Manufacturing is currently undergoing a revolutionary transition with focus shifting from mass production to mass customization. This trend motivates a new generation of advanced manufacturing systems that can dynamically respond to customer orders and changing production environments. It is becoming increasingly important to develop control architectures that are modifiable, extensible, reconfigurable, adaptable, and fault tolerant. Heterarchical control structures, made up of multiple, distributed, locally autonomous entities, provide this kind of control. Our research focus is on efficient and effective scheduling and routing methodologies that can be applied to heterarchically controlled manufacturing processes. The Contract-Net based scheduling approach, developed in distributed artificial intelligence (DAI), adopts a multi-agent cooperative problem- solving paradigm based on bidding and negotiation mechanisms to implement production plans as distributed and localized schedules for individual workstations. This paper discusses a Contract-Net based scheduling algorithm in a realistic manufacturing testbed, a model induction motor assembly plant. This testbed, developed as part of the HMS project, is a typical example of low-volume, high-variety production facility, and it highlights many of the problems that arise from the inflexibility of centralized management system architectures.