The Practical Realities of Automating ETO Business Processes

Engineer-to-Order (ETO) manufacturers--also known as "custom product" or "project-based" manufacturers--have an innovative, forward-thinking business model that offers both big competitive differentiators and big challenges. These challenges arise from the fact that ETO manufacturers typically have complex products that must be closely aligned with detailed customer specifications while simultaneously taking into account engineering standards, supply chain capabilities and manufacturing constraints. For these companies, meeting customer requirements entails the quotation and design of brand new components or previously unknown assemblies.

According to the ETO Institute's Web site--"ETO companies build unique products designed to customer specifications. Each product requires a unique set of item numbers, bills of material and routings. Estimates and quotations are required to win business. Products are complex with long leadtimes, typically months or even years. Unlike standard products, the customer is heavily involved throughout the entire design and manufacturing process. Engineering changes are a way of life. Material is purchased not for inventory but for a specific project. All actual costs are allocated to a project and tracked against the original estimate. Once complete, the product is typically installed at the customer's site. In most cases, aftermarket services continue throughout the life of the product."

In comparison, "Make-to-Stock" manufacturers maintain a production environment where end item products are usually finished prior to receipt of a customer order. Customer orders are generally filled from finished goods inventories, and production orders are used to replenish finished goods inventories.

Executing a successful ETO model requires companies to capture and reuse company knowledge and standards to help employees meet the challenges of today's competitive, global environment with higher quality, better margin control and overall business growth. Through software automation tools, ETO manufacturers can more easily differentiate their products and meet customer needs, resulting in increased sales and the ability to charge a premium.

However, there are many challenges in the ETO business model that require an innovative approach to automating business processes. These include the need to balance the interpretation of a large number of features and options, critical engineering performance criteria and ever changing manufacturing assets.

Unique ETO Challenges

The primary challenge of ETO manufacturers is achieving an effective linkage between departments which traditionally operate independently--sales-engineering and engineering-manufacturing. In addition, many companies also struggle with multiple independent software systems, configurators, spreadsheets and homegrown tools across quotation, engineering and manufacturing processes. These tools are typically not integrated and rarely run according to the same set of documented standards and best practices. The result of running an ETO business with lackluster information technology manifests itself in a vexing array of operational problems:

1. Business Problems for Sales Depending on how one defines the metrics, ETO manufacturers frequently struggle with low win rates or a high cost of sales. This is frequently the biggest sales related problem in the company. Additional issues include:
   • Quoting process is so lengthy that it keeps the bid rate low, that is, sales engineering is the bottleneck on revenue
     
   • Sacrificing accuracy and completeness of customer requirements in an effort to shorten quote times with little or no positive effect
     
   • Inability to know with confidence the margin on an order at the time of quotation due to top-down estimation rules
     
   • Costly production of sales or approval drawings and 3D models
     
   • Difficulty of accurately capturing graphical layout or schematic requirements
     
   • Inability to capture the mind-share of your dealers or other channel participants due to lack of tools
     
   • Frequently going back to the customer to re-price an order due to late-stage sales or order processing "discoveries"

      

2. Business Problems for Engineering--Engineering teams at ETO manufacturers frequently struggle with lengthy design cycles which contribute to a lengthy overall leadtime and a subsequent lost sales. Other problems include:

    

   • Culture clashes between sales and engineering due orders that cannot be built as booked
     
   • Painful re-engagement of the customer during the design processes due to post-order "discoveries" made by engineering
     
   • Time pressures allow for less value-added engineering time to look at design alternatives and cost saving supplier/material changes
     
   • Engineering budget is nearly consumed by sales-related or order-engineering tasks rather than new product innovation and development work

      

3. Business Problems for Manufacturing--ETO manufacturing operations experience longer and more expensive manufacturing processes than need be for a wide variety for reasons including:

    

• Lack of synchronization between engineering and manufacturing teams results in product designs that cannot be manufactured as-is
  
• Short time frames allowed in manufacturing engineering result in shop floor error discovery or work stoppages
  
• No time to create order-specific routings results in large variances on the shop floor
  
• Long leadtime raw material and purchase parts must be ordered from a Manufacturing Bill of Materials (MBOM) estimate rather than after engineering is completed--leading to either excess inventory or shortages
  
• Inability to rapidly change thousands of drawings and routings leaves new manufacturing assets underused for too long

   

Five Steps for Automating ETO Business Processes

Manufacturers can significantly improve key business metrics while incorporating the latest company knowledge into every new design through the implementation of ETO automation software. Many ETO companies have known this for years and frequently attempt to piece together solutions from available tools and in-house custom programming efforts. All too often, however, this approach results in less-than-expected results.

