What is eto in business?

Manufacturers outline the design, engineer and do the production as required for the unique products from beginning to end for customers.

During ETO, customers cooperate and work alongside manufacturing team to produce the desired end result.

Moreover, complex and unique products tend to use ETO for its production purposes. These can include improvised vehicles, telecommunications, mechanics and industrial cranes.

It is common practice in the aeronautics, military, farming, IT and chemical energy industries.

The ETO process is complicated alongside being incredibly complex. Each product is specially molded to satisfy a customer’s demands.

Moreover, every detail remains a mystery including lead times, drawings and performance data. However, the manufacturer has to give the customer production deadlines and cost estimates to secure a sale.

Engineering involvement is mandatory for ETO production right from the start. Engineering starts by narrowing down a rough outline to meet the customer’s requirements to create a proposed draft. This gives the sales team a solution to work into a proposal with accurate costs and lead times.

The process begins right after a company gets an order for the sales of a desired and unique product.

The manufacturer receives an advance of a specific amount of money and the work begins.

The engineering design team works alongside the customer. It is a focused solely on the customer. The team needs to analyze the customer’s vision and turn it to reality so that it serves the purpose.

Designing for newly demanded products is not an easy task. The design must have customer’s green signal and sign off at each stage.

It must go through testing, changes made and re-submission for approval. And this may go through several steps before going into the actual production.

Difficulties in Product configuration escalate when each customer demands each product order to be engineered.

These products are complicated and have new outlooks and appearances for every order. Using a good software like MORE-MX helps automate different phases of the process.

It integrates into your billing software, manages data, tracks inventory and automates scheduling the production process for on time delivery.

You need the right software to help manage the ETO process.

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:

Creativity is not limited by this. Rather, it makes it easier for the manufacturer comprehend how the product molds 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.

An ETO workflow 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.

Here are the basic ETO workflow steps:

Manufacturers outline the design, engineer and do the production as required for the unique products from beginning to end for customers.

During ETO, customers cooperate and work alongside manufacturing team to produce the desired end result.

Moreover, complex and unique products tend to use ETO for its production purposes. These can include improvised vehicles, telecommunications, mechanics and industrial cranes.

It is common practice in the aeronautics, military, farming, IT and chemical energy industries.

The ETO process is complicated alongside being incredibly complex. Each product is specially molded to satisfy a customer’s demands.

Moreover, every detail remains a mystery including lead times, drawings and performance data. However, the manufacturer has to give the customer production deadlines and cost estimates to secure a sale.

Engineering involvement is mandatory for ETO production right from the start. Engineering starts by narrowing down a rough outline to meet the customer’s requirements to create a proposed draft. This gives the sales team a solution to work into a proposal with accurate costs and lead times.

The process begins right after a company gets an order for the sales of a desired and unique product.

The manufacturer receives an advance of a specific amount of money and the work begins.

The engineering design team works alongside the customer. It is a focused solely on the customer. The team needs to analyze the customer’s vision and turn it to reality so that it serves the purpose.

Designing for newly demanded products is not an easy task. The design must have customer’s green signal and sign off at each stage.

It must go through testing, changes made and re-submission for approval. And this may go through several steps before going into the actual production.

Difficulties in Product configuration escalate when each customer demands each product order to be engineered.

These products are complicated and have new outlooks and appearances for every order. Using a good software like MORE-MX helps automate different phases of the process.

It integrates into your billing software, manages data, tracks inventory and automates scheduling the production process for on time delivery.

You need the right software to help manage the ETO process.

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:

Creativity is not limited by this. Rather, it makes it easier for the manufacturer comprehend how the product molds 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.

An ETO workflow 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.

Here are the basic ETO workflow steps:

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, take time and other variables.

Engineer to order (ETO) manufacturing involves the creation of a product that is made to a customer's unique specification. ETO processes require flexible, demand-driven approaches to manufacturing. The ETO model can increase sales and margins for companies dealing with customers that have customizing requirements.

