What is Engineer to Order?

Written by: Lisa Bergstrom, Senior Marketing Manager

Engineer to Order (ETO) is a manufacturing approach characterized by the customization and unique design of products tailored to specific customer requirements. Unlike standard production models, ETO focuses on creating bespoke solutions where each project begins with a detailed set of customer specifications and involves significant engineering design and development. This approach requires high customer involvement throughout the process, from initial concept to final delivery.

ETO projects typically feature complex design and engineering tasks, longer lead times and intricate coordination between various departments, including design, procurement and manufacturing. The result is a highly specialized product that meets the customer's precise needs, often involving one-of-a-kind or small-batch production runs. This model is prevalent in discrete manufacturing, where customization and precision are paramount.

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Organizations can apply several different strategies to their manufacturing process. Each strategy has advantages and challenges, making it suitable for different types of products and market demands.

Make to Stock (MTS)

Make to Stock (MTS) is a production strategy focusing on manufacturing standardized products for inventory based on forecasted demand. This method involves minimal customer involvement in the production process and benefits from economies of scale, resulting in lower per-unit production costs and efficient production runs.

MTS is commonly used in consumer electronics, apparel and food products, where products are produced in large quantities and stored until needed. The primary advantage of MTS is the ability to fulfill customer orders from inventory quickly. However, it carries the risk of overproduction and excess inventory due to inaccurate demand forecasting and offers limited customization options for customers.

Assemble to Order (ATO)

Assemble to Order (ATO) combines elements of Make-to-stock and Make-to-order by assembling final products from pre-manufactured components once an order is received. This strategy allows for a moderate level of customer involvement, providing some customization through the final assembly of standardized components.

ATO helps balance inventory and production flexibility, making it suitable for industries like computer hardware, automotive and furniture. It offers the advantage of quicker response times to customer orders compared to ETO and MTO while reducing the need for finished goods inventory. However, managing component inventory and ensuring efficient assembly processes can be challenging, along with the need for accurate demand forecasting for components.

Make to Order (MTO)

Make to Order (MTO) is a production strategy that starts manufacturing only after a customer order is received, allowing for a certain level of customization within predefined options. This approach involves higher customer involvement than MTS but less than ETO, with production beginning post-order confirmation.

MTO is suitable for industries like custom clothing, specialized industrial equipment and certain machinery types, where products are tailored to specific customer needs without the extensive customization of ETO. The strategy's main advantages include reduced risk of excess inventory and better alignment with customer demand. However, MTO needs help balancing lead times with customer expectations and managing production scheduling and capacity, resulting in higher production costs than MTS.

Several critical factors must be considered when deciding which production strategy is right for your company. First, assess the level of customization your customers demand. ETO might be the best fit if they require highly specialized or complex products. For standardized products with predictable demand, MTS offers efficiency and quick delivery. Evaluate your industry and market dynamics. Consider your company's ability to manage inventory and lead times. Analyze your production capabilities and resources.

Ultimately, the right strategy aligns with your business model, operational strengths, market demands and customer expectations, ensuring optimal efficiency, cost-effectiveness and customer satisfaction.

The Engineer to Order (ETO) process flow is a comprehensive sequence of steps designed to create customized products based on specific customer requirements. This flow involves several vital phases, each critical to ensuring the final product meets the client's exact needs.

1. Initial Customer Requirements and Specifications: The process begins with gathering detailed customer requirements and specifications. This involves in-depth consultations to understand the client's needs, preferences and constraints. The outcome is a clear, detailed set of requirements to guide the project.
2. Feasibility Studies and Conceptual Design: Once the requirements are established, the next step is to conduct feasibility studies to assess technical, financial and logistical viability. Engineers develop conceptual designs that provide an initial solution framework, ensuring the project is both possible and practical.
3. Detailed Design and Engineering: Following the approval of the conceptual product design, detailed engineering begins. This involves creating precise engineering drawings, models and specifications. Advanced tools like CAD software are often used to refine every aspect of the product, ensuring all details align with customer expectations.
4. Procurement of Materials and Components: With detailed designs in hand, the procurement phase starts. This involves sourcing materials and components required for manufacturing. Given the customized nature of ETO projects, procurement may involve acquiring specialized or rare materials, making vendor selection and supply chain management critical.
5. Manufacturing and Assembly: The manufacturing phase involves manufacturing components according to the detailed designs. The assembly of components then integrates these components into the final product. This stage demands high precision and adherence to the specified requirements, often involving intricate and specialized manufacturing techniques.
6. Testing, Validation and Quality Control: After assembly, the product undergoes rigorous testing and validation to ensure it meets all specified standards and functions correctly. Quality control is vital at this stage, involving inspections, tests and potential revisions to address any issues.
7. Delivery and Installation: Once the product passes all tests, it is prepared for delivery. Given the nature of ETO products, delivery logistics are carefully managed to ensure safe transportation. In many cases, on-site installation is also provided, requiring coordination between the manufacturing team and the customer.
8. Post-Delivery Support and Services: After the product is delivered and installed, post-delivery support ensures the customer's needs are continuously met. This can include maintenance, training, technical support and any necessary adjustments or upgrades based on customer feedback.

