ENGINEER-TO-ORDER (ETO)

MANUFACTURING PROCESS
FLOW AND BEST PRACTICES
Manufacturing is a complex endeavor under any circumstances. But in the case
of products that are Engineered-to-Order (ETO), that complexity is multiplied
due to the engineering, costing and change management that is often required.
In the production of ETO products, it is critical to have a robust and flexible ERP
system in place to help manage that complexity.
The main reason for this is that the engineering requirements often require long,
global supply chain efforts on top of manufacturing. These parts and
components can be custom-made, expensive or highly specialized. And the
bottom line is that human management of a far-reaching, global and complex
production and supply chain to produce ETO goods outpaces human ability to
manually manage.
Studies have shown that as high as 50% of manufactured ETO products are
through global sales channels. As a result, having a strong, cloud-based ERP
system is essential in managing the unique and custom aspects of ETO products.
Adding to this environment is the push for mass customization by consumers
and purchasers of ETO products, requiring an already difficult process to move
faster with a higher degree of customized design.
Engineer-to-Order Workflow

So, what does an ETO workflow look like? An ETO workflow is different than Make to Stock
(MTS). It has additional steps that require extensive quoting and engineering on both the
sales side and the product design side. It also requires an accurate change management
system throughout the production process, and it requires continuous monitoring and
assessment of the cost to make sure that real-world production conditions remain within
the quoted cost structure.
Engineer-to-Order Workflow
Here are the basic ETO workflow steps:

• Sales Engineering – An Engineer-to-Order production order usually begins with a

Request for Quote (RFQ). Here, a customer outlines what the deliverables are and the
functionality and requirements of the finished product. Once the RFQ is received, sales
staff work closely with product engineers and established company capabilities to
produce a quote that meets customer requirements while allowing the company to meet
profit targets. There is often an extensive number of iterations in this process until the
desired product configuration is approved.
Engineer-to-Order Workflow
• Process Planning – Unlike Make-to-Stock, Engineer-to-Order manufacturing is often
different on a per-product basis. It may be that a company produces variations of a
standard product with customized elements, or, it may require a new production method
or line for each specific product. As a result, process planning must be well defined,
accurate and flexible to allow the manufacturer to stay within its production capabilities
and remain within expected costs. The process planning will include documentation of
the design, sourcing and ordering of parts and components, production schedules
including major or minor tooling requirements and their associated costs. It will also
incorporate a robust and well-documented change management process with defined
approval and cost mechanisms for changes along the way.
Engineer-to-Order Workflow

• Inventory Management – Because ETO products often require specialized and

dedicated components not usable in other products, accurate inventory management is
important. Both to prevent the specialized parts from being used in the wrong
application and to keep a specialized production line and production schedule on track,
accurate inventory management is critical.
 Engineer-to-Order Workflow
• Manufacturing – In an MTS system, high volumes of consistent products and
production runs allow for more data points that ensure more precise costing and
accurate understanding of labor, waste, takt time and other variables. With ETO
products, the reality that each product is a new iteration or product introduces the
possibility of unknown variables. Accurate and dynamic BOMs, automated production
scheduling and labor and shop floor management are critical in the manufacturing
process. This is especially true when change orders are introduced which may require
adjustments to the production line processes in one or more places on the factory floor.
 Best Practices for Engineer-to-Order

While Engineer-to-Order production can be difficult, there are certain practices

that can be undertaken to make the process manageable. These practices
should be built into the manufacturer’s culture to help make the ETO
manufacturing process easier:
 Best Practices for Engineer-to-Order

• Establish Deep Channels of Communication – Because ETO manufacturing

requires much more customer input compared to MTS or MTO, open,
accessible and documented communication with the customer must be
established. This is true from the RFQ stage all the way through production
and shipping. As the production requirements often involve several iterations
and design changes throughout the process, engineers, sales, procurement,
purchasing and manufacturing staff will need to communicate regularly.
 Best Practices for Engineer-to-Order

• Reconcile Engineering and Manufacturing Capability – Because product

design is either new or because it is being produced for a specific end-use,
product design within an ETO environment can be highly innovative and
creative. It is important that manufacturing and engineering work closely to
reconcile engineering needs with production capabilities. This can be done
through checklists and other standardized work that help narrow and define
the company’s inherent capabilities.
 Best Practices for Engineer-to-Order

This does not limit innovation. Rather, it will help the manufacturer understand
how the product fits into its current production capability and capacity, how to
accurately structure its Bill of Materials (BOMs), costing and other critical
manufacturing functions and will help determine what, if any, components need
to be produced by sub-contractors.
 Best Practices for Engineer-to-Order

• Focus on Accurate Documentation – As a unique product, ETO

manufacturing can carry added liability in the form of safety requirements,
regulations and other variables. Accurate documentation from the beginning
to the end of the process is critical. This includes consistent part numbering,
accurate BOMs, precise cost models, and robust and real-time inventory
management.
 Best Practices for Engineer-to-Order

• Deploy System Automation – All the sales expertise, engineering, and

skilled production work counts for little if cost, waste and workflow can’t be
managed. And in today’s global manufacturing environment of far-flung
supply chains and subcontractors, it is essential that a factory has a Material
Requirements Planning (MRP), Enterprise Resource Planning (ERP) or some
automated system to manage the production flow. It is difficult enough to
manually manage an MTS or MTO environment without systemization. But it
is next to impossible to do so for ETO manufacturing.
 The Case for Cloud-Based ERP

Engineer-to-Order (ETO) products makes up a significant amount of both

consumer and capital goods produced. And with consumer tastes becoming
more sophisticated, the push is on to make an already difficult process even
more so. Demand for faster rollouts, mass customization, and faster leads time
is putting pressure on ETO manufacturers across the board.
 The Case for Cloud-Based ERP

To help manage the unique requirements of ETO, factories should look toward
cloud-based, dynamic and flexible ERP systems. These software systems allow
the creation of accurate and dynamic BOMs. With many systems, these BOMs
can be duplicated and then adjusted to save time in creating each one from
scratch.
The Case for Cloud-Based ERP
Many of these systems allow direct upload of newly engineered products within
API connections or through the upload of CSV, reducing many manual steps and
automating an important part of the process.

With accurate BOMs, a factory can use its ERP to develop equally precise cost
functionality and tie it to finance departments. The manufacturing department
then has access to current and reliable data that can be used for labor planning,
inventory management, and shop floor control to keep cost on track and reduce
waste and idle time.
The Case for Cloud-Based ERP

While ETO can be challenging for any manufacturer, a robust cloud-based ERP
system will allow all of the above best practices to be operationalized within the
factory’s culture to produce ETO goods that deliver the desired profit margins
with the least waste.
https://manufacturing-software-blog.mrpeasy.com/engineer-to-order-
process-flow-and-best-practices/

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