Engineer-to-order (ETO) is a manufacturing method. It begins when the company gets orders for custom-made components. Manufacturers outline the design, engineer, and produce the unique items from start to finish for consumers.

Customers collaborate and work alongside the manufacturing team. This helps them achieve the intended end result during ETO. Furthermore, ETO is commonly used in the creation of sophisticated and one-of-a-kind products. Improvised vehicles, telephones, mechanics, and industrial cranes are examples of this.

It is widely used in areas such as aerospace, military, and farming. Some other sectors are information technology and chemical energy industries.

This post covers all the relevant facts and concepts associated with ETO. Let’s see what we shall learn:

Engineer-to-order (ETO) manufacturing entails creating a product to a customer's precise specifications. ETO procedures necessitate adaptable, demand-driven manufacturing methods. The ETO model can enhance sales and margins for businesses working with consumers who want customization.

It tends to be a more expensive manufacturing procedure. This is because ETO allows clients to tailor products to their individual demands. Thus, taking longer for the entire product cycle to complete. It also enables producers to create smaller goods, which are useful specialized applications.

It is quite different from traditional manufacturing in a number of ways.

An ETO process includes extra steps that necessitate detailed quoting. Also, companies need to employ meticulous engineering for sales and product design.

ETO also necessitates an accurate change management system throughout the manufacturing process. It must also have ongoing cost monitoring and assessment. This ensures that existing production conditions are in line with the quoted cost structure.

Let’s look at what ETO manufacturing typically comprises. The following are the basic ETO workflow steps:

A ‘Request for Quote’ or an RFQ is typically the first step in an Engineer-to-Order production process. A customer describes the deliverables as well as the desired functionality of the finished product. They also provide the exact requirements that the product must fulfill.

After receiving the RFQ, sales employees collaborate with product engineers and managers. Following a discussion on the same, they move ahead to provide a quote that matches the client's requirements.

These quotes are provided keeping in mind the organization’s profit targets also. This process involves a large number of iterations. The process continues until the intended product configuration gets an approval.

Unlike Make-to-Stock (MTS) manufacturing, Engineer-to-Order manufacturing is unique on a per-product basis. There could be instances where a firm makes versions of a basic product with customized parts. Alternatively, each product may require a new production method or line. As a result, process planning is not clear.

To move ahead in the process, this must be clearly defined and adaptable. Having accurate process planning allows the manufacturer to stay within its production capabilities. They are also better positioned to control budget and operational expenses.

There are various factors that are integral to process planning. These include:

Besides these, the companies must implement well-documented change management procedure. It must also have specified approval and cost methods for changes along the route.

ETO products require specialized and dedicated components that are not interchangeable with other goods. This makes inventory management extremely critical here. Accurate inventory management helps prevent specialized parts from the wrong application. Efficient handling of inventory also ensures keeping the production schedule on track.

Thus, inventory management becomes an important step in the ETO manufacturing.

We know that there are high volumes of identical goods and production runs in an MTS system. This kind of system enables more data points, ensuring more exact costing. Furthermore, it leads to an accurate grasp of variables such as labor, waste, and stocktake time.

Now, the fact that each ETO product is a fresh product increases the possibility of unknown factors. Thus, there is an increased necessity to have accurate and dynamic BOMs and automated production scheduling. Additionally, labor and shop floor management also become crucial in such manufacturing. Since, it is a new product every time, the related processes also need to be customized.

The process could get more challenging if there are change orders are issued. These change orders may need modifications in production line processes. There could be one or more locations affected on the factory floor.

All the above steps must be taken with care in ETO. The manufacturing business must be cautious at each step. Since the products will be new every time, they must ascertain all loopholes are covered.