The ETO process flow is highly iterative and collaborative, requiring constant communication and coordination among all stakeholders to successfully deliver a product that meets the customer's exact specifications and expectations.

The Engineer to Order (ETO) production strategy offers several significant benefits, particularly for industries and businesses prioritizing customization and precision. Here are the key advantages:

• High Customization and Flexibility: ETO allows for creating highly customized products tailored to specific customer requirements. This high level of customization ensures that the final product precisely meets each client's unique needs and preferences, making it ideal for complex and specialized projects.
• Better Alignment with Customer Needs: ETO ensures that their input directly influences the final product by involving customers throughout the design and production process. This close collaboration results in a product that closely aligns with customer expectations, enhancing satisfaction and fostering strong customer relationships.
• Potential for Higher Profit Margins: Custom products often command higher prices due to their specialized nature and the added value they provide to customers. As a result, ETO can lead to higher profit margins than mass-produced goods, particularly in industries where customized solutions are highly valued.
• Competitive Advantage: Offering highly customized solutions can differentiate a company from its competitors. This competitive advantage is particularly valuable in markets where standard products cannot meet customers' specific needs, making the company a preferred provider of unique and specialized solutions.
• Efficient Use of Resources: ETO projects often involve detailed planning and precise resource allocation. By producing only what is needed for each specific order, companies can minimize waste and optimize the use of materials and labor, leading to cost efficiencies and sustainability benefits.
• Adaptability to Market Changes: ETO companies are often more agile and responsive to market changes and customer demands. The ability to design and produce tailored solutions means they can quickly adapt to new trends, technologies and customer preferences, maintaining relevance and competitiveness in dynamic markets.
• Innovation and Continuous Improvement: The ETO approach encourages innovation and continuous improvement as each project presents unique challenges and opportunities for creative solutions. This focus on innovation can drive technological advancements and process enhancements, contributing to overall business growth and development.

While offering numerous benefits, the Engineer to Order (ETO) production strategy also comes with a set of significant challenges. These challenges can impact the efficiency, cost and overall success of ETO projects. Here are the critical challenges associated with this strategy:

• Complex Project Management: ETO projects are inherently complex, involving multiple phases from initial design to final delivery. Managing these projects requires meticulous planning, coordination and oversight. The complexity increases with the engineering change management, making it difficult to maintain schedules and ensure that all project components align seamlessly.
• Longer Lead Times: Due to the custom nature of ETO products, the lead times are typically much longer compared to standardized production methods. The time required for design, engineering, procurement, manufacturing and testing extends the overall project timeline, which can lead to a delay in customer delivery time and customer satisfaction if expectations are managed properly.
• Higher Costs and Resource Requirements: ETO projects often entail higher costs due to the need for specialized materials, custom components and skilled labor. The engineering and design phases also require significant resources, including advanced software tools and highly qualified personnel. These factors can increase the overall cost of the project.
• Managing Customer Expectations: Since ETO projects involve high levels of customer interaction and configurable products, managing customer expectations becomes crucial. Miscommunication or misunderstanding of requirements by the engineering team can lead to dissatisfaction and potential rework, which can further increase costs and extend lead times.
• Integration of Design and Manufacturing Processes: ETO requires seamless integration between design and manufacturing processes. Any misalignment or communication breakdown between these stages can result in design flaws, production delays and increased costs. Ensuring smooth coordination and integration is a significant challenge in ETO projects and companies must ensure that the engineering and production teams are on the same page.
• Supply Chain Complexity: Procuring specialized or rare materials and components for complex configurations can complicate supply chain management. Lead times for these materials can be unpredictable and supplier reliability becomes critical. Managing a supply chain with diverse and often unique requirements adds complexity and risk to the project.
• Quality Control and Assurance: Maintaining high-quality standards for custom-engineered products is challenging. Each product's uniqueness means that standard quality control and assurance measures might not be directly applicable. Rigorous testing and validation are required to ensure the product meets all specifications, which can be time-consuming and costly.
• Scalability Issues: ETO projects are less scalable than standardized production methods. The tailored nature of the work means that scaling up operations to handle increased demand can be difficult. Each new project requires the same level of customization and attention to detail, increasing the time to market and limiting the ability to benefit from economies of scale.
• Risk Management: ETO projects carry higher risks due to their complexity, longer timelines and reliance on precise customer specifications. Effective risk management practices are essential to identify potential issues early and implement mitigation strategies. However, the unique nature of each project can make risk assessment and management more challenging.

