Engineer-to-Order (ETO) production planning is a way of manufacturing in which the product is designed after the customer order is received. That is what sets it apart from make-to-stock (MTS) or assemble-to-order (ATO) setups: when the order comes in, there is no bill of materials yet — the engineering work is part of the order.
This model is widely used for industrial equipment, machine building, project-based steel construction and construction.
Process steps
1. Customer request and order intake
- Requests and special requirements from the customer are received
- The order is detailed and the technical requirements are defined
2. Design and engineering
- The product is designed according to the customer’s needs
- Engineering work is carried out and, if necessary, a prototype is built
3. Quotation and contract
- A quotation is submitted and pricing is set
- The contract is signed and the project is opened
4. Production planning
- The production process is detailed and the required materials are identified
- The production plan, schedule and resources are planned
5. Material procurement
- The required materials and components are procured
- Supply chain management and stock control are carried out
6. Production and assembly
- The product is manufactured and assembled
- Quality control processes are applied
7. Delivery and on-site installation
- The product is delivered to the customer and installed on site if needed
- Acceptance tests are performed by the customer
Benefits
- Customisation. The product is built to the customer’s request; requirements a standard product can’t meet can be met.
- Flexibility. It adapts relatively quickly to changes during the process.
- Quality and closeness. A product designed together with the customer directly feeds satisfaction.
Costs
- Long lead times. Design and engineering are part of the schedule; lead times are longer than in standard production.
- High cost. Engineering repeated for every order raises the unit cost.
- Complexity. Coordinating design, planning, procurement and on-site installation is a heavy management load.
What does it mean on the ERP side?
ETO brings three concrete requirements to the ERP:
- There is no bill of materials at the time of the order. The system must be able to carry a bill of materials that grows and is revised as the design progresses. Revision management is not an option here but a necessity.
- Cost is collected on the project. Cost has to be tracked by project/work order rather than by product; engineering hours are part of that project’s cost too. That is why a multi-axis cost structure (project, activity, cost center) is decisive for companies doing ETO — details: the cost accounting tradition of IFS and SAP.
- Project and production have to live in the same place. ETO projects that move forward without clarifying the relationship between the project breakdown (WBS) and the cost breakdown (CBS) get stuck at the point where the progress report and the cost report no longer agree — see Key differences between WBS and CBS in IFS.
If you are setting up a new ETO line in the system for the first time, you are doing design work, not improvement; the path to follow is on the DMADV side.