While ETO production might be very challenging. However, there are certain methods that can be implemented to make the process more manageable. The following are the recommended practices for Engineer-to-Order production:

ETO production involves significantly greater customer involvement than MTS or MTO. Thus, it requires open and transparent communication with the client. All the involved teams, such as those of engineers, sales, procurement, and manufacturing, must align with a common outcome.

The employees in these teams will need to interact frequently. This is because the production requirements demand many revisions and changes during the process.

In the ETO process, the product outline could be new or maybe in the process of development for a specific end-use. Therefore, product design within an ETO environment can be highly creative. This calls for the manufacturing and engineering teams to collaborate closely. They must come together to reconcile engineering requirements with production capabilities.

They can make use of tools and applications that help them achieve this. Checklists are a good way to ensure all the important points have been included. Moreover, this will help them narrow down the company's inherent capabilities.

Unlike how it is usually perceived, this has no bearing on creativity. Rather, it helps the manufacturer understand how the product fits into its current manufacturing capabilities. The manufacturers get a better idea of how to effectively arrange their Bill of Materials (BOMs) and costs.

We are aware that the ETO process produces a one-of-a-kind product. Thus, it carries additional obligations in the form of safety requirements and regulations. It is vital to have accurate documentation from the beginning to the completion of the process.

There are various components that are needed for creating accurate documentation. Comprehensive documentation will require consistent part numbering, accurate BOMs, and precise cost models. Additionally, precise inventory management also contributes to having robust documentation.

Companies need to be efficient with cost and waste management. They must also ensure a sturdy workflow in place. These are essential for good sales experience, engineering, and skilled production work.

Today's global manufacturing environment has dispersed supply chains. Therefore, a manufacturing unit has to rely on advanced tools. With the proven efficacy of Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP), companies can drive better outcomes. The level of automation provided by these systems helps control the production flow.

Furthermore, there are diverse advantages to implementing MRP and ERP. The following list presents the areas where an ERP system can simplify things:

Since these systems offer automation, manufacturers can save a lot of time spent on manual activities. Repeated and redundant tasks can be automated. This gives the staff much more time to focus on their core functional areas.

Manually managing an MTS or MTO environment is challenging enough without systemization. However, doing so for Engineer-to-Order production is nearly impossible.

Engineer-to-Order goods have various advantages over off-the-shelf alternatives. Let’s see what they are:

Customized products are gaining popularity in today's global production climate. ETO enables producers to create products that are individually suited to the needs of the customer. This can include features, dimensions, and even colors that are not accessible in standard items. In other words, there are a lot of customizations available to customers.

Often, the products demanded by customers are not available in a custom size or shape. With ETO, this problem is ruled out.

Small quantities of products are critical in niche markets. Such markets have insufficient demand to justify producing big volumes. ETO enables firms to produce lower quantities of products. This way, they can venture into these markets.

A custom cabinet firm may use ETO to build a limited number of cabinets in various colors and styles.

ETO enables businesses to make smaller quantities of products. This becomes useful in niche markets or places of specialized applications. Furthermore, it aids in the reduction of inventory costs.

There are companies that manufacture only small parts or components on a per-order basis. They could deploy the ETO technique. ETO could be used by a company that creates custom parts to produce limited quantities of components that are not available easily.

The process of ETO can be more complicated than typical manufacturing methods. It necessitates specific knowledge and abilities. Moreover, product quality can be more difficult to ensure. The team may find it challenging to conduct product validation and testing. While these are critical to the process, there may be obstacles on the path.

Another drawback of the process is that customer participation is critical. Without them, the process would not take off at all.

The following are the primary drawbacks of Engineer to Order manufacturing:

For starters, making bespoke products can be more costly than producing regular products. It takes longer and requires more resources to produce a design that matches the specific needs of the consumer.

Companies need more time to produce a different design for each customer. A company that makes bespoke cabinets may have to invest more time and money in research and development. This essentially raises the cost of the manufactured product.