An Engineer to Order (ETO) production strategy significantly aids manufacturers in their digital transformation efforts by necessitating the adoption of advanced digital tools and technologies.

In ETO, the customization and complexity of each project drive the need for sophisticated design software, such as CAD and digital twin technology, enabling precise modeling and simulation of unique products.

Additionally, integrating ERP (Enterprise Resource Planning) and PLM (Product Lifecycle Management) systems streamlines the coordination of various stages, from initial design to final delivery, enhancing efficiency and data management. These digital tools facilitate better collaboration across departments, real-time data sharing and improved decision-making processes. Moreover, the iterative nature of ETO projects encourages a continuous improvement culture, leveraging data analytics and feedback to refine processes and review actual costs. Consequently, ETO not only supports but also accelerates digital transformation, driving innovation, operational excellence and competitive advantage for manufacturers.

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An Enterprise Resource Planning (ERP) system is crucial in the Engineer to Order (ETO) production process due to its ability to integrate and streamline various business functions.

Here's how an ERP system aids ETO:

• Centralized Data Management: Enterprise software applications consolidate data from multiple departments, providing a single source of truth. This centralization ensures all stakeholders access up-to-date information, facilitating better communication and coordination.
• Material and Inventory Management: In ETO, materials and components are often customized and procured based on specific project requirements. ERP systems help manage material requirements and inventory levels, track procurement orders and ensure timely availability, reducing delays, optimizing resources and ensuring production efficiency.
• Cost Control and Financial Management: ERP systems provide detailed cost tracking and financial reporting capabilities. This helps monitor project costs, manage budgets, identify cost-saving opportunities and ensure financial control throughout the project lifecycle.
• Production Planning and Scheduling: ERP systems facilitate efficient production planning by integrating design, procurement and production cycles. This coordination ensures that all phases of the ETO process are aligned, reducing bottlenecks and improving workflow efficiency.
• Customer Relationship Management (CRM): ERP systems often include CRM modules that help manage customer interactions, track order specifications and provide timely updates. This enhances customer satisfaction by ensuring customer requirements are met and communication is clear and consistent.

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A Quality Management System (QMS) is essential in maintaining high standards and ensuring that products meet customer specifications in the ETO production process.

Here's how a QMS aids ETO:

• Standardization and Compliance: QMS provides a structured framework for documenting processes, procedures and responsibilities. This standardization ensures that all activities are performed consistently and comply with industry standards and regulations, critical in producing high-quality, customized products.
• Quality Planning: In ETO, quality planning begins early in the project lifecycle. QMS tools help define quality criteria and standards for each project, ensuring that quality considerations are integrated into the design process and engineering phases.
• Inspection and Testing: QMS facilitates rigorous inspection and testing procedures at various stages of the production process. This ensures that defects or deviations from specifications are identified and addressed promptly, maintaining the integrity of finished products.
• Continuous Improvement: QMS promotes a culture of continuous improvement through regular audits, reviews and feedback mechanisms. By analyzing performance data and customer feedback, manufacturers can identify areas for improvement and implement corrective actions, enhancing overall quality and efficiency.
• Documentation and Traceability: QMS ensures adequate documentation of all quality-related activities, providing traceability and accountability. This documentation is crucial for resolving issues, conducting root cause analysis and demonstrating compliance to customers and regulatory bodies.
• Risk Management: QMS helps identify and mitigate risks associated with the ETO process. By conducting risk assessments and implementing preventive measures, QMS ensures that potential quality issues are addressed proactively, reducing the likelihood of project delays and cost overruns.

In summary, ERP systems and QMS play complementary roles in the ETO production. ERP systems streamline and integrate various business functions, enhancing coordination and efficiency, while QMS ensures that quality standards are met from design to delivery. They enable manufacturers to deliver high-quality, customized products that meet customer specifications and expectations.