Key Takeaways
- Production planning for ETO manufacturers is difficult because the design and BOM are in constant flux. That means engineering and procurement must deal with change orders at any stage of production.
- Manufacturing waste typically comes from defects and rework, from a product not meeting quality standards. Unnecessary transportation also creates waste, including fuel consumption, labor, and more.
- The best ways to reduce waste in ETO manufacturing include decreasing manufacturing downtime, making use of leftover parts, and adopting Lean Manufacturing principles.
Improving Manufacturing Downtime and Other Challenges with an ERP Business System
Manufacturers, particularly Engineer To Order (ETO) organizations, must constantly look for ways to reduce waste and increase productivity. It can be time-consuming, but when done properly, such changes mean increased customer satisfaction as well as increased profits.
Custom Machine Builders face some of the same challenges as repetitive manufacturers, including manufacturing downtime. However, they also have unique challenges, such as needing to release the BOM in stages. That’s why they need to consider an ERP business system to help. This article will explore ways for an ETO manufacturer to reduce waste and, therefore, boost profits.
What is Engineer To Order and Why is Production Planning More Complicated
Custom Machine Builders who typically manufacture new designs fall under the Engineer To Order title. These often include Integrators, Panel Shops, and OEMs. Many ETO organizations would like to have materials ready when manufacturing needs them. Unfortunately, production planning in ETO is not as easy as make to order (MTO) manufacturing.
In MTO, the manufacturer knows what they’re building in advance. Production planning and procurement are simple because the design and BOM are set. For Custom Machine Builders, though, the client comes to them with an idea and works closely with engineering to design a solution. Throughout this process, it’s common to spot areas where the design needs to be changed. It can, of course, be frustrating for engineering to modify the drawings and the BOM. It also means that procurement is tasked with canceling, changing, or creating new purchase orders.
It’s fair to say that Engineer To Order facilities have an erratic workflow. The team usually needs to source additional materials at any stage of a project. This typically causes bottlenecks, especially if you don’t have a proper ETO enterprise resource planning (ERP) system. Downtime in manufacturing is wasteful for both standard and Custom Machine Builders. Whether it’s due to maintenance or waiting for parts to arrive, the most evident consequence of manufacturing downtime is the decrease in production output. The Aberdeen Group released a report that shows standard manufacturers lose an average of $260,000 / per hour when they fall behind.
ETO Challenges Need an ETO Solution
Many engineers, designers, machinists, and purchasers don’t realize that an ERP business system designed for ETO prevents most bottlenecks. There are hundreds of ERPs on the market, but unfortunately, most of them can’t help because they aren’t designed for custom manufacturing. An ETO solution, however, integrates with CAD, eliminating all double entry and redundant paperwork. Plus, when your team starts working with Dynamic BOMs, the bottlenecks that inevitably appear between engineering and procurement are prevented, saving both departments time and money.
Engineer To Order is also a relatively new production process. There are hundreds of manufacturers who don’t know yet that ETO exists. If you’re not sure whether you qualify or not, this free online quiz can help you determine if you are Engineer To Order.
How is Manufacturing Waste Created
There are a variety of processes and practices within a factory that lead to waste. Many are common among MTO manufacturers, such as overproduction. Producing more goods than needed, or earlier than needed, leads to excess inventory, which affects storage space and capital. Engineer To Order organizations don’t struggle with this, as they typically don’t build the same machine twice. ETO, however, does have other areas in its processes that can be wasteful.
- Defects and Rework: When a product doesn’t meet quality standards, material and labor are wasted.
- Transportation: Excessive movement of materials between production stages or warehouses comes with a risk of damage, fuel consumption, emissions, labor, and other logistics costs.
Waste Reduction for ETO Manufacturers
Recycling is awesome, but there’s a lot more to reducing manufacturing waste than the three R’s. The creativity and flexibility that ETO manufacturers offer make them unique and in demand. To thrive in such an environment, many Custom Machine Builders are learning they need to reduce waste. The following are a few good ways to get started.
1. Decrease ETO Manufacturing Downtime
When a plant stops wasting time, it significantly increases throughput and profitability. You likely already have an idea of how costly downtime is in your current manufacturing processes. A key factor in reducing downtime is ensuring materials are available when manufacturing needs them. However, ETO organizations face two obstacles here.
