Engineer to Order (ETO) is a type of manufacturing where a product is engineered and produced after an order has been received. Using the ETO method, a manufacturer can meet the exact specifications of their customer. ETO is ideally suited to manufacturers of highly configurable products and often demands close customer engagement throughout the design and manufacturing phases.
Key Characteristics of ETO
Having set the stage with a definition of ETO, let's delve deeper into its defining characteristics.
High Customization: Unlike standard products produced in batches, ETO products are highly customized to meet specific customer specifications.
Customer Involvement: The customer is actively involved in the design and specification process. This close collaboration ensures that the final ETO product aligns with the customer's exact needs and expectations.
Complex Design Process: Given the product's custom nature, ETO's design process is typically more complex than other manufacturing methods. It involves a detailed understanding of every customer requirement and iterative design stages.
Longer Lead Times: Due to intricate design and production processes, ETO often has longer lead times than Make-to-Stock (MTS), Make-to-Order (MTO), and process manufacturing approaches.
Cost Variability: Costs and pricing in ETO can be variable, depending on the complexity of the design, raw materials used, and potential design revisions.
Higher Skills Requirement: Due to the custom nature of ETO, it often demands a workforce with a higher skill set, especially in product design and engineering, but also in sales.
Understanding these key characteristics is crucial, but to fully appreciate ETO, we have to grasp the workflow involved. Let's break it down step-by-step.
The ETO Workflow (Step-by-Step)
Product Configuration: A sales rep engages with a customer to understand their specific needs, preferences, and any constraints they might have. This requires a deep understanding of customer preferences and engineering best practices, a depth of knowledge not all sales reps possess.
Pricing and Quoting: The sales rep then has to calculate an estimated cost for the product. They have to decide on a margin based on market conditions, competition, and the engineering complexity of the product. They present the customer with a detailed breakdown that includes prices, delivery timelines, terms and conditions, and, in some cases, drawings, schematics, and 3D models. There may also be room for negotiation.
Engineering: It’s then up to the engineering department to dive deeper into the design process, creating CAD drawings of the product, simulating its functionality, drafting or refining Bills of Materials (BOMs), and validating that designs comply with regulatory standards.
Manufacturing: The manufacturing team uses the detailed BOM to source and order required materials. They also organize production schedules and timelines per best practices. Efficient production planning ensures that the shop floor team assembles the components according to the work order to create the final assembly.
While the ETO workflow may seem intricate, its benefits to both customers and manufacturers are undeniable.
The Benefits of ETO
ETO manufacturing is undoubtedly the right model for right now. Today’s buyers are wary of mass production. They want the ability to personalize products to their specific requirements and are prepared to pay a premium for it. Why? Because custom products solve unique problems more effectively.
For customers, the benefits of ETO are:
High Customization and Flexibility: ETO creates bespoke solutions. The high degree of customization ensures products are tailored to exact customer needs and preferences, ensuring optimal functionality and performance.
Innovative Solutions: The ETO process is a collaboration between customers and suppliers. Collaboration leads to innovation and groundbreaking products that provide a significant competitive edge.
Stronger Relationships: Working closely forges stronger, long-term relationships. This results in higher quality products, a better customer experience for buyers, and repeat business and referrals for sellers. It’s a win-win.
For the ETO manufacturer, the benefits of engineer to order include the following:
Higher Margins: Custom products command premium prices. Since ETO products are tailored for specific customers, manufacturers can charge more.
Differentiation: Offering ETO products differentiates a manufacturing company from competitors who only sell off-the-shelf goods. This can be a unique selling point in a crowded market.
Less Risk: Since products are made to order, there's no need to maintain a large inventory of finished goods. This is in stark contrast to make-to-stock (MTS) production, where products are pre-made and stored, and inventory management can be expensive.
Iterative Feedback: Each customer order provides insights into improving engineering and production efficiency. Over time, this continuous feedback loop can lead to a more efficient manufacturing process and higher-quality products.
