Requirements differ vastly between ETO Manufacturers and Discrete or Repetitive Manufacturers

Definition: Engineer-to-Order is a manufacturing process defined by demand driven practices in which the component is designed, engineered, and built to specifications only after the order has been received.

While many Make-to-Stock manufacturers have migrated production offshore, ETO manufacturers continue to focus their design, engineering, and production of products domestically.

A recent shift within the North American manufacturing climate has ETO organizations leading a call for more demanding ERP capabilities.

ETO challenges legacy ERPs with unique and stringent demands.

Unlike their repetitive/discrete production counterparts, the ETO manufacturer requires highly skilled (and expensive) Engineers, who are continually creating innovative solutions to multifaceted design problems. Also the customer can be heavily involved throughout the design and manufacturing process. This constant involvement results in frequent customer and engineering changes.

As most projects are ‘one-offs’, purchasing directly to the job or to a specific phase of the overall project is common place. All labor costs and materials are reported to the actual work order and variances are further scrutinized to the original estimate.

In many cases, once production is complete, the finished product is shipped in phases direct from WIP and then assembled at the client’s site.

To define ERP expectations, let’s take a closer look at the day-to-day operational challenges facing ETO manufacturers:

  • The manufacturing environment is more ‘job/project-centric’, and less ‘inventory or MRP centric’.
  • Complex end items that often require numerous custom subassemblies.
  • Project centric functionality such as % complete revenue recognition, work breakdown structures (WBS), and milestone billing.

During Quoting

  • New business is based on engineered quotations which are basically one off ‘prototypes’.
  • Highly skilled engineers are required, charged with exacting, and ever-changing project designs.
  • Customer involvement throughout the manufacturing process; from original quote to final assembly and on-site installation, resulting in frequent engineering changes.
  • Ability to calculate Promise Dates during the estimating process (even reserving estimate capacity, while customer ‘gets back to you’).
  • Immediate true margins visibility in custom and “same but except” quotes.
  • Part #s on custom estimates not required, therefore less cluttering part masters with obsolete #s.

Integration with CAD/Design software

  • Bi-directional integration with popular CAD and PLM systems at a BOM level. Less duplicate data entry between Engineering and Production, minimizing errors.

Actual Costing with true FIFO layers

  • Synonymous with Project manufacturing, actual costs are recorded against a specific project task/operations and variance trends are analyzed (compared to the original estimate/quotation).
  • Ability to preserve cost visibility throughout multiple levels (labor, material, overhead, and outside services), not just roll up subs cost into a singular material cost.
  •  3-way matching, even after job has shipped. Have you ever received a material invoice after the project has been delivered to the customer site? Has that late invoice ever not matched the PO? Do you bury the variance in a purchase price variance GL account (ppv) or would you prefer to maintain that cost variance in the specific job?

Material Planning

  • Project inventory management. Assigning a segregated ‘project warehouse’ where inventory transactions are project isolated.
  • Tighter controls regarding long lead time materials, providing accurate planning earlier in the project, and the subsequent alignment of materials to later phases ‘just in time’, minimizing carrying costs.
  • The ability to buy all parts needed for a single project direct to the job as well as purchase common part(s) as needed across multiple jobs (while still buying each to the job).
  • Supports Pre-Order of selected parts (e.g. long lead time) or Pre-Release of completed Subs, even while engineering has not finalized within other Subs, Phases or top-level parts.
  • Part #s for one off material purchases not required, again minimizing part master clutter with obsolete #s

Quality Assurance

  • Ability to tie certifications and/or tests to lot, serial or heat #s (cradle to grave), making them available to the end customer
  • Strict Engineering Change Management and Workflow definition. Including Revision controlled transaction security, ensuring obsolete items caused from engineering changes will not be purchased, transacted, or consumed.
  • Preventative maintenance (internal equipment) and warranty contracts (external aftermarket).

Capturing Labor

  • Time & Attendance for shop and hourly employees. Minimizing duplicate entries with integration to popular Payroll systems.
  • As installers are located at the customer’s site, ability to enter project labor (and material) transactions remotely is expected.

Scheduling

  • Easy to understand Gannt chart format of the entire multi-level Job/Project schedule
  • Dynamic Critical Path calculations, exposing constraints within a complex Job/Project
  • Pull-based scheduling improving on-time delivery performance while minimizing Work in Process
  • Consumed Schedule deducting actual hours, not only quantity completed (as ETO environment is almost always a quantity of one)
  • When one sub delays, the impact on all other subs are obvious
  • Scheduling groups of shop employees by skill sets:
    • Individually
    • As a group
    • Across shifts (where 1st shift starts and 2nd shift continues it, etc.)
    • Even with different skill sets within the same Group
  • Scheduling priorities with dependencies (e.g.):
    • Op B cannot start until Op A completes
    • Op B can start before Op A has finished
  • The final phase of most project’s will be the actual installation at the customer’s site.

As most ERPs were originally designed decades ago, when ‘widget’ manufacturing was prevalent, tremendous functionality development has been required to meet these higher needs. Try as they may, retrofitting these legacy ‘MRP centric’ systems to meet the expanding demands for the ETO industry is challenging at best.

Most ERPs today claim to meet these ETOs extensive requirements. However most of these claims have a Marketing underpinning which liberally use their ‘artistic license’.

With appropriate due diligence, hopefully you can uncover these truths, well before risking your company’s future with the ‘wrong size’ system. Caveat Emptor.

The author of this blog, Andy Pratico, offers “How to Select ERP” webinars to help you uncover the truth about ERP systems, so you can make your own, informed decision during the ERP selection process!