Engineer-to-order (ETO) and project-based manufacturers face business challenges that simply cannot be resolved by traditional manufacturing systems.
ETO companies must be able to provide accurate cost estimates to customers, manage all aspects of complex projects, and deliver on time and on budget — all while keeping a close eye on cash flow. There is intense pressure to reduce costs and shorten cycle times, while maintaining high quality.
Finally, ETO manufacturers need an accurate picture of the profitability of each project in order to comprehend the impact on the business. Nowhere are these unique process distinctions (versus those characteristics of repetitive manufacturing) more evident than among manufacturers of conveying equipment.
Designing and building complex products to exact customer specifications frequently involves long lead times and heavy engineering content. Unlike the majority of manufacturers, ETO, project-based and custom manufacturers in the conveying sector need to do progress billing and collect actual costs for their projects.
To win business, ETO metalforming manufacturers must provide accurate estimates and quotations to a demanding customer base. Often, payment for a project is received only after the equipment is installed and operating on a customer’s site. Following the sale, ETO conveyor firms must provide warranty tracking and aftermarket services, including the sale of spare parts which may constitute a significant share of the company’s business.
In the ETO environment, there are currently two choices for developing business — bid aggressively to win the deal and accept the risk of very low (or negative) margins, or bid conservatively to account for the risk of not fully understanding the impact of the customer’s choices on cost, and risk not getting the deal.
According to Frank Azzolino, CEO of aPriori Technologies, a provider of cost management software for the discrete manufacturing industry, “With ETO operations the key is to get it right the first time, since there is often no long production cycle in which to redesign and get the product and cost right over a period of time.
"It is critical to know the costs before bidding the job — thereby preserving margins while more effectively managing risk. Ideally, as early as the sales and marketing departments know the cost of a project, so should the engineering and production departments of ETO operations. This drives margin," said Azzolino.
For one conveyor manufacturer, an ETO ERP (Enterprise Resource Planning) system helped it to bring its products to market faster and at a lower cost.
According to Bill Jurek, materials manager for Harry Major Machine & Tool Co., an automation and washer manufacturer in Clinton Township, Mich., “We've recently implemented an ETO ERP system from Encompix and we are beginning to see the results of the software in substantial internal process improvements.”
Harry Major produces products primarily for the automotive industry and tier-one suppliers, including metal forming manufacturers, and it needed to realize specific process improvements from the ERP implementation.
Since the implementation of the ERP system from Encompix, Jurek said Harry Major is releasing the engineering products closer to scheduled requirements.
"This ETO ERP system has assisted us in analyzing the details of the material costs, schedules and releases to the production floor to help us build products on time and to the budgeted requirements," said Jurek. "In short, the efficiency has improved in our operations to allow better timing for deliveries and results to our customers.”
While many ERP software companies claim to address the ETO characteristics, in many instances materials are still posted to inventory, a characteristic of repetitive manufacturing. The quantifiable results for Harry Major following its ETO ERP system implementation included:
• Reduction in costs by 30 percent• Increased margin by 10 percent to 25 percent
• 100 percent revenue growth with little additional indirect cost
• Improved change control resulting in $250,000 additional revenue
• Reduced delivery cycle times by 40 percent
• Greater visibility and control over project costs
• Reduced costs in one department by 50 percent
• Accounting month-end closing time halved
• Elimination of non-value-added activities resulting in savings of over $100,000 per year
Conveyor manufacturers are demanding engineer-to-order customers and expect to see dramatic business improvements and a rapid return on their investment. ETO ERP software, specifically designed for ETO, project-based and custom metalforming manufacturers, allows a closer fit to the industry requirements, which in turn leads to shorter implementation and faster time-to-benefit. To comment on this story email us at: [email protected]
Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based TR Cutler, Inc., a manufacturing marketing firm. He can be contacted at [email protected]