Niche Market Penetration: ETO manufacturers can cater to niche markets or industries with specific requirements that standard products can't meet.
With such compelling advantages, it might be tempting to think of ETO as the ultimate manufacturing model. However, like all processes, it comes with its set of challenges.
The Challenges of ETO
ETO offers unparalleled flexibility, improved customer satisfaction, and the opportunity to increase margins significantly. However, it’s not without challenges. Here’s a rundown of the critical obstacles ETO manufacturers face.
Increased Complexity: More choice, more options, and greater design freedom mean increased complexity from a sales, engineering, and manufacturing perspective. While manufacturers have spent decades standardizing processes, templates, and best practices, each ETO product now demands a fresh approach.
Increased Risk of Errors: With no prior prototypes or standardized blueprints to rely on, the chances of engineering or production errors increase. A small oversight in the design phase can lead to significant issues in the production of the final product. This puts immense pressure on quality management.
Longer Lead Times: The custom nature of ETO means that products aren't readily available off-the-shelf. With design iterations, production adjustments, and back-and-forth communication, the end-to-end process can be lengthy.
Cost Variability: Estimating costs for an ETO project can be tricky. Unforeseen setbacks, design changes, or adjustments in material requirements can lead to cost overruns, impacting profitability.
Supply Chain Management: Sourcing materials that meet the unique specifications of each order demands careful coordination, especially when dealing with a diverse range of suppliers.
Demanding Client Expectations: Managing expectations can be difficult since customers are involved throughout the ETO process. Balancing their desires with feasibility, costs, and production constraints requires adept communication and negotiation skills.
Dependency on Skilled Labor: An ETO environment requires specialized skills, from sales to the shop floor. The current “War on Talent” is making hiring challenging, and losing a key team member can be a severe setback.
Despite these challenges, there are innovative solutions available that can simplify the ETO process. One such solution is CPQ.
Making ETO Easy with CPQ
CPQ (configure, price, quote) software strips the complexity from the engineer to order process. It simplifies and automates the most complicated, time-consuming, and error-prone parts of the ETO workflow.
Here's how CPQ, an all-in-one ETO solution, allows manufacturers to sell custom products more quickly, efficiently, and profitably.
Visual Product Configuration
Configuring complex products “manually” is demanding. Sales reps must choose from thousands of product options–each with its own rules and dependencies. They then need to design products in a way the engineering department will understand. No mean feat when using pen and paper.
Visual CPQ makes complex configuration easy. Sales reps and customers configure products by dragging and dropping components in a 3D configurator. Real-time visual feedback provides an immediate representation of the ETO product, eliminating the guesswork and potential misinterpretations.
With every adjustment, the software automatically checks for compatibility, adhering to predefined product and pricing rules. It ensures the final configuration is viable for production, requiring less staff training.
Dynamic Pricing and Quotes
In the traditional sales process, pricing custom products can be as challenging as configuration. Sales reps often juggle numerous pricing sheets, discounts, and promotional offers, leading to potential discrepancies and delays.
Visual CPQ transforms this aspect as well. As products are visually configured, the software calculates the cost based on selected components, materials, and additional customizations. Prices update dynamically in real time with no need for manual calculations.
Once the configuration is complete, generating a quote is just a click away. The software pulls all the necessary information, including the customer specification, pricing details, and any applicable discounts, to provide an instant, accurate quote. This shrinks the sales cycle from potentially weeks to seconds, allowing customers to issue a purchase order immediately.
In addition to quotes, CPQ auto-generates 3D models, specifications, BOMs, and CAD (Computer-Aided Design) drawings. The benefits here are twofold:
- i) The engineering department receives a comprehensive and clear breakdown of the customer's requirements, streamlining the transition from sales to production. There’s no space for miscommunication and no need for back-and-forth communication.
- ii) Eliminating the need for manual CAD creation reduces bottlenecks and frees the engineering department to work on higher-value tasks. The engineering department becomes more productive and strategic.