Engineer-to-Order items often have lengthier lead times than off-the-shelf items. This is due to the time it takes to receive the order and verify material availability. Furthermore, generating the BoMs and arranging the manufacturing order also takes time.

A bespoke cabinet manufacturer may require up to two weeks to complete the cabinets.

Due to restricted production capacities, customized items are not always accessible. This can result in backorders and dissatisfied customers.

ETO necessitates proven firm engineering and production skills. This can be difficult for businesses that do not have in-house resources. This problem is common for medical supplies manufacturers. A company that creates unique medical equipment may need to collaborate with another company to complete the product.

Engineering-to-Order products typically have a limited selection. This is due to the fact that products are not based on standard inventory and require more time to plan and create. A custom medical equipment manufacturer may only offer a few different products.

This endeavor necessitates a great deal of collaboration among several groups. Engineers, product makers, and salespeople, for example, will all need to collaborate to make this happen. To be effective, a high level of standardization is required. It might not be appropriate for all products or applications. Companies need a significant level of commitment and investment if they want to be successful with the ETO process.

Today, we can spot ETO products in almost every sector. Fundamentally, there is a growing desire to provide personalized or ETO products.

Let’s walk through some examples here:

While there are benefits of ETO, there is a downside to it as well. All industries face certain challenges. The ETO manufacturers are no exception. Let's look at some of the complications ETO products add to the sales process.

If they do not have enough time, they might not be able to make a profit on the task. When dealing with expensive capital equipment, this contingency dilemma becomes a steep game of informed guesses. All these elements could be detrimental to the manufacturing company.

Global sales channels account for 50% of all ETO products made. A solid cloud-based ERP solution is required to manage the unique and customized attributes of ETO products. Customers' bulk customization can further complicate the procedure. ERP can help to accelerate the process. It can also assist manufacturers who require a higher level of customization.

ETO goods account for a significant portion of capital and consumer goods produced. There is a need to speed up and refine the process as clients' tastes become more refined. The demand for speedier rollouts and shorter lead times puts pressure on ETO product manufacturers.

Many of these systems facilitate a direct transfer of newly engineered goods via API connections or CSV upload. This reduces many manual stages and automates a significant portion of the process.

With precise BOMs, a plant may leverage its ERP to develop cost functionality. They may connect it to finance departments. The manufacturing department now has access to up-to-date and reliable data that can be utilized for labor planning. Additionally, they can also carry out inventory management and shop floor control. All these processes help to keep costs under control and idle time to a minimum.

To summarize, here is how an ERP system can benefit ETO manufacturers:

While ETO can be difficult for any business, a solid cloud-based ERP system will be helpful. It enables all of the aforementioned best practices to be implemented inside the manufacturing unit. It refines the process to produce ETO goods with the appropriate profit margins and the minimal waste.

Let’s take a look at some most frequently asked questions on ETO.

Q: What are the differences between MTO and ETO?

A: MTO is an abbreviation meaning – Make to Order. The fundamental difference between MTO and ETO is complexity. Companies that employ an MTO manufacturing process often have a standardized product that consumers can personalize in many ways. This could include size variations or aesthetic elements. When a consumer places an order, production can begin immediately using current designs from the company.

ETO manufacturing expands on that idea. Customers can buy custom options that are tailored to their specifications. Production necessitates a lengthy lead time to allow the producer to engineer the particular product and carry out production.

Q: Is there anything I need to know or have particular abilities to use Engineer-to-Order?

A: Yes, professional manufacturing work can make the ETO process easier. This method is more difficult than typical manufacturing processes. It requires exceptional abilities to handle the process at each stage. From design to costing, everything needs to be managed meticulously.

Q: Is Engineer-to-Order offered by all manufacturers?

A: No, not every manufacturer provides Engineer-to-Order items. One must verify with the manufacturer to determine if they offer this service.

Q: Can Engineer-to-Order be used for all of my products?

