learning type: Procurement & Supply Chain

The most effective way to improve production capacity is to reduce clerical work in engineering so your designers have more time to design.

Key Takeaways

• Thanks to frequent change orders, difficulty tracking parts, and no effective way to collect and learn from data, efficient manufacturing is difficult for Custom Machine Builders.
• Adding new staff should be the last option to increase production capacity. New staff increase operating costs and require resources such as office space, equipment, training, etc. Instead, reduce repetitive data entry and redundant paperwork to free up your current staff’s time.
• Using an ERP designed for ETO manufacturing can increase your production capacity by creating more efficient manufacturing processes and speeding up the order-to-ship timeline.

How to Increase Production Capacity

Success in our competitive market is forcing every manufacturer to make their business more responsive to client demands. The pressure is on for better, faster, and cheaper solutions.  Efficient manufacturing, however, is particularly difficult for Engineer To Order companies, for several reasons:

• Customers frequently request changes to the order during or even after the design process. This can extend the length of a project and procurement efforts.
• Sales representatives need to quote projects as quickly and accurately as possible. This is problematic though, without tracking past projects and estimates to completion.
• To meet delivery deadlines, engineering needs to “pre-release” components to procurement. This, however, requires special effort to manage the bill of materials interaction with purchasing.
• The team often identifies areas where the design requires changes. Engineers then need to modify drawings as well as the Bill of Materials (BOM). Procurement will then need to adjust material orders.
• Accounting, engineering, and purchasing departments are often weighed down by unnecessary clerical work.

These are just a few of the quirks that make Custom Machine Builders so valuable but so busy. While it may seem impossible, you can improve the level of service to your customers while increasing your production capacity. Furthermore, you can do so without adding staff!

More Efficient Manufacturing

By streamlining your business processes, you’ll free up critical staff from clerical tasks to focus on income-generating work. Inherently, Engineer To Order companies have talented staff, often creative and passionate. Unfortunately, as most managers know, their key staff are burdened with significant clerical responsibilities. It’s common for Custom Machine Builders to see the potential to expand their sales but not have the resources to do so.

We know from our own experience as machine builders and see confirmation from Automation.com that “Engineers are highly paid professionals who suffer when performing repetitive functions, such as back-and-forth massaging and frequent manual design adjustments. Only with a good marriage of engineering and sales automation can ETO (Engineer To Order) manufacturers provide rapid responses and compelling quotes to customers”.

Usually, creating more efficient processes in your manufacturing requires additional staff or workspace. However, you can make improvements without these resources.

Would Hiring Additional Staff Help an ETO Manufacturer Grow

Increasing capacity by adding new staff should be the last option for a manager. New staff will immediately increase operating costs through hiring expenses, fees, and salaries. Additional staff will also require resources such as office space, equipment, training, and supervision.

Moreover, employees that don’t stick around can be costly. Even a successful new employee, particularly in key technical departments such as engineering and manufacturing, still requires many months of experience before they can be 100% productive. That’s why it’s recommended you improve and maximize your current resources before adding to them.

How to Improve Production Capacity

Freeing up existing staff from clerical duties is the most profitable option. Consider your engineering department. Designers typically spend 50% of their time reissuing drawings and rewriting BOMs. They need to communicate with purchasing, process change orders, issue lists, and reports. Meeting with sales and manufacturing adds to their day as well. Finding a way to free up even 25% of their time has the effect of increasing your engineering capacity. Your four designers now have the capacity of five experienced designers.

The impact of freeing up design capacity has a multiplying effect on your manufacturing capacity. For example, for many Custom Machine Builders, their shop staff is four times the number of designers. Increased engineering capacity results in more shop hours sold. This chain reaction increases company profits with a minimal increase in fixed costs.

How to Reduce Material Costs

Speeding up the design process helps reduce material costs. Engineer To Order (ETO) businesses usually define the materials required after they get the client’s order. Because this is a creative process… and changes from the client do occur, it is not unusual for engineering to need more time than what was scheduled. This means that procurement has less time to buy the materials to meet promised deliveries.

Time constraints reduce or eliminate the possibility of price shopping. The procurement department could save significant amounts of money if it had access to the BOM sooner (and had time to solicit competitive bids). In a $10 million / year sales firm, spending $4 million in materials, a 3% gain (with competitive bidding) alone represents $120,000 annually. Here, you can start to see how valuable enterprise resource planning software or manufacturing software can be for Custom Machine Builders. It connects engineering to purchasing and the shop floor.

Another major consideration in efficient manufacturing is using your history to reduce new engineering. Implementing a system that allows staff to reuse information from prior projects can not be over-emphasized. The ability to quote clients based on similar past projects not only improves the accuracy of estimates but also reduces the time spent quoting and qualifying clients.

Simply said, estimating is the act of determining how much time and money is needed to complete a project. Recognizing that estimating is ultimately an attempt to predict the future helps you see that the more info you have, the better. Like any projection, the accuracy of the estimate improves with the availability of more data.

A Bright Future for ETO Manufacturers

Many manufacturers are currently struggling and as we’ve learned, Custom Machine Builders are all too familiar with this battle. We can see though, that the right ERP (one that is designed for Custom Machine Builders) can be counted on to save time and money throughout an organization. The right ERP really can increase production capacity by creating more efficient processes in manufacturing. Additionally, this kind of manufacturing software can reduce the engineering work required and speed up the order-to-ship timeline.

Written by Taylor Dykstra

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