There are a number of reasons that shifting from standard product manufacturing to a blend of standards, custom and specials makes sense for Midwest manufacturers working to hold on to marketshare and margin.
Customer manufacturing - often referred to as ETO (engineer-to-order) and may also include BTO (build-to-order) and ATO (assemble to order) - is not merely items plucked from a catalogue, it involves unique products built to customer specifications. Additional engineering is often required during the manufacturer of the product.
“Standard products are the easiest targets for competitors to attack,” says Dennis Parass, of Burlington, Ontario-based Questica. “If the client feels that there are a number of alternatives, there is a devaluation of the supplier and profit margins fall.”
Standard product sales rely more on selling skills than problem solving skills the client can value and will often pay more to acquire. Standard products, sometimes called repetitive manufacturing, are distanced from the user and rely on ‘push” marketing rather than “pull” marketing.
Custom and special solutions are the opposite of repetitive or standard manufacturing.
“Successful ETO or customer manufacturing companies develop relationships with their clients who value the expertise they bring to a project,” said Parass. “They differentiate competitors and force the client to weigh more than just the ‘economics' in making a choice. The margins are better. Reputations are built on successful projects with happy clients and the value of references cannot be overemphasized.”
So ETO firms focus on building relationships with their clients while developing a problem solving organization that earn their clients' respect and preference. ETO manufacturing also brings a great deal of complexity with it, requiring that these firms develop the ability to solve, create, design, detail, purchase materials, and manufacturer equipment at a rapid pace. The best firms use software systems designed for the specific needs of ETO manufacturing to simplify and manage this dynamic process.
The technology solutions to simplify the ETO process must have the following:
• Graphical and easy to follow interface
• Screen grids that are adjustable and feature rich
• Project and job structure
• Structured Bill of Materials
• True 2D and 3D integration
• Separate screen for all purchasing activities
• Separate screen for Expediting purchase orders
• Ability to link documents to project and job
• Separate Report Center including built-in reports
• Templates and search wizards to find historical data
• Quality non-conformance system
• Self subscribing email notification system
ETO software helps to grow the manufacturing business without having to hire additional staff. Improved efficiencies are achieved by eliminating clerical work and providing all personnel accurate information in real-time. All departments, when equipped with accurate information, are then free to spend more time refining their skills and getting the job done right.
Dick Hudson, Manager of Human Resources and Special Projects for Konal Engineering and Equipment Inc., said Solid Works add-on, for example, allows his company to completely download a bill of material from the design program with the click of a button.
“By using the inventory data we can easily check for stock items and design around these rather than order new,” Hudson said. “The ‘Itemaster' has given us better material descriptions and better control of standard items than we ever had before and the purchasing reports have dramatically improved the ability of our purchasing department to order material and expedite delivery.”
The current recession has hurt every sector of the North America economy - especially manufacturing. With the loss of more than two million jobs in the U.S., the Midwest has been hit particularly hard.
ETO companies are affected differently than repetitive manufacturers, as they rely on a small number of high-value contracts from a small number of customers. In the repetitive world, the loss of one order may not have a huge impact on the company, or the order quantity may be reduced. But in the ETO world, the loss of a large contract can be devastating since an order of one cannot be reduced. This requires that even ETO manufacturers, with a distinct advantage and differentiation from standard product manufacturers, utilize all aspects of technology efficiency to remain competitive.
Industry observers such as Questica's Parass expect a dramatic increase among Midwest manufacturers that have been predominantly repetitive or standard product plants to move toward ETO manufacturing
“The relationship building, the increased profit margins, the inability to outsource unique product requirements make this shift both logical and necessary for viability and success in the current recession and beyond,” he said.
Author Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc, (www.trcutlerinc.com). Cutler is the founder of the Manufacturing Media Consortium of three thousand journalists and editors writing about trends in manufacturing. Cutler is a member of the Society of Professional Journalists, Online News Association, American Society of Business Publication Editors, Committee of Concerned Journalists, Society of American Business Editors and Writers, as well as author of more than 300 feature articles annually regarding the manufacturing sector. Cutler can be contacted at trcutler@trcutlerinc.com
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