supplies equipment to Las Vegas casinos, feeds her design directly to the Cutler-Hammer assembly line 2,050 miles away. Cutler-Hammer's customers, field reps, and distributors now electronically design and place 95% of their orders remotely, bypassing the plant engineers.

E-manufacturing--the marriage of the digital factory with the Internet--is finally catching on in interesting and important ways in a growing number of U.S. companies. You might expect electronics and semiconductor producers to spearhead the trend, but old-economy stalwarts like Cutler-Hammer, Timken, Ford Motor, and Caterpillar are right up among the leaders. Collaborative product development, which is another name for e-manufacturing and which some analysts simply call c-manufacturing, reaches into factories to an extent never seen before. For example:

--From San Jose, IBM controls electronically the production processes of the eight overseas plants that make its computer disk assemblies.

--In Chicago a Timken dealer can within minutes locate a part in any of a dozen of its warehouses from Austria to Singapore.

--In Thief River Falls, Minn., Arctic Cat holds collaborative sessions with mold suppliers in Hong Kong and other Asian cities so that engineers in the U.S. can automatically alter the designs of snowmobile windshields.

The idea of e-manufacturing has been around for some time; now technologies, tools, and strategies "are emerging to make e-manufacturing a reality," says Andy Chatha, president of the ARC Advisory Group, a manufacturing research firm in Dedham, Mass. When fully implemented, e-manufacturing uses electronically transmitted knowledge to design products, transmit orders, procure components, and drive production machines, and to follow it all up with remote product maintenance in the field. It links factories to one another, to their supply chains, and to dealers and customers. It responds to customer demands to mass-customize items in quantities as small as one and to deliver them faster than ever with the highest possible quality. If urgently needed--after a disaster, for example--a motor control center can be built in a day. The e-factory shifts production from one plant to another if necessary and supervises the maintenance of production equipment. It also makes the shop floor transparent to the top floor, in industry lingo, so should a curious CEO want to see what's happening in the plant, he can.

Shifting to e-manufacturing is not always a smooth process. Today's economic slowdown makes some companies balk, even though the change might be the best cure for their travails. James E. Heaton, president of AMR Consulting in Boston, avers that "for manufacturers, economic uncertainty redoubles the imperative."

"It was that fear of being left behind that drove us," says Intel CEO Craig Barrett. Now, with $2 billion of sales a month conducted electronically, Intel has become the world's top e-business company. The giant chipmaker has greatly expanded its sales in Asia and other emerging markets by substituting Internet connections for faxes and phone calls. What's more, Intel now runs a dozen space-mission-control-like centers that help other manufacturers run their plants.

Many analysts and manufacturing executives believe that the advent of e-manufacturing could equal and even better the historic leaps in productivity that were achieved through the introduction of steam and electricity on factory floors. According to the U.S. Bureau of Labor Statistics, the initial use of mainframes and PCs on the production floor, as well as early applications of the Internet in the supply chain, has already boosted annual growth in U.S. manufacturing productivity--by nearly three percentage points during the 1973-99 period, to around 5%. Now e-manufacturing, by expanding and synthesizing those earlier building blocks, could hike up productivity another two points to an unprecedented 7% a year, according to the bureau's startling projections.

The transition to e-manufacturing is being speeded by a pronounced shift in capital spending. According to the Conference Board, capital spending for information-technology software and equipment topped the expenditures for non-IT equipment starting in late 1998 and has been on a steep rise since then. It now accounts for 45% of all capital spending in industry.

E-manufacturing has nothing to do with the often frivolous and fast-disappearing dot-coms that tried to sell puppy chow and college-test results over the Internet. What industry wags call the "easy-dot-com, easy-dot-go" pattern has obscured real advances by smart manufacturers, which are using the Net to generate real value in the so-called old economy.

For a firsthand look at the payoffs that e-manufacturing can produce, consider Cutler-Hammer. A $1.4-billion-a-year component of Eaton Corp., located outside Pittsburgh in Moon Township, Pa., Cutler-Hammer has boosted its competitiveness as well as sales and profits since launching its e-factory effort. Its products are complex assemblies ranging from panel boards, the industrial counterpart to the boxes of circuit breakers and fuses in your home basement, to motor control centers, which run motors in factories; heating and air-conditioning systems in hospitals, schools, and office buildings; pumps and valves in pipelines; and turbines and generators at electric utilities. Big motor control centers sell for hundreds of thousands of dollars and can occupy hundreds of feet of factory space.

