As there are different types of manufacturing industry verticals, each vertical has different needs when it comes to business applications. For instance, commodity manufacturers differ from engineer-to-order (ETO) manufacturers, and therefore what makes one business application suited for a repetitive manufacturer, or a discrete manufacturer isn’t always suited for an ETO manufacturer. So, what software attributes do ETO manufacturers require that differ from other manufacturing industry verticals?
Differences Between ETO and Discrete Manufacturers
Both ETO and machinery manufacturers create products that are capital investments. These are not products you can buy off a shelf. These products are not easy to built, they take time, and they are often defined to fit a specific customer’s situation. Often, the manufacturers have to visit a customer and see how they will use it. As such, there is a specific complexity to the products as well as a longevity. They won’t stop using and replace the product after a couple of years. Instead, the life cycle for them is often decades.
Another difference is the customers. The customers who buy this type of product are manufacturers themselves. These customers do not see these business-to-business transactions as simply purchasing a product; they’re instead investing in the product. As such, we’re seeing that our customers want to track the life cycle costs of the equipment. It’s not just what you pay to get it over there and installed; it’s what you pay long term, the spare parts, the maintenance, et cetera.
Bill of Materials
The bill of materials (BOM) is also different between the two. ETO manufacturers do not have simple BOMs. The BOMs aren’t necessarily big, but many of the part numbers in the BOM are brand new, often something the engineering department created specifically for this product. ETO BOMs often use a lot of single-time-use part numbers that they’ll never use again for a future project.
In addition, the style of production process that is truly the biggest challenge for ERP systems. These projects don’t only deal with engineer or professional labor. There is also all of the labor on the shop floor that the ERP has to gain insight into and follow for the various customers.
The sales process obviously cannot be quick. There’s long negotiation back and forth, with the price not entirely the most important factor in the end. What is often most interesting about this process is that the customers undergo a bit of learning curve when they order this equipment. They learn about their own operation during the negotiations as they trade knowledge back and forth.
Then there’s everything that comes after the sale, such as upgrades, changes, and repairs. That’s why our ETO manufacturing customers have long relationships with their customers that goes easily into the decades. Once you have an equipment like that, you’re not likely to change brand names the next time you need something. It’s better to stick with the manufacturer that already knows your business and can just make what they produced better to fit your business as it grows.
Spare Parts and Servicing
With that goes the spare parts business. Our customers in the equipment industry typically make a lot of money on the spare parts. The margins on that are predictable and are high. Since the manufacturer originally engineered the parts, it’s not possible for their customers to replace parts with generic parts bought at a local Home Depot. Spare parts can easily become a highly profitable part of the manufacturer’s business.
The same goes for servicing the equipment. Sometimes with servicing comes additional opportunities for new quotes on new equipment.
Why You Need Modern ETO Software
The most valuable commodity for trading today is data. Your business software is the primary collection point of your business data, including sales data, cost data, profitability, data about your customers, and data about your inventory.
Across the company
If your ERP or CRM are not doing the job, you’ll find is maybe there are 10,000 spreadsheets with this data all across the business. Maybe some of the departments signed up for completely separately different SaaS (software-as-a-service) systems that either do not connect or are not connected. This often forces the IT departments to play “whack-a-mole” with the new systems that pop up, and that’s only for the systems they know about. As a result, Outlook emails, Word documents, Excel spreadsheets, and other data ends up in different silos and tied to individuals instead of the overall process. When an organization sits back and tries to look at the broad vision of where they are, they end up missing a whole lot of important information that is not in an accessible system.
Your company needs ERP and CRM systems to play that role of collecting that data and make it accessible for all these new technologies, such as AI, reporting, and BI.
Your customers expect you to engineer an order according to your agreements on design and function, that it’s going to be delivered at the time they are expecting it to be delivered, that you have a system that configures price quotes that can be verified across the business process, and that what you agreed upon is actually what is delivered. They also may want you to validate and track serial numbers for the parts within a piece of machinery, and that you understand your warranty commitments to them. Your ERP and the functioning of your business applications is really important to your customers.
With the right ERP and connecting business applications, you can be proactive and get better insights into how your customers are using the products you sell them. At that point, your ERP systems become valuable to your customers.
Your vendors, of course, want to serve you the best way possible. If your ERP can give them visibility into your buying plans, they can proactively work to meet your delivery expectations and quality standards.
Shareholders, Investors, and Bankers
With real-time data visibility, your shareholders or investors or even your bankers can know that the data is real, accurate, and provided on a timely basis.
Your talent will judge you by the tools you give them to do their job. In today’s workforce, we’re seeing digital natives, people who have never seen a green screen. They’ve never had to use a manual or have long winded training sessions to describe to them how to use a system on the computer. It’s download the app and automatically intuitively know how to use the app, whether it’s on their computer or mobile device.
New hires need to see that you are a forward thinking company and that your modern business apps are intuitive and easy to use. These apps tell new employees that your company is prepared to invest in their ability to perform and be productive. Manufacturers often have already a big challenge in finding and retaining talent. It’s difficult for the manufacturing industry as a whole to find new talent, particularly talent that’s computer savvy. Everyone wants to go work in Silicon Valley, so by having systems that are modern, that are flexible, that are easy to use, helps you attract and keep these people.
IoT, AI, and Machine Learning
A modern ERP should be able to keep pace with the changing needs of the business and help by integrating and making it easy to integrate your back office systems with these new technologies for sales or even purchase forecasting.
Attributes That Make a Business Application Suited for ETO Manufacturers
One of the most important attributes that ETO manufacturers need from a business application is change management and change control. As we previously stated, the BOM constantly changes, meaning that part numbers suddenly show up. Those part numbers may have to be purchased or made in house. Design changes can be made as the project progresses, or due to supply chain issues (like part availability), regulations, code changes, or simply design changes from the customer.
We’ve seen a situation where the engineers discover something is missing in the product design, which requires adding new part numbers to the build material that was already released to planning. However, those part numbers happen to be purchased parts that are not immediately available, requiring the outside vendor to quickly learn how to make them.
To make sure that manufacturer doesn’t lose time with situations like these, they need an ERP that integrates engineering with operations. This way, when a design changes, the right people will learn of the change immediately instead of potentially days later.
Each project is typically some kind of an adventure, and to make sure it’s not going off the rails, we have to know exactly what is being spent in time and cost while the project is going. A critical problem with many ERP systems is that you’re not able to see the costs spent on the shop floor until after the project is complete. As such, ETO manufacturers need ERP software that can provide progress on the floor. Sometimes components of the build that were planned to be manufactured in-house may need to be purchased, as a result of supply chain issues, and your ERP should be able to effectively pivot with the appropriate action, like sending an RFP to a vendor for the item you’re no longer able to make.
In addition, knowing details such as how many hours the shop floor team spent on welding could give a warning sign if something is taking longer than normal or expected. It will be easier and faster to catch potential design problems with this kind of insight.
Users need to be able to customize the software to help them efficiently plan tasks for each day. One thing that Microsoft has done with its ERP is understand how users really use the system. For example, Microsoft has designed role centers that allow users to design their own virtual desks and folders so they can easily see what tasks they need to see each day and plan effectively.
Business Central Fits What ETO Manufacturers Need From Software
Built on Dynamics 365, HEADSTART for ETO is a perfect software fit for ETO and Equipment manufacturing companies. Sikich’s HEADSTART solutions help ETO and Equipment Manufacturers address 80% of their business needs from selling, designing, manufacturing, shipping, and servicing in one, user friendly solution. Preconfigured for the ETO manufacturers and the Equipment Manufacturing industry, your company can take engineering and production excellence to the next level.
Ready to get your head start? Contact one of our experts at any time!