Engineer to order manufacturers are different from standard made to stock manufacturers.
If your company custom designs products to client specifications, it is one of more than 5,000 Engineer- to-Order (ETO) firms in North America. And, if your company is typical, it has yet to unify the key parts of the process into an integrated business information system. The benefits of linking your “information islands” using software are substantial, reducing operating costs and allowing growth without added staff or resources.
ETO Manufacturing is different
The chaotic business process of the ETO firm is a manager’s nightmare. Unlike most manufacturing companies, who produce pre-designed products, the ETO firm is faced with a completely different set of problems. It designs and builds its products to suit each client’s order, adding significant engineering before production can begin. Coordinating the sales, engineering, purchasing and production efforts is extremely difficult because of the changes made for the client while the order is in progress.
ETO firms have many common characteristics. Generally they are small to mid-size firms. Their ability to solve a unique problem for a client with a custom designed solution is the source of their success. Engineering is therefore the “engine’ of the company and is a critical part of the production process. Because most orders are unique, accurate estimates are a key to profitability. Tracking each project’s costs during the order’s progress is essential. The sequence of estimating, designing, purchasing, design modification, repurchasing materials, cost and progress monitoring, building, design modification, finishing and shipping is the typical flow of the ETO manufacturing order. Multiply that by dozens of orders flowing through the organization and you have the recipe for confusion.
The need to design, purchase and build at a very fast pace is complicated by the need to deal with constant design changes and the need to parcel out information to manufacturing before the design is complete. Finding a way to minimize the disruption and added costs is a constant management effort. The bottlenecks that result affect delivery and escalate costs. Controlling the chaos requires “real time” information, impossible to achieve with a paper system.
Breaking through the entrepreneurial ceiling
Have you ever wondered why some companies in an industry are more successful than others? Look at the way they are organized. They are able to leverage their knowledge and use their past experiences to grow.
Most small custom design firms depend on the knowledge of a few key people for success. As the years pass by they become tied to their jobs and the company’s growth is limited by their capacity.
Breaking through this capacity ceiling is the biggest obstacle to success for the ETO manufacturer. It marks the transition from an entrepreneurial to a professional firm. One of the keys is the sharing of knowledge with more people in the company. Unleashing employees’ potential not only reduces the dependency on individuals but also increases the capacity of the firm, its profits and the worth of the business.
The value of a business in determined by its ability to reuse past history to secure future business. Accessing knowledge that was previously locked away in senior employees’ minds permits new staff to contribute more quickly to the success of the business. The ability to demonstrate that you have simplified the complex ensures the business is transferable and therefore more valuable. Your company’s biggest asset is not plant or equipment but the information that it can use over and over again. Want to pump up the value of your company and secure its future? Capture your business process with an integrated information system.
Justifying the effort
Case study: Handling Specialty, Niagara, ON
Consider the following case. Handling Specialty, a Niagara, Ontario based ETO, experienced increasing sales and falling profits. The symptoms included duplication of effort entering data, excessive material delays caused by design changes and an inability to access past history to improve estimate accuracy. They had no “early warning” job costing information nor reliable inventory and work-in-progress values to produce accurate monthly statements.
In order to overcome these problems, they decided to streamline their business process. They chose Total ETO. The result of dynamically integrating sales, estimating, engineering, purchasing, production and administration into one seamless system was dramatic.
Over the next five years, they doubled their sales. The difference was that they did it with 10.3% fewer design and shop hours with no increase in inventory. Compared to the previous five-year period, they recorded a six-fold increase in profits. More importantly, the paper chaos was eliminated and morale soared.
These dramatic gains came as a result of key improvements such as;
- Shorter order-to-ship times
- Elimination of duplications
- Freed up staff capacity
- Reduced material costs
- Real time management information
Skeptical? Just imagine a few of the obstacles being eliminated in your firm. If you could shorten your average design-purchase time by just one week, how much could be saved annually on materials by having more time to purchase? If designers were free of paperwork and could just design, how much more business could you handle? If the plant received all the materials when they needed them, how much would manufacturing costs be reduced? If you could find and reuse past history to sell again or estimate similar new jobs, how more accurate would your estimates be? If you could grow without adding staff or plant space, what would your bottom line look like?
Picking the right system
Most ETO firms are accustomed to spending tens of thousands of dollars on production equipment but are reluctant to make similar investments in software. An integrated business system will be the most important production tool you will buy. A system that not only streamlines your business process but also archives all your product information; drawings, bill of materials and job costs will increase your company’s performance. It does this by allowing less experienced staff to access historical information and use it to secure new business.
As you search for the right system for your company beware of the common pitfalls. Create a project team and make sure the executive is supportive. Choose a system that was designed specifically for an ETO business. Avoid the quest for perfection. The ninety percent (90%) solution may be far more practical than a system with an excess of “features”.
Remember, a successful implementation is directly tied to the ease of use. Focus on a system that eliminates the real bottlenecks to productivity. In an ETO firm, it usually is design and purchasing where defining the Bill of Materials (BOM) and obtaining the materials present the biggest headaches.
Put everyone on the system. Don’t buy a few copies just for the “important” users. Choose a centralized database system that your staff can support. You will want to access the data on your own for special reports or link to other software.
Think of the vendor as consultants on retainer. Choose them based on their ability to understand your needs and work with you.
Finally, focus on the benefits then the costs
Focus on eliminating the major obstacles in your business process. Life will get a lot easier and more profitable when you integrate the “information islands” in your company. The payoff will be substantial, easily justifiable in one year.
Engineer-to-Order manufacturers have been the ignored stepchildren of business systems software providers. While the rest of manufacturing is swamped with software packages, ETO firms have had little to choose from. Fortunately, the situation has changed. ETO software does exist and deserves your attention.
One of the only packages specifically developed for the engineer-to-order manufacturer is Total ETO, specifically focused for small to mid-size firms. It doesn’t take too many answers to recognize there are significant economies in streamlining your business process. By quantifying a few of the benefits, you will see that there are substantial profits to be gained by investing in improving your business process.
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.