A: No. You may not use it for all your items. Before you set pricing, you should have a good knowledge of what you are selling. It may not be suitable for mass-produced products with a limited life cycle. Its suitability for a particular product is determined by numerous aspects. This includes the customer's wants and the product's complexity.

ETO is a method that combines engineering and production. The product is intended to suit the needs of the customer. The definition of Engineer-to-Order, the process flow, and best practices were all covered in this blog post.

The customer submits detailed requirements for the product they require. The engineering team comes up with a design that fits those requirements. Before the design is sent to manufacturing, the customer must approve it. The production team is responsible for producing the finished product in accordance with the approved design.

The goods are inspected before being shipped to the consumer. The consumer submits product feedback to help enhance future designs. The engineer revises the design to fulfill the customer's requirements.

You must maintain track of your inventory stock as a manufacturer. The state of your inventory has a direct impact on production planning, the usage of people and machinery, and demand forecasting.

Deskera ERP and MRP solutions can help you with the following:

Deskera ERP is a comprehensive system for managing suppliers, tracking supply chain activity in real time, and streamlining a variety of other organizational functions.

Deskera Books enables you to better manage your accounts and finances. It aids in the maintenance of sound accounting practices by automating billing, invoicing, and payment processing activities.

Deskera CRM is a strong solution that helps you organize your sales and finish deals quickly. It allows you to do critical tasks such as lead generation via email and provides you with a detailed snapshot of your sales funnel.

Deskera People is a simple application for centralizing human resource management tasks. Not only does technology speed up payroll processing, but it also assists you with other activities such as overtime, benefits, bonuses, training programs, and much more.

Engineer to Order (ETO) is a manufacturing approach that is highly driven by customer demand and is highly flexible in nature. Customers opt for ETO manufacturing when they need a product that is tailor-made to suit their requirements or want to transform a concept into a final product.

ETO manufacturers have in-depth knowledge and expertise to understand customer requirements and transform them into fully functional products from conceptualization to the final product.  ETO manufacturing is more prevalent in the B2B segment compared to the B2C segment.

Examples of ETO Manufacturing

There are many examples of ETO manufacturing. The common ones are,

Unlike conventional, discrete manufacturing, ETO manufacturing involves highly iterative processes that are design oriented and client-centric. There is a lot of creativity involved as engineers try to convert clients’ concepts into reality through continuous collaboration right from design to delivery.

Simply explained, a generic ETO process involves,

As easy as it sounds, ETO manufacturing involves a lot of complex processes that require complete support and collaboration of all departments, third-party vendors, and the customer. The below flowchart illustrates the end-to-end ETO manufacturing process.

Every customer order begins with a Request for a Proposal (RFP) from the customer followed by a proposal, quotation, and sales order creation. This phase takes up immense time and resources due to the involvement of multiple departments.

After the customer approves the proposal, a sales order is created that includes the cost as per the shared quotation, design-to-delivery time, rework & scrap costs, and the entire Work Breakdown Structure (WBS).

A project management team is a vital department that successfully drives the entire project from start to finish. A project manager is an important link between the ETO manufacturer and the customer. The PM team oversees and manages end-to-end project-related activities from sales order creation to product delivery to the customer.

This is the most crucial and time-intensive phase of the project where design engineers and the customer collaborate to transform the initial concept into an actual design. This is a continuous, iterative process and the design goes through innumerable changes before it is finalized and passed on to the production phase.

Product configuration plays a major role in ETO manufacturing as custom products require a different quotation and price estimation approach. For each product, BOM configuration, sales pricing, discounting, machine, material, and labor capacity needs to be decided and configured from scratch. To reduce the quotation cycle, manufacturers can use pre-decided templates to quickly arrive at accurate quotes and price estimates using the product configurator tool.