– Long Lead Items: The earlier procurement can order materials, the better. An important factor in reducing downtime is ensuring purchasers can begin acquiring supplies and raw materials as early as possible. Engineers understandably want to wait until the entire design is finished before releasing the BOM. Ordering long-lead items early, however, is crucial to preventing delays in shipment.
– Vendor and Supply Chain Disruptions: The supply chain has always been somewhat unreliable, but these days, “volatile” is putting it nicely. There are ways to help reduce the impact of the supply chain on your business, but without the help of a reliable business system to keep track of and manage priorities, it’s easy to fall behind. It’s also important to track your history with vendors. Knowing who you can count on or where to turn when you need a part expedited, could help prevent downtime in the first place.
A strong but time-intensive solution to the problem is shopping around. Long-lead items aren’t the only rationale for getting items through procurement quickly. The more time your purchasing department has, the more savings you can find by shopping around. You’ll also avoid rush delivery fees and scrambling to meet a deadline.
These bottlenecks between engineering and procurement are common for Integrators, Panel Shops, and OEMs. In fact, Total ETO built the original Engineer To Order ERP because of this specific struggle. We know exactly how frustrating it can be.
2. Make Use of Leftover Parts
Production planning and inventory management are complex in the ETO.. Engineer To Order manufacturers tend not to stock inventory, however, there always seems to be a collection of leftover parts from past jobs. Many organizations can see the value in tracking spare parts but aren’t sure how to do so efficiently. Without taking such steps to improve production, though, a manufacturer can end up with diminishing profits. With the amount of competition growing in our industry, Engineer To Order manufacturers need to do everything they can to trim waste, stimulate growth, and boost profits.
Additionally, it’s worth considering how much annual revenue your organization could realize by selling leftover parts to clients. That’s what Brenden Fritz, President of Automated Drive Systems discovered while implementing Total ETO. Learn how they reduced waste and increased profits in this case study.
3. Modular and Standardized Components
The terms “standard” and “Engineer To Order” are rarely used in the same sentence. However, there is potential to standardize components. By using standardized parts or subassemblies, ETO manufacturers can decrease lead times and inventory complexity. Research from the Massachusetts Institute of Technology (MIT) demonstrates the benefits of modular product architectures in reducing waste in ETO manufacturing.
4. Lean Manufacturing Principals
A valuable and proven method of reducing the amount of waste in manufacturing is Lean Manufacturing. A popular practice since the 1980’s, the principles of Lean Manufacturing transfer to ETO manufacturing as well. There are five principles including value, value streams, flow, pull, and perfection. Applying Lean concepts puts an ETO organization is a position to continually improve. Every project leads to greater efficiency, waste reduction, and increased profits.
One Simple Solution
Engineering and purchasing departments can see great results from an MRP or ERP business system that streamlines their processes. Total ETO is known for providing Totally Better efficiency, accuracy, and profitability to Custom Machine Builders.
Engineers prefer Total ETO because it seamlessly brings design work into a project. The software can integrate with popular CAD systems such as SOLIDWORKS and Autodesk Inventor. It can also bring the BOM in without leaving CAD and with no double entry. Other characteristics appreciated by many ETO engineering departments include:
- Copying parts from a past project’s BOM to a new BOM.
- Providing designers with the ability to calculate the BOM before making purchases.
- Eliminating bottlenecks by releasing parts to procurement in stages, including initial long lead requirements.
Total ETO also helps the purchasing department run more efficiently by making procurement simple through interconnected information with engineering, receiving, and the shop floor. Purchasing will also enjoy:
- Saving time by grouping common parts or suppliers across multiple projects.
- Adding POs and making revisions as changes occur, including revised delivery dates.
- Reserving inventory by project and seeing remaining availabilities
It’s easy to see now why Custom Machine Builders have started reducing waste and saving money with Total ETO. The software is easy to implement and use, affordable, and backed by a team of industry experts with a passion for the success of every client. Learn more about the Total ETO solution here.
Written by Taylor Dykstra
