We asked COO, Sławomir Woźniak, to share his thoughts on the Engineer-to-Order type businesses.
Today’s competitive pressure often emphasizes the customer’s requirement for highly customized products. For this reason, Engineer-to-Order (ETO) companies play a pivotal role in many industries, allowing for the supply of one-of-a-kind products upon customer’s specification. Due to the peculiarities of the ETO manufacturing strategy and of machinery-building requirements, nowadays, these type of companies are becoming aware of the need of suitable tools and managerial paradigms to handle the multi-faceted activity flows from order receipt to product delivery and commissioning (Zanardini, et al., 2015).
Looking today on the customers demands’ fluctuations I think that a medium-term planning and control approach fits the best ETO type of organizations. The average lead time for the projects executed by my company varies between 6-8 months. Medium-term plans might look ahead to assess the overall demand which operation must fulfil in a partially disaggregated manners. Resources are also set at disaggregated levels and contingencies have to be considered to allow slight deviation from plans.
With unpredictable variation in demand, if an operation is to react to it at all, it must do so quickly; otherwise, the change in capacity will have little effect on the operation’s ability to deliver products and services as needed by their customer (Slack, et al., 2016)
Therefore an ETO organization should implement chase demand plan to adjust the capacity to reflect the fluctuations in demands (Slack, et al., 2016).
Nowadays I can observe that most of the companies including the business I work for are facing the problem with maintaining the positive cash flow. Therefore the proper planning and controlling of the expenditures for the materials purchases is becoming a key factor for business operation. Especially in the ETO type of companies where the customers’ predictions are not stable the proper inventory management plays a key role to gain the competitiveness by improving the project lead time. The Vendor-Managed Inventory (VMI) strategy presented in unit 5 of OSCM course can be very supportive to improve the company cash flow and inventory management. VMI approach bases on the assumption that supplier takes full responsibility for maintaining an agreed inventory of the material based on the information provided by buyer.
Lean principles have been deeply presented and discussed over the OSCM course. This topic has also highly raised my interest as thanks of my 2ndIndividual Assignment I was able to learn that in spite of general opinion Lean principles can also be applicable for ETO type of organization. I have studied some interesting cases proving that the principles of Lean production can be highly relevant for identifying and eliminating waste also in ETO operations. Moreover, the principles are applicable in non-manufacturing processes such as the sales, engineering and project management processes, which are crucial business processes in ETO operations (Strandhagen, et al., 2018).
Thanks of the wastes elimination the capacity of an organization can be significantly improved.
Today most of the companies are facing a challenge in shortage of human resources. Especially the engineering type of organizations require highly educated and experience employees which are either not available or are very costly. Therefore there is a high demand in the organizations for the implementations of the innovative technologies like CAD/CAM, automations, robotics, etc. to reduce the demand of human resources and improve company’s capacity (Powell, et al., 2014).
Additionally some systems like MRP/MRPII or ERP can be very supportive in planning of materials, manufacturing or whole enterprise resources (Slack, et al., 2016). However there are some studies showing a huge challenges in the implementation of MRPII into ETO type of organization (Betrand & Mustang, 1992). My company is currently on the way to change the ERP system from old very customized solution into newest and very innovative Microsoft Dynamic 365 for Finance and Operations. I do not need to mention that we are facing plenty of challenges during this project similarly to many other companies implementing ERP system. In our case many challenges are caused by the specifics of our ETO business character.
There is always a high risk behind every project of ERP implementation and the proper prior preparation, planning and further project management are a key to do not end up with the disaster. It is not a secret that there are many unsuccessful ERP implementations and even a strong organizations like the big German supermarket group Lidl have lost this battle having sunk €500 million (Consultancy.uk, 2018).
There are many areas in my company where principles and tools mentioned during this course have been already implemented but this extended knowledge will let me for their further improvement. Moreover I have learnt plenty of new interesting things which are definitely worth to be deeper studied for further implementation and practical use.
Betrand, J. & Mustang, D., 1992. Production control in engineer-to-order firms. Igls, s.n.
Consultancy.uk, 2018. https://www.consultancy.uk/. [Online]
Available at: https://www.consultancy.uk/news/18243/lidl-cancels-sap-introduction-having-sunk-500-million-into-it
Powell, D. et al., 2014. A New Set of Principles for Pursuing the Lean Ideal in Engineer-to-Order Manufacturers. s.l., s.n.
Slack, N., Brandon-Jones, A. & Johnston, R., 2016. Operation Management. Eighth edition ed. s.l.:s.n.
Strandhagen, J. W., Vallandingham, L. R., Alfnes, E. & Strandhagen, J. O., 2018. Operationalizing lean principles for lead time reduction in engineer-to-order (ETO) operations: A case study. Bergamo, Italy, s.n.
Zanardini, M. et al., 2015. Engineer-to-order (ETO) production planning and control: An empirical framework for machinery-building companies. Production Planning and Control.