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"Engineer-to-order (ETO) and project-based manufacturers face business challenges that simply cannot
be resolved by traditional ERP software. Engineer-to-order companies need to be able to provide accurate cost estimates
to customers, manage all aspects of complex projects, deliver on time and on budget—all while keeping a close eye on
cash flow."
Source : Ecompix
10 Secrets Every Software Buyer Should Know: A Guide for Engineer-to-order and Project-based Manufacturers
Engineer-To-Order is also known as :
Engineer to Order,
Easy to Use ETO Software,
Engineer-to-order Systems,
Engineer-to-order Manufacturers,
Top 10 Manufacturing Apps,
Custom Engineer to Order Manufacturer,
Build to Order,
Engineer-to-order World,
Engineer-to-order Approach,
Product Configurator,
Web-based Sales Configurator,
Systems for the Custom Engineer to Order,
Designed for Engineering-Intensive,
Engineer-to-order Concept,
Engineer-to-order Manufacturing Companies,
Engineer-to-order and Project-based,
Leading ETO ERP Software,
Definition of Engineering-to-order,
Engineer-to-order Activities,
Streamline Your Engineer to Order Business,
Knowledge Based Engineering Software,
Engineer to Order Enterprise,
Engineer-to-order Software Provides,
Engineer-to-order Process,
Engineer-to-order Software Listing,
Engineer-to-order Enterprise Resource Planning,
Concurrent Engineer-to-order,
Make-to-order Operation,
Engineer-to-order Manufacturers Compete.
Introduction
In today's challenging business environment, midsize manufacturers
are faced with increasing pressures from both domestic and overseas
competition-pressures to reduce costs, improve and maintain quality
and decrease lead times. Designers and builders of capital equipment
face special challenges due to the complexity of the products they
build and the unique requirements of this engineer-to-order
(ETO) environment.
Today, companies look to information technology to help improve
their processes and gain a competitive edge.
But most systems have their heritage in the Material Requirements
Planning (MRP) philosophy developed in the1960s. This concept
utilized computer power to calculate time-phased material requirements.
It later evolved into MRPII promoted by APICS and Ollie Wight during
the 1980s, and further evolved to the Enterprise Resource Planning
(ERP) systems available today.
The original premise of all of these systems is that material planning
is the center of the universe. The typical manufacturing system was
designed with an MRP process at the heart of the system. The
emphasis of such systems is on standard bills and routings and
standard costs.
Companies in the ETO world have different requirements. Designing
and building complex products to exact customer specifications
frequently involves long lead times and heavy engineering content.
To win business, you must provide accurate estimates and quotations
to a demanding customer base. Unlike the majority of manufacturers,
capital equipment manufacturers typically purchase material to a
specific project or job. You need to do progress billing and collect
actual costs to projects. Often, you will not receive payment for a
project until it is installed and operating at a customer's site. So,
cash management is of vital importance. And after the sale, you
need to track warranty information and provide aftermarket services,
including the sale of spare parts that may constitute a significant
share of your company's business.
If you are an ETO or project-based manufacturer, here are ten
questions traditional manufacturing software vendors don't want
you to ask. Before you invest in new software to run your business,
you should carefully consider the following questions.
Q1. Does the system demand that you
develop a detailed bill of material (BOM)
and routing?
Many ERP systems demand that you create a part number,
bill of material and routing before you can begin any job
or project. This works if you are making a standard
product. But ETO companies build unique products to
customers' specifications. As a result, maintaining detailed
BOM and routing data in the system is very cumbersome
for ETO companies.
Ask:
- Does the system allow you to process an order from
order entry to invoicing without first creating a part
number?
- Does the system require a detailed BOM and routing
before processing a work order?
- Does the system allow you to buy or make a part for
one time use, without creating an item master record?
Q2. Can you ship products directly from
work-in-process?
In order to ship products using a typical ERP system
you are required to close the job or project into finished
goods inventory. This works well if you are building
standard products to stock. However, it makes no sense
if you are building large capital equipment. Most ETO
companies ship products from work-in-process (WIP)
directly to the customer's site for installation. In addition,
most ETO companies will continue to accumulate costs
to the project after it is shipped. Most software vendors
claim a system "work-around" by booking the product in
and out of an inventory location. Besides the redundant
transactions, this will force the part to be costed at
inventory cost, not actual cost.
