How to Select an ERP System. ERP Requirements for ETO Manufacturers

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1 Synergy Resources LLC Your Resource for Success How to Select an ERP System 4 Chapter 4: ERP Requirements for ETO Manufacturers

2 Chapter 4 Selecting an ERP System Chapter 4: ERP Requirements for ETO Manufacturers Definition: Manufacturer that designs and builds custom equipment that adheres to very specific tolerances, is highly technical, produces low volume (one offs) for industries such as government contractors, aerospace, capital equipment, etc. The roots of ERP software originated in the 1970s and 80s when repetitive/discrete manufacturing environments were much more common in North America. As the more complex ETO manufacturers have begun to infiltrate the North American market, few ERP solutions have kept up with the times. The result has been difficult for ETO companies when investigating appropriate software solutions today. In the article Information, Information, Information (Business Excellence Magazine, Sept. 2007), T.R. Cutler wrote Project-based or ETO (engineer-to-order) is commonly used to describe a custom manufacturing process, yet is rarely described with real world differentiation. Few MES (Manufacturing Execution Systems) solutions are specifically focused on meeting the needs of this challenging manufacturing market. Estimating costs to maintain a decent margin is often one of the great complexities in the ETO environment. Project-based cabinet makers, for example, may have never built a one-of-a-kind item before or have to add items once they are on the production floor, and have to accurately guess all the possible costs variations. Cutler s observation emphasizes the key challenges that ETO manufacturers face, as most ERP solutions were not designed to adequately address the constraints within the environment. Fortunately, the paradigm shift in the manufacturing world is now starting to bear fruit. ERP solutions are beginning to solve the needs of ETO manufacturers.

3 As mentioned, the typical ETO organization reflects a unique style of manufacturing: New business based on engineered quotations. Products designed specifically to the customer s engineered specifications. Customer involvement throughout the manufacturing process; from original quote to final assembly and on-site installation. Complex products that often require multiple subassemblies. Raw materials purchased with long lead times. The recent shift within the North American manufacturing market has ETO organizations leading a call for change as a means of business survival. ETO Manufacturing Challenges Unlike more common manufacturing processes, within ETO environments the customer is heavily involved throughout the design and manufacturing process. This constant involvement results in frequent engineering changes. Another constraint for ETO manufacturers are the historically long lead times from purchasing vendors spanning months even years. These raw materials are usually purchased directly for a specific phase of the overall manufacturing cycle. Because ETO manufacturers treat each job as a project, all costs and materials are reported to the actual work order and variances are further compared to the original estimate. In many cases, once the production phase is complete, the product is shipped to and assembled at the client s site. Furthermore, aftermarket services and replacement part sales continue throughout the life of the product. Requirements Differ between ETO Manufacturers and Discrete Manufacturers Unlike its repetitive/discrete production counterparts, the ETO manufacturer is faced with maintaining a business model that requires experienced and knowledgeable Engineers, to design innovative solutions to complex problems. Another area where ETO manufacturing distinguishes itself is geography. While discrete manufacturers have placed greater emphasis on manufacturing products offshore, ETO manufacturers have continued to focus their design, engineering, and production of products domestically. In determining the ERP requirements, it is necessary to take a deeper look at the challenges that ETO manufacturers face in their day-to-day operations: Sometimes synonymous with Project-Based manufacturing, actual costs are recorded against the specific project task/operations and variance trends are analyzed (compared to the original project quotation). Customers are involved with the project from cradle to grave, resulting in frequent engineering changes. Most materials are purchased direct to the project task and commonly require long purchasing lead times. Often the final step of a project will be the actual equipment installation at the customer s site. ETO manufacturers rely on skilled and costly engineers, who are charged with project designs that meet the Customers complex and demanding expectations. ETO Manufacturers demand more from ERP vendors Manufacturers have been begging for improvements, but only a select few ERP developers have returned with complete solutions. Today s ETO manufacturers expect their ERP to include: Strict Engineering Change Management, including workflow. This should also include revision controlled transaction security, so that obsolete items resulting from engineering changes will not be purchased or consumed. Functionality such as percent complete, revenue recognition, work breakdown structures (WBS) and scheduled due dates/ milestones displayed in a Microsoft Project format.

4 Linking Engineering with the ERP. Integration at a BOM level with popular CAD and PLM systems. (single data entry minimizing human error). Project inventory management. Assigning a segregated project warehouse where inventory transactions will be isolated within the project. Project and work order feedback detailing the actual project costs (material, labor, outside service and overhead). True Time & Attendance with integration to popular Payroll systems. Engineering time needs to be accounted for, tracked, and scheduled. Current Shop employee data collection systems (as in vanilla ERP) need to be expanded to the entire Enterprise. Tighter controls regarding long lead time materials, providing for accurate material planning early in the project, and the subsequent alignment of materials to later phases as required. Preventative maintenance (internal equipment) and warranty contracts (external aftermarket).

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