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 (ETO) businesses. 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, speeding up the process by freeing up critical staff from clerical tasks to focus on income generating tasks. Inherently, ETO or Made-to-Order (MTO) companies have talented staff. They are confident that they could expand their sales if they had the additional resources. They are also, without exception, very aware of the fact that most of their key staff is burdened with significant clerical responsibilities.
Increasing capacity by adding new staff should be the last option for a manager. New staff immediately increases operating costs for the firm- management time dedicated to the hiring process, the employees’ salary as well as substantial hiring fees. New employees also require added resources such as office space, computers, training and supervision. Not all new employees survive the first year which is also 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 fifty-percent (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 twenty-five percent (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 ETO firms spend a third to fifty percent (35-50%) of sales as materials. If purchasing could get the BOM from the designer sooner and had time to solicit competitive bids, significant savings can be realized. In a $10 million/year sales firm spending $4 million in materials, a three percent (3%) gain (with competitive bidding) alone represents a $120,000 annually.
Another major contributor to plant capacity is found in using your history to reduce new engineering. Implementing a system that allows staff to find and use the information leaned from prior projects can not be over emphasized. Providing sales and estimating staff with the ability to quote clients based on similar past projects not only improves the accuracy of estimates but it also reduces the time to quote and qualify 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. The amazing fact of their success is that they kept the same size staff throughout that period, exactly the same number of designers and shop staff, the same size plant and inventory. What changed was that they were able to eliminate certain staff positions such as job costing replacing them with marketing, IT and quality support staff. Profits during this period were six times those 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 ETO job shop. 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.