Ask:
- Does the system allow you to ship finished products
directly from WIP without completing an inventory
transaction?
Q3. Does the system allow you to create an
estimate without a part number?
ETO companies have to submit quotes or estimates to
compete for business. To submit a formal proposal and
quotation, you need to construct an estimate. This can be
constructed from a similar job or it may be a brand new
item. In constructing this estimate most companies put
"buckets" of time and money against the major elements
of the project.
Unfortunately, with item-based manufacturing systems you
are forced to create a part number, BOM and routing
steps BEFORE you can even start to construct an estimate.
This is a very time-consuming process for a one-off
estimate, considering you may ultimately decide not to
bid after all. It also results in the typical system becoming
cluttered up with redundant and useless data that requires
extra storage and maintenance. Because this is not practical
for ETO companies, most resort to creating their
estimates outside the main system with spreadsheet or
small, custom-built applications. This will work for quick
or simple estimates but eventually even those will need to
be re-entered into the ERP system if you are successful and
win the business. This creates duplication of effort and
can easily lead to errors.
Ask:
- Can you create an estimate in the system without first
creating an item master record?
- Can you create an estimate using "buckets" of time
and money?
Q4. Does the system allow you purchase
material directly to a job or project?
ETO companies purchase the majority of raw material
directly for a specific job or project. Most MRP systems
are designed to purchase material for stock. The MRP
process looks at time-phased demand for material,
aggregates the requirements based on a time horizon,
order size and stocking policies, and suggests replenishment
orders. This process is great if you are building
products to stock and using standard costing, but does
not support the operations of ETO companies, since
material is purchased for individual jobs and requires
the actual cost of the material assigned to the project.
When material is purchased for a project it is important to
create a time-phased plan by project for purchased items.
Typical ERP systems aggregate demand for purchase items
and do not plan material requirements by project.
Ask:
- Can you purchase material directly to a job
or project?
- Is the planned and actual cost recorded against that
project?
- Can you plan requirements for purchased items by
project?
Q5. Are the Engineering functions integrated
with Manufacturing Operations?
Because ETO companies design and build products to
customer specifications, a significant amount of time and
cost goes into the design stage of the project. Computer-
Aided Design (CAD) packages like AutoCAD have greatly
improved the speed and productivity of the design
engineer. However the engineer's view of the world is
different from manufacturing operations. The engineer
creates part and BOM information in the CAD system.
Typically this information is then re-keyed manually in
the ERP system. This leads to duplication of effort and
the chance for errors. It is important not to have multiple
versions of the same data in different systems.
Ask:
- Is the CAD system fully integrated with the rest of the
system? Is the link two-way, or only one-way? Most
have one-way, but a true ETO provider will have
two-way.
- Can the engineer create a parts list in the CAD
system and automatically create a BOM from the
drawing without re-keying the data?
- Can the engineer create a purchase requisition or
purchase order without having to re-key the part
information into the ERP system?
- Can the drawing be viewed by all appropriate
persons? Can they make notes on the drawing
without changing the original drawing?
Q6. Does the system reflect the true
actual cost?
Most of the traditional MRP-based systems are designed
around standard costing. To address the needs of the
make-to-order and engineer-to-order market they have
tried to add actual costing capabilities. Unfortunately,
the problem with many traditional systems is that the
costing is based on the wrong things, such as:
- Establishing a standard cost for an item by defining
detailed BOM and routings, and rolling up the
cost using standard material cost, labor hours and
overhead.
- Inventory valuation at standard cost.
- Calculating the value of WIP and measuring
performance by calculating variances against
standard cost.
In the world of ETO and project-based companies, monitoring
performance is critical, but in this environment the
measurement is against the original estimate and not
against a standard cost. It is important to show throughout
the system the Estimate, Planned Cost, Actual Cost and
Cost to Complete.
The problem is that most systems, which claim to support
actual costing, do not truly reflect all the actual costs
throughout the system at the time the actual costs hit the
books. Try this simple test:
Step 1.Create a job with a planned cost of $1000 for
material.
