We have recently published a guide to improving business performance in ETO business that is, designing and making product specifically to a customer’s requirements.

The guide is called “Planning and Control of Engineer to Order (ETO) Manufacturing” and focuses on the vital planning & control functions which are often weak in these companies. MLG have helped a number of their clients in recent years to specialise in Engineer to Order (ETO) Manufacturing. Ian Henderson, a partner in MLG, explains why ETO is so critical to the UK:

“We have all seen how import penetration from the low-cost economies of Eastern Europe or the Far East has all but wiped out the UK manufacturing sector in all sorts of products – washing machines, pumps and valves for our central heating systems, bicycles for our children and all sorts of other products in which we once led the world.

“We still have an advantage, however, in capital equipment such as that used in oil and gas production, chemical processing and power generation. Businesses making commodities such as pumps, compressors and valves in the West may struggle to compete at the ‘standard’ product end of the market but can still lead the world where such products are designed and manufactured for a specific purpose. In this area we have years of accumulated design know-how and this offers a competitive edge on which we must build.” While in the UK we continue to do excellent work in engineering innovation and design it is the execution of customer's orders which is often weak - particularly in so far as this effects cost, lead time and on-time delivery. Among the major reasons for this weakness are:

ETO businesses are not well-served by the generic approaches of MRPII and ERP, supported by available education and standard texts.

ETO businesses are poorly served by the major software packages.

As Ian Henderson explains:

"The ERP approach (used by the vast majority of software packages including SAP, Oracle Manufacturing, QAD, SSA, and Cincom) all have at their core the developments led by Oliver Wight, Joseph Orlicky and others in the 1970s. The texts originating from these eminent thinkers were, of course, all written around standard product manufacturing and provide excellent instruction in forecast-driven master scheduling, in stocking policies, in batch sizing and other techniques from this environment.

The alternative approach of APS (Advanced Planning and Scheduling) offers the advantages of simultaneous scheduling of materials and manufacturing resources and of desk-top simulation of the manufacturing plan. For the ETO world the major failing of APS is, of course, its reliance on precision in planning data. Precision is one thing that we cannot expect when we are making some major components for the first time and will never make these components again in this configuration or in this material. Where both ERP and APS fail is that neither really help companies get to grip with some of the complexities of ETO – such as the management of several due dates for a ‘sales order’ – the point of sale may be the completion of manufacturing, despatch of the finished product or any of a number of subsequent events and all must be planned.

Another concern is that the nature of ETO business is that the ‘plan’ is forever changing and we therefore need two sets of dates – our contractual obligation to the customer and the current plan. We need to maintain current projections so that we have load information about which to make capacity decisions, we can schedule expensive materials and resources for the dates we want them and we have a realistic idea of our future billings and cash flow. Another is that the manufacturing plan is only part of the story; each sales order is a contract with several milestones and activities to be managed outside the manufacturing area, but closely linked. The business systems adopted must maintain plans which integrate all the areas without duplication."

Although there are some software packages which are written specifically for the ETO market the MLG consultants have noted down the years that many companies selecting business systems in this sector approach the matter without a sufficiently clear idea of the processes they are looking to manage. As a result the final system imposes processes which quite simply do not meet the business need.

Ian Henderson explains:

“In many cases the business has almost ended up working for the system, when surely it should be the other way round. People have tasks to perform which add no value to the business and are needed simply because the system requires them.

In one meeting a consultant with a major SAP practice cheerfully told us all that part of his role was to advise clients against making to order, as the system didn’t handle it particularly well. He had a point in that the complete delivery indicator flag totally contradicted the Available to Promise logic being used, but to suggest that the business completely change its modus operandi was nothing short of staggering.”

The MLG team do believe, however, that a company approaching this subject with a clear understanding of the nature of their business can successfully implement a generic package.

This 68 page guide provides an overview of the features of ETO companies and then explores the key areas of such businesses looking at, for example, master planning / order slotting, the organisational implications of purchasing in the non-stock world, the mechanics of ongoing plan maintenance and how elements of the lean manufacturing concept – notably the ‘drumbeat’ or ‘heijunka’ approach – can still be employed to good effect.

The booklet is available directly from MLG (at £6.50 including p&p), from the Institute of Operations Management, Amazon or any other major bookseller.

Other books and booklets guides available from MLG are:

Manufacturing Resource Planning by Robin Goodfellow

Sales & Operations Planning by Robin Goodfellow

Planning and Control of Manufacturing Operations by John Kenworthy