Cutler-Hammer's IT people were pioneers when they began work in 1995 on a software program called Bid Manager. Its original purpose was to let customers' engineers deal more directly with the factory. Today Bid Manager has grown into a giant software package with six million lines of code, a far-reaching, all-embracing e-manufacturing weapon with a sharp competitive edge. Not surprisingly, Cutler-Hammer has kept it largely under wraps.

To start with, the program allows a customer, a distributor, or one of the company's sales engineers in the field to configure easily the sometimes devilishly complex innards of Cutler-Hammer equipment, with its convoluted wiring patterns and precise placement of dozens of electronic and electrical components. The software automatically checks that the engineer does everything right. If he places a switch or a wire in the wrong spot, he gets a gentle electronic slap on the wrist--an onscreen message pointing out the mistake. Bid Manager contains literally thousands of rules to ensure that designs are done correctly; at the same time, it allows for idiosyncrasies--a user may want the equipment to turn on electric motors in a certain way, for instance. The flexibility is there for the engineer to use. Yet the software is fairly easily mastered by nonspecialists. Vicky Combs, a business major in college, learned Bid Manager from engineers on her staff.

Bid Manager goes far beyond conventional configuration software, which lets a Dell or Compaq customer customize a PC over the Internet. Such software is limited to fairly simple products; it can't drive production machines the way Bid Manager does, and it can't handle complexity. "No outsider could possibly know an industry such as ours well enough to cover it the way Bid Manager does," says Barbara J. Riesmeyer, manager of IT at Cutler-Hammer's power and control systems division and a developer of Bid Manager. To create the software, the company enlisted not only 15 software writers but also experts at the plants, sales engineers, and many others. Director of e-business Ray L. Huber led the team and, with Riesmeyer, created what they call the design-to-delivery (D2D) vision.

Bid Manager is used on the more complex assembled products that make up half the company's sales. Cutler-Hammer makes most of its panel boards at a spacious plant in Sumter, S.C., and most of its motor control centers at the almost identical facility in Fayetteville. Sumter runs 11 satellite assembly operations and Fayetteville has eight; an additional 14 assembly plants in the U.S. and Mexico employ Bid Manager.

With more than 61,000 orders processed electronically last year at Cutler-Hammer, the e-factory unquestionably has proved itself. Plant managers Frank C. Campbell at Sumter and Steven R. Kavanaugh at Fayetteville overflow with praise for the software. It's easy to see why. Where in the past paperwork stifled production flow, now Bid Manager takes care of even small but significant details. For example, it automatically composes the labels that specify the capabilities, such as speed and power, of each motor and its components. Then it directs the nameplate engraver to print the label. In the past, a technician would type the information for the nameplate, increasing the likelihood of error and slowing the process. What's more, says Huber, "Bid Manager has helped us think differently about products." For example, Cutler-Hammer has standardized its products and models, slimming down the number of steel enclosure sizes from more than 400 to only 100.

There's no question that the software has decisively helped Cutler-Hammer's business. CEO Randy Carson reports that Bid Manager has increased Cutler-Hammer's market share for configured products--motor control centers, control panels, and the like--by 15%. He adds that Bid Manager has boosted sales of the larger assemblies by 20%, doubling profits, increasing productivity by 35%, and reducing quality costs by 26%. He concludes, "Bid Manager has transformed Cutler-Hammer into a customer-driven company."

Other manufacturers are taking e-manufacturing in smaller bytes. Starting later than Cutler-Hammer, Timken, in Canton, Ohio, has chosen to improve one aspect of its business at a time. To outsiders, says President James W. Griffith, Timken may seem old-economy, but to people inside, it is a high-tech operation. Just walk through its huge R&D center and see the sophisticated instruments that some 450 scientists and engineers are applying to product design.

