Many people ask how an engineer to order erp (ETO) is different than a make to order erp or made to order erp (MTO). Here’s a quick summary of what’s similar and what’s unique to each.
Engineer to Order ERP and Make to Order ERP are both ERP systems, so they have the same goals. They are both designed to track your financials, allow you to pay bills and invoice your customers, but the key differences lie in how the needs of Engineer to Order manufacturers differs from Make to Order manufacturers. ERP systems are built to suit the needs of one process or the other, but not both.
Most make to order, made to order, make to forecast or made to forecast manufacturing companies build pre-designed standard products such as refrigerators, automobiles and other consumer products. This business segment was the first to implement integrated business systems to improve productivity. The focus was on the plant floor, organizing and streamlining the production process and ensuring inventory availability. Product design had no impact on the time to build existing products.
The ERP business systems available for these companies are entirely focused on shop productivity. They fall into two categories; to forecast (make/made to foreast) and to order (make/made to order). Make to forecast and make to order ERP systems are designed as process managers not project managers. They typically do not track committed costs and actual costs (essential for ETO firms) for a specific build. They usually track batch costs against standard costs. Both Make to Order ERP and Make to Forecast ERP systems ignore the critical role and needs of engineering and purchasing.
Make to Forecast and Make to Order ERP systems
Make to forecast systems are used by companies that build items that are put in inventory. These software systems have their roots in the material resource planning (MRP) systems that originated in the 1970’s for big mass production companies. MRP was designed strictly to solve manufacturing problems, particularly plant scheduling and routing. They are structured to collect information on production batches. They are not project-based. That is, they are not designed to track costs to a specific client order. Materials are purchased to inventory and released to the plant for manufacturing. Shop scheduling, parts routing, machine loading are critical to speed up production. These companies employ planners and schedulers to run these systems. Make to order systems are designed for companies who do not build to stock but begin manufacturing once they have an order. As with build to stock firms, product design is not a constraint because the design exists at the time of the order. A typical make to order user is a machine shop. Their client provides the design and Bill of Materials (BOM), which is then entered manually into the program. There is little need to deal with constant additions or changes to the BOM. These make to order systems do job costing but not Project costing (roll up several job costs into total project costs).
Engineer to Order ERP systems
Engineer to Order ERP systems are designed to solve several core problems; the most important being the speeding up of the definition and acquisition of materials. The time it takes to produce a product in an engineer to order company is totally dependent on how long it takes to define the items on a BOM and acquire these materials. This is complicated by the fact that designers are required to release the BOM in stages, not all at one time. They must also deal with change requests from the client and manufacturing throughout the project. Engineer to Order firms need a system designed for this type of concurrent engineering that will dramatically reduce the time to create, control and release of information to Purchasing.
Engineer to Order ERP systems must also address the unique information needs of management. For example, Engineer to Order firms build special or custom products with unique estimates for each order. They need a project based system, not a process based system, that allows them to estimate, price and track costs on each project and each job within a project. Unlike Make to Order and Make to Forecast businesses, they need to track costs versus estimate during the design and manufacturing process. They can not wait for the actual job costing that is provided after shipment. Consequently, Engineer to Order systems need to provide committed costs as well as actual costs to management.
The answer to the question of how these systems differ is simple.
Engineer to Order ERP systems are unique in that they are designed completely from the perspective of an engineering critical company where the big savings in time are found in addressing the engineering to purchasing relationship. Project and job management with commitment costing also are essential features for Engineer to Order firms. Make to Forecast and Make to Order ERP systems are inherently not structured to deal with needs of Engineer to Order firms. Those who do try to offer an Engineer to Order variant of their inherently Make to Order or Make to Forecast ERP systems are greatly limited by their underlying structure and generally have little success in the market.
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 job shop. With the right team in place, you are sure to see a return in no time at all. Total ETO is an exclusively Engineer to Order ERP. 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.