Preventing Deviation in Engineer to Order (ETO) Manufacturing

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What’s the one thing that companies in the Engineer to Order (ETO) manufacturing space complain about most? Deviation. The difference between what they quote their client at the beginning of the process, and what it actually ends up costing them to produce whatever was ordered.

Deviation costs companies untold sums and can be completely crippling in terms of margins. The problem is, it seems to be baked into the whole ETO process.

ETO costs are a moving target

Unlike Make-to-Order (MTO), where a standard product is produced according to how many are ordered, or Configure-to-Order (CTO), where a standardized product has minor changes made to it, ETO manufacturing produces unique, one-off products that have never been produced before.

And when you’re doing something brand new, and for the one and only time, how can you possibly hope to accurately predict what it’s going to cost you to do it?

Which is and isn’t true. The fact of the matter is, everything that’s ever manufactured, be it an individual component or the entire finished product, is only ever a slight variation on something that’s already been done in the past.

The ETO conundrum

Nevertheless, ETO manufacturing does present a particular challenge, by reversing the conventional direction of exchange. Instead of making something people want and then asking them to pay a fixed price for it, you’re asking them what they want, before trying to guess how much that’s going to cost. Knowing that what they’ve said they want will change in the course of you making it for them.

But this doesn’t mean that every ETO manufacturing project is unique and impossible to predict. On the contrary. What it means instead is that ETO projects are very much like every other project, only more so.

You go through the same process as you would on any project, but with added emphasis on the three pillars that allow you to maximise your margins.

1. Co-ordinate communication

The first thing that leads to deviation in ETO projects is the difference between what the Sales team promises and agrees to provide the customer with, and what the engineering team can actually produce for the agreed price.

Simply put, every element that the Sales team agrees to puts the cost up. But factoring that increased cost into the sale price makes a sale less likely. So, understandably, the sales team takes a permanently optimistic view of how much everything they promise will cost. Which is all well and good and even amusing, until suddenly there’s this gap between what you’re charging for something, and what it’s actually costing you to produce it.

The answer to which is to systematically impose improved communication.

By making sure that the communication channels between Sales and Engineering, and between Sales and the customer are fully co-ordinated and permanently up to date, you can much more accurately track costs, which will then be factored into your forecasting.

2. Manage change requests

Managing data is a subset of your communication system. And keeping on top of your change requests depends on your ability to efficiently manage your data. Because every time data gets inputted into your system, there’s the chance that it’ll be incorrectly stored, stored in the wrong place, unnecessarily duplicated or not made available to the people who need it.

And the large number of change requests in ETO means that data is constantly arriving into your system. So by rigorously improving your communication network, you’ll necessarily be improving your ability to better manage your change requests.

3. Align resources

One of the major factors in producing unforeseen costs in Engineer to Order manufacturing is the misalignment of labor and non-labor costs. With locations being staffed by people who’ve been booked for the day but who have nothing to do because the materials haven’t arrived.

Ordering and procuring the materials and parts that you need is a perennial challenge in the ETO process, where many of the products are long-lead items. It is then particularly important that all your departments are up to speed about where everything is in the supply chain. So the “what” can be correctly matched up with the “who”.

Eliminating deviation in ETO

In other words, those three pillars are causally linked. Because your internal communication network has been rigorously streamlined and is perfectly functioning, everyone is up to speed on all the various change requests for the different projects.

Because of which, all your labor and non-labor resources are much better aligned. So any discrepancies between the price you quoted your customer, and what it cost you to produce it, have been factored into your estimates. In other words, there is no deviation.

Engineer to order tech

In short, what it all comes down to is the software system you employ to govern your internal communication network. The right software will give you full visibility. And that means control.

So long as you can configure it so that it’s precisely crafted to suit your specific needs, you’ll be able to minimize and eventually eliminate deviation completely.

What you really need then is a manufacturing engineering software package that functions in much the same way that Engineer to Order manufacturing does. One that’s as configurable and responsive to change requests as you are with your customers.

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