Perhaps you may have not heard the term engineer-to-order (ETO) before, but perhaps your business is one of thousands that designs and builds custom equipment that is very precise, adheres to very specific tolerances, is highly technical, and produces low volume and, generally speaking, expensive products. Some examples of such products include ships, aircraft, production machinery, etc.
The typical ETO organization reflects a unique style of manufacturing—they design products to customer specifications, using a unique set of item numbers, bill of materials (BOM), and routings. Business is usually awarded to an ETO manufacturer based on estimates and quotations. Products can be complex, with long lead times and requiring a number of complex subassemblies to build.
Recently a paradigm shift has occurred in the realm of manufacturing, and ETO organizations are leading a call to change as a means of business survival.
ETO Manufacturing Challenges
Unlike standard manufacturing products, in ETO manufacturing environments, the customer is heavily involved throughout the design and manufacturing process. Constraints in the ETO manufacturing process include frequent engineering changes and long lead times from purchasing vendors that can span months—even years. Raw materials themselves are not purchased for inventory purposes, but for a specific phase of the overall manufacturing cycle. Because ETO manufacturers treat each job as a project, all costs and materials are reported to the actual work order and are further compared to the original estimate and quotation. In many cases, once the production phase is complete, the product is shipped to and assembled at the client’s site. Also in many cases, aftermarket sales services continue throughout the life of the product.
Requirements Differ between ETO Manufacturers and Discrete Manufacturers
The ETO manufacturer is faced with maintaining a business model that requires skilled, experienced, and knowledgeable tradespeople who are able to design innovative solutions to complex problems. According to a report by the National Association of Manufacturing in November of 2005, a generation of tradespeople is slated for imminent retirement, and the fewer numbers of young people enrolling in trade schools represents a challenge heading into the post-boomer economy of the early 21st century.
Another area where ETO manufacturing distinguishes itself from its discrete manufacturing counterpart is here: while discrete manufacturers have placed greater emphasis on manufacturing products offshore, ETO manufacturers have actually focused on designing, engineering, and producing products domestically.
ETO and Discrete Manufacturing Differences
|ETO Requirements||Discrete Requirements|
|long lead times||short lead times|
|quoting estimates||selling prices are established|
|managing expenditures and cashflow||standard costs parameters|
|local manufacturing||offshore manufacturing|
|custom BOM-based on one-time project||production BOM used continuously|
|ability to recall old estimates||work order history|
What ETO Manufacturers Would Like to See in Vendor Solutions
In attempting to address some of the challenges they will potentially face given the imminent loss of expertise mentioned above, ETO manufacturers are looking to technology and to software vendors to fill the void. They would like vendors to incorporate the following key features unique to the ETO environment into their software solutions:
A Final Thought
In the article Information, Information, Information (Business Excellence Magazine, Sept. 2007), T.R. Cutler wrote
“Project-based or ETO (engineer-to-order) is commonly used to describe a custom manufacturing process, yet is rarely described with real world differentiation. Few MES (manufacturing execution systems solutions are specifically focused on meeting the needs of this challenging manufacturing market. Estimating costs to maintain a decent margin is often one of the great complexities in the ETO environment. Project-based cabinet makers, for example, may have never built a one-of-a-kind item before or have to add items once they are on the production floor, and have to accurately guess, all the possible costs variations.”
Cutler’s observation exemplifies some of the key challenges that ETO manufacturers face, as most ERP solutions are not designed to adequately address the constraints of the ETO environment. Fortunately, the paradigm shift in the manufacturing world is now bearing fruit: some ERP solutions are beginning to tackle the needs of ETO manufacturing requirements.
If you would like to read about ETO software vendors, TEC’s Vendor Showcase is an excellent place to start.
One experience I have from working in an ETO environment is that changes cost the client a bundle. Since ETO contracts are for the leanest of prices, any change in specs by the client provides the vendor an opportunity to recover some profit.
Occasionally ETO vendors expect to make a similar product for another client, in which case, the first contract may be so lean in estimate and negotiation, that it is a business financial loss. But that loss is recovered in subsequent sales to other clients. I state that conclusion from my experience was in aerospace, where no profit was earned with the first sale to an airline, but made with the subsequent ones).
There are some solutions which are designed to address these very challenges. Specifically, Build Information Technology(R) is a technology designed by Aerospace engineers to manage aspects of aircraft (etc.) manufacturing that ERP systems simply can’t address. Please see www.BuildInformationTechnology.com for further information.
Surely most ERP systems can accomodate ETO. In essence ETO is what accountants call Job Costing. Some jobs may last longer than others - years sometimes - but the collection of labour, procured materials and services, overheads etc in one place under different expense headings cannot be rocket science.
Good planning with ETO will ensure that inventory is minimal with consumables being withdrawn only.
From a Project point of view it is the quality aspect that requires constant supervision to ensure no non-conformance reports. Here I agree there could be some enhancements to vanilla ERP.
I WANT TO LEARN ABOUT THE ERP SOFTWARE. PLEASE PROVIDE ME THE COURSE MATERIALS ABOUT THE ERP . THANKS
Typical configurators built into ERP products are good at handling low-complexity ETO products with a solid thin-clent user experience and good integrations with other modules the ERP company offers.
However, rule complexity grows exponentially with product complexity, making ERP configurators unsuitable for medium to high complexity products or for order/requisition engineering. The primary weakness of these systems is the amount of time required to maintain the rules in mid to high complexity products, resulting in an inability to keep pace with business.
A “Best of Breed” approach gives ETO manufacturers of medium to high complexity products a way to enhance and extend the capabilities of existing ERP, PLM and engineering solutions like CAD.
A strong Standards-Based Engineering (SBE) solution like RuleStream’s addresses the unique challenges of engineer-to-order (ETO) manufacturers with a comprehensive approach spanning sales, engineering and manufacturing. By capturing engineering knowledge and using it to automate key business processes across the enterprise, RuleStream’s ETO clients have increased sales and win rates while reducing internal operating expenses and shortening lead times for custom products. RuleStream integrates seamlessly with existing ERP and CAD systems, helping custom product manufacturers respond to customer-specific orders more rapidly, accurately and efficiently.
I invite you to visit www.rulestream.com for more information.
We already have ETO Solution ready which involves PLM, ERP integrations, CAD, M-CAD Integrations etc. If anybody wants to know more about the Solution do let me know.
Not quite. Jobs are a very simple part of ETO. Shops that do minor engineering changes to common items can do so with a Job, as well as most make to order (MTO) and Make to Stock (MTS) companies.
However, true complex ETO, say building a custom made crane, or an oil platform cannot be done with simply a job. These are ‘projects’ and are usually made up of multiple or many jobs. Each job usually results in one components. That component may be made up of parts and subassemblies, but its production is usually independent of other project components. Projects also have a lot of engineering time, and have complex billing arrangements such as Cost Plus, Percent of Completion, Milestone billing etc. So if you were to combine a traditional ‘project accounting’ solution that an accounting or consulting firm would use, with a manufacturing solution that a mass production or simple job shop would use, that merger would best be described as complex Engineer to Order. An example of this would be Epicor.
Here are some demos: