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A Creative Engineer-to-Order (ETO) Solution

Posted Thursday, January 1, 2015 BY: John Barry

Filed in: APS--Advanced Planning & Scheduling, Forecasting, Management, Supply Chain Management

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When working with clients, every single one without fail explains why their operation is unique and challenging, unlike any other enterprise. I cannot argue with that perception because each operation has its own management team, operates in its own vertical industry, within its defined geography, and targets its own market to satisfy sales to its selected customer base. Divisions of regional, national, or multinational companies are no different. It matters little if we are dealing with retail, wholesale, distribution or manufacturing. From a factory planning solution as we discuss here, most often we follow a typical approach depending on the type of production, be it discrete such as an automotive fastener manufacturer, or a process shop making plastic film or chemicals. With a manufacturing baseline established, we address the specific requirements of the client and configure a unique solution that will support its business process by managing more productively to cut costs, while increasing sales and profitability.

I had a different experience when approached by a creative and artistic company that did not easily fit the typical mold. This company works with architects to provide exquisite stone finishes for airports, hotels, churches, office complexes, hospitals, etc. Each project is unique. Typically a professional design engineer is assigned to work with the architectural firm to understand the vision, size, and scope of the project. Creative talent is added to the project to suggest and recommend possible finishes with estimates of pricing for diverse options. Once the architect and ultimate customer selects the artistic rendering required and approves the budget, the project is scheduled based on the targeted completion date. The challenge for the company is working with limited resources and how best to allocate personnel based on several projects they are commissioned to complete globally. Multitasking with multiple projects is near impossible if the limited skilled personnel are assigned to assignments in different countries or continents in different time zones.

Our recommendation was to use Lighthouse’s Advanced Planning and Scheduling (APS) solution. Normally when working with discreet or process clients we manage constrained capacity supported with materials and labor. However, in this situation we scheduled constrained and limited number of highly skilled people. Most projects follow a similar process: design, material selection, artistic rendition, quote, approval. In APS terminology this would be the Routing with each step allocated an elapsed time aggregated to a total lead time for delivery. Since it is pointless to begin an APS project solution structure from scratch each time with multiple unknowns, work with a generic routing with sequencing and projected time allocation, and a Bill of Material (BOM). As the client company learns more adjust the variables to reflect reality. The capacity in this situation consist of the talent required: design engineering, creative architecture, material selections (purchasing or sourcing), costing, and quotation prior to approval. This approach is classified as a typical Engineered-to-Order (ETO) project. This is not too different from building a power station, or high-rise building, or an engineered strainer for a chemical process built from scratch using technically formulated metals.

This company has a conventional Make-to-Stock (MTS) and Make-to-Order (MTO) product offering as well. They operate several quarries where they extract stone, each with unique properties. These products are sourced for the architectural design solutions to meet specific needs. The company ships stone products to builders and retail stores as well. Here we had to follow a flexible approach with the many options they provided customers. They offer up to 8 types of stone, 10 major colors of tile, and each color category had between 5 and 20 shade options. This not to unlike the apparel industry with its style, color, size options. Adding to the permutation of stone and color combinations they offered 15 different types of finish. To keep the topic simple I’ll leave out the variety in which shapes the stonework can be supplied. Important to note is that some of the product offerings can be Make-to-Stock (MTS) if considered a standard and popular repeatable selling Stock Keeping Unit (SKU), and others Make-to-Order (MTO) if requiring specialized processing such as shape or finish. Assume square, oblong, triangle, or circular shapes could be processed to a certain production point, and hold on an order to finish to the customer’s specification. This allows for a partially completed production process to await finishing instructions to shorten lead times and quicker delivery to the work, distribution, or retail site.

The processing of the stone can be supported through two Lighthouse assets: Demand Planning inclusive of forecasting, replenishment and distribution planning, and feeding results to APS. We use Advanced Planning and Scheduling technology in a conventional way to control harvesting of the stone, cutting to size, and polishing. Forecasting takes on the role of predicting quantity, monetary value, and size of projects likely to be closed globally. The history reflects actual hours required for each category of human talent, and used to predict future demand. As each new project is realized this consumes the forecast to determine if we are running at the rate of expected new business demand, or ahead or behind expectations, so that management can take appropriate corrective action.

Separately use the history of stone shipments to retail and distributors, with its supporting characteristics of color and finish and possibly size if converted to square or cubic measures to predict future demand. If sales to retail or home improvement companies, and if these fit the role of key customers in an ABC (80/20) analysis, then it benefits the company to collaborate with key customers to request their input into their portion of the forecast to learn of extrinsic factors that the historical data could not reflect in the forecast, and to increase or decrease adjustments as appropriate.

In helping a client company increase support to their customer base and operations, even in a situation where they provide a highly creative solution that does not easily repeat over time, is to create a solution that is simple, effective, and addresses key business issues. Most client companies establish strategies to increase customer service levels through on time deliveries thereby increasing sales, to contain costs and avoid cost overruns, minimize costs by utilizing all resources productively especially freeing up working capital sitting in idle inventory, and getting the greatest utilization of the expensive creative talent within the company. The ultimate goal is seeing top line growth and bottom line profitability, both increasing continuously over time.

In our client situation we saw an opportunity where the company was more vertically integrated than most by owning the stone quarries and controlling the process through both retail and architectural firms to the ultimate consumer. As a general rule the effective application of software will have more dramatic results than a typical discrete or process manufacturer where they do not control their own raw materials and packaging, but source from specialized vendor business partners.

The excitement in working with client companies like this, is to add a significant degree or creativity in configuring Lighthouse to benefit all clients. Embracing all of ETO, MTO, and MTS is not an opportunity we encounter daily. Delivering productive, profitable, and user friendly solutions, with professional education, training, business process re-engineering, and project management support is our mission.

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