Gijs Ettes / 8 April 2021
eto en cto

In engineer-to-order (ETO), the bulk of engineering, procurement and production activities start after the order from a customer is received. Manufacturing companies that primarily employ this production approach, such as industrial equipment manufacturers, deliver unique products. They are service-oriented and as flexible as possible to best serve their customers. However, ETO companies face many challenges, such as increased global competition, delivery-time pressures, and shrinking profit margins. A growing number of companies are adopting fresh and innovative engineering strategies that involve a configure-to-order (CTO) approach. This approach is believed to ensure success and profitability in spite of the aforementioned challenges.

Rising product complexity is caused by changing customer demands. Generally speaking, many customers require a personalized and specific product. The need to respond quickly and efficiently to these demands lead to more variants of each product; consequently, this phenomenon decreases the batch sizes and the products’ life cycles.

In today’s industry, manufacturers are expected to produce these products without much lead time and at highly competitive prices. So to prevent costs and delivery times from spiralling out of control, they must shift their focus to standardization; in other words, CTO. Traditionally with ETO, each order is designed from scratch, but CTO orders begin with a set of standard building blocks. It is a method of effectively delaying a final differentiated product for a customer until the last possible point in the supply network.

Manufacturers are increasingly expected to produce personalized products without much lead time and at highly competitive prices.
machine complexity

Benefits and risks

The upshot of CTO manufacturing is that it affords customers shorter lead times, predictability, and lower cost. Combine these advantages with a product configurator, and both the sales department and the end customer can quickly build a modular product from the standard building blocks. However, a manufacturer that completely standardizes its production can risk losing the characteristics that originally attracted their best customers, and be less responsive to changing market demands.

Moreover, switching to CTO is easier said than done. A manufacturer who has ETO control as a basic form of logistics will work on a ‘project basis’ and incurs a bulk of the cost from the start of the project. Much of this inital cost is invested into the primary engineering stages, which includes sessions with the customer to help identify their requirements. The engineer has to design components and consider the product’s lifecycle management before ever sending anything to the manufacturing stage. Whereas for CTO, the organization, processes, and working methods all have to be adapted to produce customized products in a standardized way. Engineers are no longer involved in the entire process, but shift their focus to research and development.

To be fair, quite a bit changes from a customer’s perspective as well. They can configure and add parts to the ordered product, but it will no longer be completely custom-made. Last-minute alterations to a product is not straightforward. However, in exchange, the overall cost and delivery time decrease.

product complexity

Dealing with challenges

The reality is, for most manufacturing companies, a complete switch to CTO is not a viable option. So what can a manufacturer do to keep up with the times? The answer lies somewhere in between an ETO and CTO approach. In other words, a mixing of ETO and CTO that best suits a specific company’s needs. Additionally, a company could also examine how they can digitally-align their processes. A cloud ERP system, such as Microsoft Dynamics 365, supports this by, among other things, providing a real-time overview of all design and manufacturing requirements that must be completed before delivery.

An ERP system also enables manufacturers to improve collaboration between sales, product development and planning, and streamline complex production processes. And since all of the relevant data is centralized and connected, a manufacturer can view details of open orders, schedules, prices and preferred suppliers at a glance. They can also view the impact of their decisions on production, planning, finances and purchasing. With updates like this available at every phase, manufacturers can know exactly what is going on and can ensure that all necessary parts are ordered as early as the design phase so that production is not delayed. Digitalization of business processes also makes it possible to reduce the amount of time spent on manual data entry and gain insights from (historical) data that could provide more accurate design and manufacturing quotes for potential customers.

Creative solutions

At Pulse, we support our clients in the manufacturing industry and find creative ways to standardize their production while continuing to offer unique solutions. To accomplish this, we make use of the Microsoft cloud platform. This innovative platform offers varied support for mixed-mode manufacturing, which means manufacturers can use different production methods under one roof without a hitch.

Like to know more about how we can support your ambitions? Get in touch!

Author
Gijs Ettes Marketing Manager