Improve the level of service to your clients and increase your productive capacity without adding staff.
Success in a 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. This is particularly difficult for Engineer To Order companies. While it may seem impossible, you can improve the level of service to your customers and increase your productive capacity without adding staff!
The key is to streamline your business process, freeing up critical staff from clerical tasks to focus on income generating tasks. Inherently, Engineer To Order companies have talented staff, but are very aware that most of their key staff are burdened with significant clerical responsibilities. They are confident that they could expand their sales if they had additional resources.
Increasing capacity by adding new staff should be the last option for a manager though. New staff immediately increase operating costs through hiring costs and fees, and employees’ salaries. They also require resources such as office space, equipment, training, and supervision. Employees that don’t stick around can also be costly. Finally, a successful new employee, particularly in key technical departments such as engineering and manufacturing, require many months of experience before they can be 100% productive.
Freeing up existing staff from clerical duties is the most profitable option. Consider your engineering department. Designers typically spend 50% of their time writing up Bills of Materials (BOM), reissuing drawings and BOMs, communicating with purchasing, processing Change Orders, issuing lists and reports, and meeting with staff in sales and manufacturing. Finding a way to free up even 25% of their time has the effect of increasing your engineering capacity. Your four experienced designers now have the capacity of five experienced designers.
The impact of freeing up design capacity has a multiplying effect on your manufacturing capacity. Generally, the number of shop staff is four to eight times the number of designers in a company. Increasing engineering capacity means that more shop hours can be sold, increasing company profits with minimal increase in fixed costs.
A major profit impact by speeding up the design process is realized in reducing your material costs. Engineer To Order businesses usually define the materials required after they get the client order. Because this is a creative process and changes from the client do occur, it is not unusual for engineering to use more time than was planned. This means that purchasing has less time to buy the materials in order to meet promised deliveries. Time constraints reduce or eliminate the possibility of price shopping. Typical Engineer To Order firms spend 35-50% of sales as materials. If purchasing can get the BOM from the designer sooner and has time to solicit competitive bids, significant savings can be realized. In a $10 million / year sales firm spending $4 million in materials, a 3% gain (with competitive bidding) alone represents a $120,000 annually.
Another major contributor to plant efficiency 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 it also reduces the time spent quoting and qualifying clients. More importantly, it can reduce the engineering work required and speed up the order to ship timeline. The combination of streamlining your business process and freeing up key staff will have a major impact on your capacity.
Case Study: Handling Specialty, Niagara, ON
Handling Specialty, a Niagara Ontario region custom manufacturer specializing in lift systems, was able to triple their sales in a five year period after implementing Total ETO. Amazingly, they kept the same size staff – including designers and shop staff, and the same size plant and inventory. What changed was their ability to eliminate redundant staff positions such as job costing, replacing them with marketing, IT, and quality support staff. Profits during this time were six times this of the previous five years!
How Total ETO can help
Comprehensive software for managing your material resource planning (MRP) is one of the best investments you can make for your Engineer To Order company. With the right team in place, you are sure to see a return in no time at all. Read one of our success stories or set up a personalized demonstration to find out more about how Total ETO can help you streamline your Engineer To Order business.