During the design stage, the design team creates a detailed Bill of Materials (BOM) that encompasses all parts, assemblies, and sub-assemblies. Based on this BOM information, the procurement team places a purchase request with preferred suppliers/sub-contractors to procure the required materials well in advance. For each part/component to be manufactured, the engineering team plans and creates work orders in advance. PO creation is expedited for the materials to arrive on time. Goods receiving and quality control processes are kept in place to ensure adequate documentation and optimum quality materials.

The production team finalizes the production schedule, labor, machine, and material availability for the manufacturing/assembly to begin. They initiate shop-floor operations and track them at each manufacturing phase. Work orders are continuously updated to ensure production happens in clockwork precision. Inventory levels are constantly updated and monitored to prevent shortfalls. Timesheets are updated and tracked to ensure maximum labor utilization. The maintenance team is always on standby to prevent breakdown/idle times. The production team also keeps contingency plans and adjustments in place to face probable product design changes that might arrive during the manufacturing phase.

The accounting team works in tandem with the production team to carry out progress invoicing after the completion of each manufacturing phase as per the production plan. The team also keeps a track of project expenditures and derives trends to see whether they exceed the budget. Time and expense billing are collated and also accounted for.

This is the most critical phase of the project. The manufacturing team ships the components, assemblies, and sub-assemblies to the customer’s location and does the necessary installation. The product is comprehensively tested and necessary steps are taken to resolve any errors or deviations.

Post-installation, the manufacturer takes the necessary steps to resolve any issues that arise during the initial product operation. This can be related to a particular component or a sub-assembly and will have to be repaired or replaced at the earliest.

Apart from this, the manufacturer also conducts intense training sessions for personnel who will operate the machinery. Standard Operating Procedures (SOPs), user guides, maintenance documentation, and emergency response steps are handed over to the customer at the time of product delivery.

The manufacturer usually takes care of the maintenance through AMC agreements with the customer.

The project is deemed completed as soon as the customer makes the final payments against the invoice generated by the manufacturer.

OmegaCube ERP’s advanced functionalities automate Engineer-to-order (ETO) Manufacturing workflows and make it more profitable to run an ETO business.

Contact us for an in-depth demo.

Unlike traditional manufacturing companies that build and deliver pre-designed products, ETO and contract manufacturers design, engineer, and produce unique products specific for their customers from start to finish. Since every product they deliver is designed and built based on their customer’s specifications, the project planning process presents a unique set of challenges.

For ETO manufacturers, the entire design process plays a critical role upfront alongside sales, engineering, estimating and production. Before production can even begin, significant engineering and coordination between these departments is key to ensuring the initial project proposal is not only cost effective, but accurate and meets the customer’s expectations.

This is no easy task, especially if the customer wants to make a change while the order is in progress.

The Complexity and Challenges of ETO Processes

As mentioned above, the ETO process involves a lot of hands on deck, which not only means an effective collaboration strategy is key, but also requires a change management solution throughout the entire production process.

Initially, it takes a lot of time and resources to create project proposals. On top of that, these proposals are often based on guesswork. Since there are only specifications, it can be difficult to provide an exact cost in the proposal. Drawings, lead times and performance data are unknown. However, ETO manufacturing companies are required to provide their customers with cost estimates and production deadlines to secure their business. If your ETO proposals are based on guesses, there’s going be a lot of changes down the road.

ETO manufacturers design, make purchases, and build at a relatively fast pace, but must also be flexible and account for any design changes a customer may have. Any change can have a domino effect on cost, resources, and deadlines.

With all this in mind, it only makes sense for ETO manufacturers to arm themselves with the necessary tools to get it right from the sales and initiation phase of a project.

For ETO manufacturers, everything centers around the customer. That said, when any changes are made, it’s important to not only make the change, but communicate that chain so modifications can be made down the line. Finding a way to minimize the disruption and additional costs should be top of mind.

So, what’s the solution to controlling all these moving parts and mitigating the potential chaos? Real-time data.

Project Business Automation is a Game Changer