Having outlined the above, it might be useful for us to recap the major differences between engineer-to-order (ETO) and repetitive/volume-base manufacturing environments throughout different phases of a product life cycle as well within various functional departments within a manufacturing organization. First of all, prior to any manufacturing, there is extensive work in the product definition phase (i.e. estimation, design, and engineering) before anything can be made, bought or delivered. However, the major difference is that within ETO companies the product design is an integral part of production (if not even afterwards, during the site installation and commissioning), whereas for repetitive, standard items the design is typically completed and handed "over the wall" to the manufacturing well before the production starts.
In volume manufacturing, product definition work is amortized (recovered) over the items' life cycles, which are often measured in thousands of items and over several years of commercial use. Whilst a possible time overrun here will effect the time-to-market of the product, (which is often the competitive advantage (strategy) in addition to lower costs for repetitive manufacturers), it has no effect on the overall lead-time of any particular sales, job, or project order, and is therefore not handled in the same way. Moreover, the extensive costs of product definition are absorbed into the company overhead or standard product costing, so that an overrun of costs can be managed in the context of a long term pricing strategy.
Project-based/ETO manufacturing is very different, as a majority of the total project lead-time and expenditure can come from engineering, which makes it crucial for the company to engineer correctly and maintain costs. Complex manufacturers produce products that are of high variation, have complex features and options, and vary in end user configuration. Each job is unique and the variables are based on client specifications rather than on the options from the stock. They consequently invest significant dollars in product design and have lengthy sales and manufacturing business processes, often requiring collaboration between the customer, sales representatives, and critical back-office experts.
ETO manufacturers focus on special jobs that have never been done before, or custom jobs that are similar to others but require extensive modification to accommodate customers' special requirements. Further, customer approval may stipulate many engineering changes and adequate information about these changes must be timely when released to manufacturing and purchasing, and sometimes even to the field service force. As a matter of fact, product design almost never stops, given customers' prerogative of changing their minds in the midstream, to a degree that they feel free to change specifications or add new requirements to the original orders, sometimes by directly instructing the supplier's manufacturing personnel and circumventing the proper channel of the sales and engineering department. Occasionally, the customer might attempt to play dumb and even refuse to pay for any changes to the original orders if the enterprise is unable to track all these change requests back to the initial order and prove him or her wrong.
Furthermore, since most projects have unique requirements, lead time of the product definition processes will directly impact on the delivery of the project, and will affect the contract. The company will go through it all over again on the next project, even if the product is similar to the previously delivered one. Thus, there is effectively little or nothing to amortize or recover the costs. For these reasons, far from being ignored, these "upfront" product definition processes need to be carefully planned and accounted for.
Moreover, sophisticated customer interactions (such as order/contract definition and management applications) are required, while customer service needs are also oriented toward hands-on contract management and cost reporting. Frequent changes force contract supplier engineers and subcontracted original equipment manufacturer (OEM) engineers to be in a constant collaborative communication throughout the design and production cycle of the unit. One of the most manual functions in a supplier organization have traditionally been the sell-side request for quote (RFQ) management (as opposed to standard price and discount lists in repetitive environments), which usually revolves around a few key expert individuals that have direct knowledge of the product or who can manually pull together the diverse information sources into a unified document, as contract proposals include quotations, pricing, detailed product information, data sheets, and computer-aided design (CAD) drawings. In complex ETO manufacturing, where the quality is a given, and while available capacities are on par, what makes the winner is the ability to set a competitive price. There is a huge difference between winning business and winning business that is profitable to accept and that is a win-win situation for both the customer and the provider.
On the other hand, in almost all industrial manufacturing segments, the pressure to reduce lead times has become a constant and ever-expanding concern. Depending on product complexity, some parts or sub-assemblies might be quoted immediately, while others have to be highly specified. Developing a contract proposal requires many levels of checking and re-checking customer process requirements and facilities capabilities, as well as preliminary design work and sourcing of specific components or materials. The process typically goes through much iteration every time the customer uncovers a new requirement or constraint. The labor-intensive nature of this process has often resulted in lengthy estimating cycles, which have in turn often translated to lost business opportunities.
In volume manufacturing, product definition work is amortized (recovered) over the items' life cycles, which are often measured in thousands of items and over several years of commercial use. Whilst a possible time overrun here will effect the time-to-market of the product, (which is often the competitive advantage (strategy) in addition to lower costs for repetitive manufacturers), it has no effect on the overall lead-time of any particular sales, job, or project order, and is therefore not handled in the same way. Moreover, the extensive costs of product definition are absorbed into the company overhead or standard product costing, so that an overrun of costs can be managed in the context of a long term pricing strategy.
Project-based/ETO manufacturing is very different, as a majority of the total project lead-time and expenditure can come from engineering, which makes it crucial for the company to engineer correctly and maintain costs. Complex manufacturers produce products that are of high variation, have complex features and options, and vary in end user configuration. Each job is unique and the variables are based on client specifications rather than on the options from the stock. They consequently invest significant dollars in product design and have lengthy sales and manufacturing business processes, often requiring collaboration between the customer, sales representatives, and critical back-office experts.
ETO manufacturers focus on special jobs that have never been done before, or custom jobs that are similar to others but require extensive modification to accommodate customers' special requirements. Further, customer approval may stipulate many engineering changes and adequate information about these changes must be timely when released to manufacturing and purchasing, and sometimes even to the field service force. As a matter of fact, product design almost never stops, given customers' prerogative of changing their minds in the midstream, to a degree that they feel free to change specifications or add new requirements to the original orders, sometimes by directly instructing the supplier's manufacturing personnel and circumventing the proper channel of the sales and engineering department. Occasionally, the customer might attempt to play dumb and even refuse to pay for any changes to the original orders if the enterprise is unable to track all these change requests back to the initial order and prove him or her wrong.
Furthermore, since most projects have unique requirements, lead time of the product definition processes will directly impact on the delivery of the project, and will affect the contract. The company will go through it all over again on the next project, even if the product is similar to the previously delivered one. Thus, there is effectively little or nothing to amortize or recover the costs. For these reasons, far from being ignored, these "upfront" product definition processes need to be carefully planned and accounted for.
Moreover, sophisticated customer interactions (such as order/contract definition and management applications) are required, while customer service needs are also oriented toward hands-on contract management and cost reporting. Frequent changes force contract supplier engineers and subcontracted original equipment manufacturer (OEM) engineers to be in a constant collaborative communication throughout the design and production cycle of the unit. One of the most manual functions in a supplier organization have traditionally been the sell-side request for quote (RFQ) management (as opposed to standard price and discount lists in repetitive environments), which usually revolves around a few key expert individuals that have direct knowledge of the product or who can manually pull together the diverse information sources into a unified document, as contract proposals include quotations, pricing, detailed product information, data sheets, and computer-aided design (CAD) drawings. In complex ETO manufacturing, where the quality is a given, and while available capacities are on par, what makes the winner is the ability to set a competitive price. There is a huge difference between winning business and winning business that is profitable to accept and that is a win-win situation for both the customer and the provider.
On the other hand, in almost all industrial manufacturing segments, the pressure to reduce lead times has become a constant and ever-expanding concern. Depending on product complexity, some parts or sub-assemblies might be quoted immediately, while others have to be highly specified. Developing a contract proposal requires many levels of checking and re-checking customer process requirements and facilities capabilities, as well as preliminary design work and sourcing of specific components or materials. The process typically goes through much iteration every time the customer uncovers a new requirement or constraint. The labor-intensive nature of this process has often resulted in lengthy estimating cycles, which have in turn often translated to lost business opportunities.
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