Many companies achieve total ETO automation with CPQ. Once the design is finalized, it's directly sent to manufacturing software and equipment. This might include CNC (Computer Numerical Control) machines, 3D printers, laser cutters, robotic assembly lines, and more.
Smart industrial machinery knows precisely how to create the part or product–without human intervention or project management–drastically reducing costs and lead times for customers.
Such a degree of automation requires seamless integration, not only with the shop floor but with your CRM, ERP solution (enterprise resource planning), and potentially other partners in the supply chain.
CRM integration feeds CPQ customer data, including past interactions, preferences, and purchase histories, to personalize the buying experience. Similarly, customers’ interactions with the visual configurator can be stored in CRM, helping build a deeper understanding of the customer.
ERP software integration gives CPQ real-time access to product, pricing, and inventory information. This helps in providing accurate and timely information to customers. It also eliminates the need for manual cross-checking and error-prone data entry between systems.
Here are some of the most frequently asked questions we get about ETO manufacturing:
Engineer to order vs. make to order: What’s the difference?
Engineer to order and make to order are different production approaches. Engineer to order products are configured, engineered, and manufactured from scratch every time, based on customer specifications. Make to order products are manufactured once a customer places an order, but according to pre-existing designs.
Engineer to order vs. configure to order: What’s the difference?
Unlike the engineer to order manufacturing process, where products are designed from scratch, configure to order involves customizing a standard product according to a set of predefined options. The basic design exists, but customers can choose specific features or components.
What is an engineer to order manufacturing strategy?
An ETO manufacturing strategy involves creating custom products from the ground up. Products are designed, engineered, and manufactured based on specific customer requirements rather than produced from a standard design. This strategy is often used for complex projects.
What is the engineer to order process flow?
The ETO manufacturing process flow typically involves the following steps:
Customer Inquiry: A customer approaches the manufacturer with a specific need or problem–one that can't be solved with make to stock production.
Configuration: The sales team meets with the customer to understand their requirements and configures a product accordingly. The engineering team might also produce a preliminary design at this stage.
Price and Quote: The sales team calculates a price for the customer, creates a detailed quote, and presents this to the customer along with any preliminary designs.
Customer Order: If the customer is happy with the quote, they place an order. If not, they negotiate. If that’s unsuccessful, it’s back to the drawing board.
Engineering: Following the order, the engineering team finalizes the design and creates CAD drawings.
Manufacturing: The manufacturing process starts.
With ETO software, the production process is somewhat different, thanks to visualization and automation:
Customer Inquiry: Customers used to reach out via phone, email, or in person, but modern interactions often occur online.
Configuration: Manufacturers can incorporate a visual product configurator on their website, empowering customers to customize products directly.
Price and Quote: The ETO software calculates prices automatically and generates quotes in real-time. This enables customers to make faster purchase decisions.
Customer Order: Manufacturers that integrate their ETO solution with their eCommerce platform can let customers buy online–without interacting with a salesperson.
Engineering: CAD drawings and other files–once produced manually by the engineering team–are auto-generated.
Manufacturing: Engineering data is routed to the shop floor, where CNC machines, 3D printers, laser cutters, and robots can assemble the product.
What are engineer to order products?
Engineer to order products are typically complex and require significant customization to meet customer needs. These include:
- Bespoke building materials like windows, shutters, and closures.
- Heavy machinery and industrial tools.
- Biotech assemblies and labs.
- Buildings and other specialized structures.
What are some examples of engineer-to-order products?
Dutch construction business, Van Wijnen, is a perfect example of an ETO company. They use ETO software to design hundreds of houses at an extremely high level of detail with millions of configuration possibilities.
Their ETO process begins with configuring products using a 3D visual configurator. The software then creates the production order and generates all necessary CAD drawings and other engineering files. These files are routed automatically to the factory, and assembly begins.
Thanks to ETO production, Van Wijnen now constructs 2,400 houses and apartments annually, with each unit capable of assembly in just one day. The most labor-intensive processes are automated, halving lead times and giving the company the potential to scale effortlessly with increasing customer demand.