Regardless of company size, most products enter the game as a single idea. And, then, the quilting begins. Over time, some products become standard offerings with a select number of models. In other cases, products will remain Engineered-To-Order (ETO) and the quilting continues. It is this latter group we’ll talk about today.
- Typical comments related to ETO Manufacturers:
- We provide custom solutions to our clients.
- Our business engineers products to meet unique customer specifications.
- We don’t make more than 1 of anything.
- Every client wants something different.
- We distinguish ourselves from commodity suppliers.
If the preceding comments describe your business, then read on. I think you will discover some interesting opportunities to speed up and improve customer service. By cutting out recurring frontend costs, you will also improve drop through to EBITDA. Finally, you may reset market expectations and generate profitable market share gains.
Before I get into specifics, I want to let you know that I have spent several years in ETO businesses and I like them! However, I experienced profitable growth by converting recurring ETO combinations into Configure-To-Order (CTO) products. Customers still receive an ‘engineered’ solution, while, internally, the product is built using standard kits. Ultimately, we enjoyed a blend of ETO and CTO business.
I’m a big believer in naturally occurring patterns. If you are providing a product or service into a specific market, certain needs will recur and form dominant patterns. You don’t need to perform a market study to discover this. Since you provided customers whatever they asked for, your recent history will tell you most of what you need to know.
Database Your Quilt — First create a database to include key performance related needs, options, quantities, revenues, and gross margins. This must be performed from your customers’ point-of-view, not on what your internal team decided to do. For example, I have seen different engineers create minor design differences in response to identical customer asks. Your historical quilt includes some personal preference, so it is important to concentrate on the customers’ asks.
I need to get in the weeds for a minute here… I like to create a code for each offering related item. For example, a high temperature pressure switch = HTPS, a low temperature pressure switch = LTPS and a vertical inlet connection = VINC. You use Concatenate in Excel to combine these options into a single name, which you can use to sort complex combinations. In this example, the name would be HTPSLTPSVINC. Imagine hundreds or thousands of items sold with a large variety of options…
Once you set up the name and sort by it, you will be surprised to see some dominant patterns emerge. You will also see some offerings that only differ by 1 or 2 options. I usually up feature a dominant pattern to include these items provided it isn’t cost prohibitive. This provides a manageable list to work with.
Run 8020 — Using Revenue, perform a mini 8020 to identify the most dominant patterns. Use these dominant groups to develop your kits or modules for configuration. The balance of items in your quilt will remain ETO for now unless you decide to obsolete the minor offerings. Once you have the dominant patterns nailed own, it’s a great time to bring your field salespeople, channel partners, and/or key customers into the process. They can confirm the dominant patterns you discovered as well as help you address emerging needs that are not yet part of the quilt.
Optimize Design — Use DFMA (Design For Manufacturing and Assembly) tools with the team you assemble. DFMA is a Lean concurrent engineering tactic designed to lessen the number of unique designs, number of parts, and/or number of manufacturing steps in product design. Simply stated, the more robust you make a product or process design, the fewer of them you need. For example, use slotted holes to mount various sizes of a component instead of unique mounting plates. If you haven’t been exposed to DFMA before, it is well worth your time to get someone on your team capable with this tool!
Once the team has come to consensus on design, it is time to talk automation. I’ll use references that I’m familiar with that you can use to research options.
- There are 3 basic automation topics involved:
- Customer Documentation.
- Product Design.
- ERP Configuration & Release Tools.
Automate — Use a package like Inventor 3D for design efforts. Should you go this route, consult your local reps about your design vault. It makes a big difference when you begin using automation tools. Once you you’re your vault, consider using a module like Inventor iLogic to automate product design and configuration. Basically, your team first creates a logic tree based on the “80%” case. This is then used to create a list of questions and answers to drive drop down menus. The output from iLogic includes a full drawing package from top assemblies down to flat patterns.
Depending on your systems, you may also be able to push the resulting data directly into your ERP package. If this is not possible, find out whether your ERP system has its own product configurator. If nothing is available, you may have to load BOM’s manually.
Once you have created iLogic routines for your CTO offerings, it is a relatively small step to extend this ability to your salespeople using Autodesk Configurator 360. This is a cloud-based approach your field people and/or customers can use to configure product. Outputs consist of various drawing formats to include 3D blobs. Once you have consensus in the field, you can skip most of the normal frontend time delays and costs.
Summary — Your customer can still enjoy a custom designed solution in a fraction of the time it used to take. Also, through DFMA, you will have likely up-featured the product at a lower sell price adding even more competitive differentiation. In parallel, you can also launch a Kaizen Event based on the designs and kits you created during the DFMA. It is not unusual to realize 80%+ decreases in total order lead time using this combination of tactics.
- To wrap it up:
- Use your ETO History (quilt) to come up with market data.
- Create unique names that reflect the combinations of specs and options customers sought.
- Sort this list to discover the “80%” case.
- Use DFMA to optimize designs and kits.
- Use configuration software to automate designs, develop quotations, and release to operations.
As you explore some of these ideas in your own facilities, I hope to hear from you. If you have questions, feel free to reach out to me by email or through the Contact Me button or page. Please post your own success stories in response so other readers will benefit from your experiences.
Thanks & Good Wishes for a successful 2018!
Mike