Step 2.Enter a purchase order with a planned cost of
$1000 for the material.
Step 3.Record the receipt of material.
Step 4.Post the invoice at the actual cost of $1251. In a
traditional costing system, the planned cost
($1000), not the actual cost ($1251), is reported
against the job, and a variance ($251) is shown
in the general ledger.
Ask:
- Does the system show both the original planned cost
and the actual cost?
- Does the system reflect the true actual cost as
described above?
Q7. Can you perform progress billing when
agreed milestones are met?
ETO companies will have projects that last for weeks,
months and even years. In this environment, cash
management is essential. It is common practice for
companies to bill their customers at various stages of
the project when agreed upon milestones are completed.
This practice, known as Progress Billing, ensures cash
flow during the life of a complex project.
The traditional manufacturing system has a difficult time
with Progress Billing because it is set up to send an
invoice after the final delivery, when the job is closed.
In addition, most systems have problems dealing with
multiple invoices for a product quantity of one.
Ask:
- Does the system allow you to bill the customer based
on reaching a specific milestone or on percent
complete?
- Does the system automatically create an invoice
based on reaching a milestone rather than final
shipment?
- Does the system allow you to recognize revenue to
support Generally Accepted Accounting Practices
(GAAP)?
Q8. Does the system handle field service,
installation and warranty?
Unlike companies that deliver their products from stock,
completing the manufacturing process is not the end of
the project for ETO companies. ETO and project-based
manufacturers typically will install the product on their
customer's site and provide on-site maintenance and
services as well as a warranty. In this environment it is
essential to track the warranty and service information to
a specific piece of equipment. In addition, many companies
now generate significant revenues from spare parts
business where margins are typically higher. Planning and
controlling spare parts is now an important part of an
ETO company's business plan.
Ask:
- Where is the focus of the system post manufacturing -
warehousing, transportation and logistics, or installation,
service and warranty tracking?
- Does the system automatically create a serialized
master record with warranty and service information?
- Does the system allow you to link all service costs
back to the original project if required?
Q9. Do I have complete visibility and control
over all my projects?
Having a complete and true picture of the status of all
projects is essential for any ETO company. Especially
important is the ability to know exactly how you are doing
against the original estimate in terms of time and money.
ETO companies need to be able to answer such
questions as: "Will we meet the delivery date? Are we
running under or over budget? What changes can
we make to get back on track? What other projects
are affected?
In many midsize companies Microsoft Project is the
preferred project planning and management tool. Once
the project steps are created in MS Project, can the data
be used to automatically generate routings? If changes
occur on the shop floor is MS Project automatically
updated? In other words, are your plans and schedules
always synchronized?
Ask:
- Does the system integrate with a project management
tool, such as Microsoft Project?
- Does the system allow your project managers to enter
the estimate-to-complete in both time and money?
- Does the system provide comprehensive project
reporting so you know exactly how much profit contribution
each project is estimated to make?
Q10. Is the company focused on
Engineer-to-Order?
Many software vendors with large customer bases claim
to have customers using the software in make-to-order and
engineer-to-order environments. But how much do they
really know about ETO? What is the percentage of ETO
customers to the whole customer base? Many ERP vendors
sell software to a broad spectrum of manufacturers,
claiming one size fits all, for make-to-stock as well as
make-to-order. This causes problems for their ETO
companies attempting to use the software. As the software
provider decides what enhancements the next version will
incorporate, will those enhancements be designed for
ETO, or make-to-stock? If a large percentage of the
customers are make-to-stock, then expect new features
that are of little or no value to ETO companies.
You want to ensure that the software vendor is focused
on your business, and has a customer base of companies
that have similar characteristics, processes and problems.
You want to ensure that the consultants from the software
vendor have the experience of implementing the system
in companies similar to yours, and have not come
straight from completing an implementation at a
process company.
Ask:
- What industries are supported by the vendor? Look at
the marketing material. Is it generic or does it focus
on the needs of your company?
- Does the product contain optional modules that are of
no interest to you?
- Does the vendor have many customers in consumertype
products?