ERP For the Engineering Industry
Enterprise Resource Planning (ERP) in the engineering industry poses its own unique challenges. More so if your environment is an Engineer To Order (ETO) as opposed to a Made to Order (MTO) one. It is important to have a good grasp of what is the difference between the two environments to understand the underlying complexities.
ETO vs MTO
ETO is a methodology employed to boost sales and improve margins for those companies with customers who need solutions made to fit their own unique environment. It begins with selling product concepts that don’t have fixed designs and are expected to result in a new, unique end product. This could be any product, from enterprise software applications to special aircraft/vehicles to a pair of shoes. Engineers will often not know the final requirements, materials or design until other primary ideas are agreed upon. The final product is conceptualised in broad brushstrokes and, for want of a better phrase, reverse engineered down to how (and with which materials) it is actually going to be made. It is a process that requires a greater degree of creativity on behalf of the manufacturer and a close relationship with clients is necessary to ensure a product that is unique.MTO environments, on the other hand, normally have a selection of fixed designs and specifications already. Although there may be some variation in design or materials, the bulk of the concept is already materially in existence.
ERP and the ETO Workflow
Most manufacturing design processes are fairly iterative, ETO even more so. So whichever ERP system you choose to implement, ensure that it supports an iterative process rather than a pure linear one.
A good ERP system should be able to support most of the following steps in the ETO workflow
Initial Conceptualisation
The basic conceptual ideas and requirements are gathered from the customer and documented.
Sales
A sales order is agreed upon between the client and the manufacturer. This will include quoted costs, estimated delivery dates, and other basic information like an initial work breakdown structure (WBS) document. A WBS document defines and assists to track the project outcome and all components needed to create it. Costing is usually based on actual costs related to past similar projects with a contingency amount catered for. This generally includes consideration of reworks and scrap which may be written off.
Detail out
This involves the further definition of the project team and management assignments, departmental labour/fabrication, re-scheduling, anticipated resources, acceptance and release of the WBS to establish and coordinate project activities. This should be done with due consideration to other current and anticipated projects.
Design begins
Research and development begin work on product realization, usually initiated by an advance payment as part of the payment structure as agreed with the customer. Integration between the CAD (computer-aided design) and ERP (enterprise resource planning) software should be as seamless as possible to facilitate the flow between the design and manufacture phases.
Procurement
A basic bill of material (BOMs) covering all elements is created to satisfy initial requirements. Work orders (or sub-recipes/BOMs) for each component are planned in sequence. It is important to note that many customers will require product tracking; that is, the origin, specification, and batch number of every lot of materials used, in order to ensure future reproduction or identify the source of material flaws or an unacceptable quality of finished components. Other important aspects of product tracking are for an end product warranty or product recall purposes.
Milestones
Project milestones are firmed up and the client billing plan finalised. A deposit or down payment should be received to launch project development but may be adjusted in final invoicing.
Confirmation
Receipt of payment and approval for the go-ahead of lead-time components as each milestone is realized. It is imperative to have the progress acknowledged by the customer and signed off. It is not enough to accept progress payments as proof of acceptance.
Material Requirements Planning (MRP)
Planned orders (or sub-recipes) for all required materials and elements are detailed and implemented across the complete revised BOM.
Assembly
A preliminary assembly of components and confirmation of production approval. Typically another advance payment is made.
Delivery
Delivering of components and final assembly/installation, usually at client premises.
Trial period
An agreed snag list may have to be actioned. After the customer has tested and accepted the product, final payment and contract settlement are made and documented.
Review
The manufacturer conducts an analysis of cost, delivery progress, and profit through documentation and reports related to the project.
The Omni Accounts Job Costing module together with BOM and product tracking functionality within Omni ERP Accounting software fulfil many of the ETO workflow requirements.
Protect Your Intellectual Property
Lastly, a reminder about an area that is often forgotten or where controls are very slack. Often in any manufacturing environment, cutting edge designs, ingredients and/or unique processes are used. Due consideration to the documentation and protection of this intellectual information must be given and safeguards put in place to protect it. Not only must the information be protected from outside access but controls must be put in place internally so that a disgruntled employee cannot make off with the information and sell it to a competitor thus destroying the company’s competitive edge.
Ensure that the ERP system chosen takes this into consideration.
With Omni ERP Accounting Software functionality, selectively tailored for you, you can add powerful tools for managing your business effectively.
