For ETO companies, not two orders are exactly the same, a fact that presents them with unusual challenges. According to a Mechanical Engineering feature, engineer-to-order is unlike make-to-stock or make-to-order businesses mainly because it involves a significant amount of designing after a firm receives an order. In contrast, if you're a make-to-stock company, your engineering is complete before the first order leaves the warehouse. Or, if you're a make-to order business and you're, say, cutting parts to a customer's drawing, the engineering is a done deal before the purchase order is filled out, explains Dennis Parass, president of ETO company Handling Specialty in Burlington, Ontario.

In ETO firms, engineers and designers play a big role in the order cycle because, explains Mechanical Engineering, "the machine has to be imagined, then designed and detailed, before it can be built." After an order is placed, engineers in ETO firms start working on the design and bill of materials. Because quantities are still subject to change, engineers are often hesitant to release partial designs to manufacturing or vendor items to purchasing. As much as they favor providing a complete release at once, they usually can't do so because of time concerns. Thus, the engineering department often ends up issuing releases over a period of several days or weeks, becoming a roadblock to efficiencies.

The longer engineering takes, the less bargaining time the purchasing department has. "Engineering eats up lead time," says Charles Murgiano, president of Waterloo Manufacturing Software of Wellesley, Massachusetts, to Mechanical Engineering. "After engineering has taken its time, there's often none left for anyone else."

To gain efficiencies, ETO firms are turning to business systems such as those from software providers Waterloo, Questica and Encompix. For example, Questica software helps an ETO manufacturer by speeding up the transfer of costing information between engineering and purchasing. "By moving information from engineering to purchasing sooner, it's not hard to knock 5% off purchase costs," says Handling Specialty president Parass, who is also a board member for Questica.

Waterloo's Tactic software, meanwhile, identifies ways for production to schedule capacity in order to meet crucial lead times. Since customers often base their buying decisions on lead times, the system can help ETO manufacturers secure more business with the promise of quick deliveries. Moreover, it helps ascertain how truncated time frames for new business will affect other projects already in house, thus allowing ETO firms to minimize disruptions to promised deliveries.

Encompix software, on the other hand, helps companies in the quoting stage. Unlike the typical enterprise resource planning (ERP) software that asks for specifics to begin creating bills of materials and routings, Encompix software estimates by "buckets" following a traditional ETO approach. For example, there could be buckets for costs associated with materials, shop time and fabrication. Tallying up the buckets generates a number from which a sell price can be determined. Additionally, this ballpark figure allows managers to compare actual with estimated costs. And to help companies price projects both "winningly and profitably" in the future, Encompix software gives ETO firms many ways to sort through their history of quotes.

Another way that software systems are increasing ETO efficiencies is by connecting the bill of materials (BOM) to the CAD system, making its creation a one-time job. The document is generated off the drawing, and materials to be purchased are listed automatically as well. Also, the software reconciles any changes to the amount of material ordered for a project with the original order, instead of treating the adjustment as a new purchasing requirement like a conventional ERP system would. And beyond the BOM, ETO systems connect sales, design, production, finance and administration, getting rid of information silos.

In addition, to boost efficiency, Parass recommends that ETO firms give their engineers the respect that they are due. "Treat them like kings," he advises. "Let them do what they're good at," instead of saddling them with clerical tasks. He points out to Mechanical Engineering that ETO firms are a bastion for North American engineering talent as make-to-stock businesses move production overseas. Indeed, the engineering department is paramount to an ETO company so gaining efficiency will have to start from there.

Source:

No Run of the Mill
Paul Sharke
Mechanical Engineering, March 2005
www.memagazine.org/backissues/mar05/features/norunof/norunof.html