Following these straightforward tips could help you avoid common pitfalls and help ensure a successful implementation of an automation solution.

1. Understand Your Business--You cannot fix what you do not understand. Create a map of your end-to-end business process at a high enough level to keep the picture on one sheet of letter-sized paper. Try to understand the information flow and pay particular attention to the order of when decisions are made and information becomes available (Figure 1, page xx). Try to identify the bottlenecks in the process and their linkage to key business objectives such as revenue growth, cost of sales, leadtime, cost of quality, etc. (Figure 2, page xx). The results may be surprising.

    

2. Pick the Right Starting Point--Where you start implementing automation software tools depends on the priority of the business challenges and needs identified in the first step. However, the answer may not be obvious due to the interdependency of sales and engineering. For example, companies looking to improve revenue might best accomplish that goal by shortening engineering leadtime and winning more orders. Alternatively, companies looking to streamline engineering tasks might best accomplish that goal by cleaning up the sales quotation process. There are some advantages and disadvantages to both starting points.

    

   • Starting with Engineering--If leadtime, shop floor quality or purchasing related issues are at the top of the list, starting in engineering is the most direct way to address these with automation. Results have shown that the advantage to starting in engineering is an immediate increase in product quality and shop floor throughput. The disadvantage to starting in engineering is that it has only an indirect effect on market share and revenue.
     
   • Starting with Sales--Starting with sales is most directly associated with market share or competitive issues. Results in this area have shown that the advantage to starting in sales is the capture of mind-share within distribution channel and sales teams in order to drive up orders, revenue and margins. The disadvantage is a relatively minor effect on reducing leadtime until the level of detail in the rules is there to help drive orders through engineering faster.

      

3. Select Commercial Off-the-Shelf (COTS) Software Solutions--Many ETO manufacturers have already developed portions of an end-to-end automation solution. Common non-commercial technologies used include spreadsheets, VB, SQL or Java Alternatively, companies also frequently "hijack" software systems such as sales configurators, MRP configurators or expert systems to process engineering rules. Still other companies have paid outside consulting firms to develop turnkey automation applications in certain areas.

    

An ideal solution keeps manufacturers out of the risky game of software development. The ideal solution would also integrate seamlessly with key systems of record (ERP, CAD, etc.) that are already in-place. Finally, the ideal solution would put the manufacturer in charge of owning and specifying the rules and standards that govern the behavior of the tool.

A good commercial software tool should provide a powerful environment in which sales, engineering and manufacturing engineers can create sophisticated automation applications without being (or relying on) software developers. This means IT can devote more time and effort to establishing and maintaining the required infrastructure of the company instead of managing home-grown software applications. And most importantly, product knowledge is not locked away in a format that is difficult to update and maintain. Without technology that supports this paradigm, most homegrown solutions risk becoming obsolete within a year after they are built.

1. Start Small and Go Live Quickly--It's important to realize that value from commercial automation solutions can be gained incrementally. Whether you start with engineering or sales, these solutions offer rapid time to benefit while building a platform for continuous improvement. To get value from a good commercial automation solution, manufacturers don't need to enter all of their sales, engineering and manufacturing rules, nor do they have to enter rules for all their product lines before they "turn on" the system. Rather, it can be broken into phases with each phase of the implementation timed to go live in two to six months.

   Based on an analysis, your business processes and the urgent concerns of upper management, implementations can be scaled down for fast time-to-benefit. This "land and expand" model allows companies to pick an area of the business or a particular product line, capture some of those rules and get started. Rules can then be added, changed, modified and rolled out any time, creating a continuous improvement loop.

    

2. Build a Process of Continuous Improvement--The only way to be sure that decisions throughout an ETO business automatically incorporate the most up-to-date product-based intellectual property is to create a knowledge base that is always expanding, improving and providing more benefits. Manufacturers who decide to automate ETO processes gain the most value and ROI from automation software tools when they simultaneously build a business process to support their investment. One way to do this is to designate a standards committee whose responsibilities include ongoing refinement of company standards and business processes. This committee should contain members from various areas of the company, including commercial, product branding, engineering and manufacturing, and should also have the mandate of providing and incorporating feedback from customer service, shop floor, sales and other processes into the rule base. This constantly adjusting set of rules and standards can be redeployed to sales and engineering teams on a regular basis or as necessary to make sure the latest sets of lessons learned are being put to good use.

    

• Significant increase in bid-rate, win-rate, margin accuracy and revenue
  
• Cutting 30 to 60 percent off order-to-ship leadtime
  
• Creation of consistent, accurate, more fully engineered quotes in minutes instead of days
  
• Reduced time to prepare engineering and shop floor drawings by up to 90 percent
  
• Improved accuracy and consistency of product designs