A year ago Timken hired a GE executive, Curt J. Andersson, and named him to a new post, senior vice president for e-business. Andersson and his team have concentrated on establishing "electronic visibility" through Timken's global supply chain. Within eight weeks the team created a system that lets a Timken dealer see exactly where a part is available in any of a dozen warehouses spread around the world. Such searches previously took lots of faxing, telephoning, and paperwork. The improvement will save Timken millions of dollars annually.

Connecting design to the factory floor comes next in the Andersson team's plans. Engineers in the company's main R&D center already initiate, modify, and complete product design jointly with customers in real time via the Internet. Soon new software will allow the designs to flow immediately to Timken's sophisticated production plants--the same way Bid Manager serves Cutler-Hammer.

Several well-established computerized systems, such as collaborative design and CAD-CAM, feed right into e-manufacturing to make it more widely useful and applicable. Hewlett-Packard and Intel, for example, have used collaborative design for years. Arctic Cat, the Minnesota maker of snowmobiles, took an advanced step in collaborative design when it linked with suppliers in Asia who make the molds for its snowmobile parts. When an engineer in Thief River Falls changes a windshield's configuration, the modification is entered automatically in the mold-making equipment halfway around the world. A process that took weeks has been reduced to minutes.

Aggressive and fast-growing companies such as Tecnomatix Technologies of Herzeliya, Israel, are expanding manufacturing software with offerings such as a "document expert" that generates complete sets of shop-floor documentation automatically. Camstar, in Campbell, Calif., offers software that allows a customer to trace the status of complex assemblies, such as computer servers and optoelectronic switches, through the production process. Its products, and those of other companies in the field, are known as manufacturing execution systems (MES). IBM's storage systems division in San Jose uses Camstar's InSite program to make changes automatically in manufacturing processes at its eight worldwide plants from Mainz, Germany, to Shenzhen, China. The alterations are stored in a server at each plant. Machines at the plants constantly query the servers for changes and automatically incorporate them into their runs. Before InSite, IBM had to maintain IT staffs at each plant to write new code for each change--an operation that took days.

Giants like Intel and Microsoft, accompanied by a mass of smaller companies, are pushing e-manufacturing along. No fewer than 5,000 Intel engineers now work full-time ushering manufacturers and other computer users into e-business. In a typical example, Intel recently helped Fiat improve its CAD and manufacturing processes and connect to suppliers and dealers. Customers can run their e-businesses through Intel's mission-control service centers, a dozen of which already operate throughout the world. Intel charges fees, of course, but its ultimate aim is to perpetuate and boost demand for chips--by helping manufacturers cross that "e" barrier.

Among the smaller champions of e-manufacturing, remember the name eInnovate. A subsidiary of Westt, a trendsetting $30-million-a-year parts maker in Menlo Park, Calif., it is building an ambitious Website (eInnovate.com) that centers on the innovation side of manufacturing--ranging from product design through manufacturing to the supply chain. It's aimed at the makers of industrial production tools--a huge market.

Brian Westcott, a Stanford Ph.D. who is CEO of both Westt and eInnovate, argues that toolmakers need a Web of their own. Their industry differs from others because it is highly fragmented, with more than 20,000 manufacturers and 75,000 suppliers engaged in billions of purchasing transactions. What toolmakers have in common is that they build products in small numbers with exceedingly high quality and provide a high level of after-sale customer support. A Website, says Westcott, can cater to many of the toolmakers' specialized needs, such as technical analyses of new designs, supplier profiles, and access to material processors, component makers, and industrial experts. Westcott envisions eInnovate as an industrial supermarket. Users, particularly small and medium-sized companies, would pay a small fee to "rent" whatever services they need. It's a bold approach that's likely to pay off big, in the view of experts like Monty Sutherland, materials manager at DISC, a maker of high-capacity storage systems in Milpitas, Calif.

Such instant access to information anywhere, anytime, and its meaningful manipulation, are what all e-manufacturers strive for. "We're combining the Internet benefits of speed and access with real-world capabilities of plants, warehouses, freight, and logistics management," says Timken's Andersson. "This bricks-and-clicks combination is what the real Internet is all about."

FEEDBACK: gbylinsky@fortunemail.com. Stories from the Industrial Management & Technology section can be found at fortune.com/imt. Executives in manufacturing and research and others eligible to receive FORTUNE's Industrial Edition can subscribe by calling 888-394-5472.