- Email: [email protected]
Supporting framework to improve Engineer-To-Order product lead-times
2010 Management and Control of Production Logistics University of Coimbra, Portugal September 8-10, 2010
Supporting framework to improve Engineer-To-Order product lead-times Aicha Amrani, Salah Zouggar, Marc Zolghadri, Philippe Girard IMS Laboratory, CNRS 5218, Bordeaux University 351, Cours de la liberation, Talence cedex 33405, France. E-mail:{firstname.lastname @ims-bordeaux.fr} Abstract: Company’s competitive advantage can be achieved through its agile capability to satisfy customers’ needs by developing and manufacturing efficiently customized products. So performing ETO (Engineer-ToOrder) product with lower lead-times is a real challenge that requires new approaches. This paper investigates a new framework to help decision-makers in adopting the right management systems to organize customer order fulfillment from request to delivery. The European Project “ESTIMATE”, Eurostars Program, is lead to sustain successful ETO processes. The ESTIMATE framework aims at providing guidelines to perform successful ETO product. Main drivers for ETO product fulfillment are identified regarding several dimensions and a strategy of decreasing lead-times is explored and discussed in detail. This strategy is called “shifting strategy”. Keywords: ETO products, NPD projects, Supply chain management 1. INTRODUCTION In today’s market, the customer can request different products. Products can be customizable or standard, complex or simple. When a product is well defined i.e. it is already developed, it belongs to “on-catalogue” products. In this case, the fulfilment consists on production management after the reception of customer’s order or sales forecasts. However, customized product is specific with particular customer requirements. In this case, a new product development (NPD) project should be launched. The company is then involved in designing, engineering and manufacturing the products (Carron & Fioré, 1995) immediately after receiving customer’s order. This class of supply chain is called Engineer-to-Order (ETO) supply chain. ETO product development is considered to be time consuming (Ali, 2000) due to the necessity of requirements gathering, check the availability of components, quoting, feasibility assessment, engineering, manufacturing, etc. Performing ETO products is even more critical when the focal company (company which launches the product development project) has to look for partners to contribute to the product development. Key research and developments are still needed to support ETO product management. Some authors have already addressed the importance of partner’s integration during product development project. Characterized by time-limited projects, companies are forced to delegate realization of some complex modules or equipments to third parties for any phase of research, development, engineering, procurement and manufacturing (Carron & Fioré, 1995). Suppliers or subcontractors could be devoted to manufacture some components or subsystems that should be then delivered and assembled in the manufacturing or assembly sites of focal company (Ramsay, 2005).
978-3-902661-81-4/10/$20.00 © 2010 IFAC
This partner’s involvement in different phases of NPD project requires a specific integration among them. Including new partners means new organizational and interactions solutions. This paper defines an adequate framework extracted from the ESTIMATE’s approach which supports decisions related to ETO customer order fulfilment. It is mentioned in (Goslin & Naim, 2009) that strategies for organisations operating in low volume, highly customised (ETO environment) have received less attention from researchers than high volume, standardised (MTS environment). So, main issues to which this paper tries to answer are “Is it possible to help an ETOoriented company to reduce its lead-times? What are the potential collaborations to develop with partners? Are these collaborations impacted by the lifecycle’s phases?” The paper is structured as follows, section 2 emphasises background review to introduce specificities of ETO and the scope of our work. In section 3, the overall ESTIMATE’s concept is presented to highlight its objective and the expected execution of different ETO processes. Section 4, highlights the required elements for ETO framework. It discusses some issues that must be considered when a company set up ETO product management. Mainly we describe the ETO-shifting strategy which looks for decreasing delivery delay. Finally some conclusions end this paper after evoking future works. 2. BACKGROUND REVIEW The wide variety of products induces companies to adopt different manufacturing strategies, namely Make-To-Stock (MTS), Assemble-To-Order (ATO), Make-To-Order (MTO) and Engineer-To-Order (ETO), see (Hoekstra & Romme, 1992), (Olhager, 2003), (Goslin & Naim, 2009).
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The figure 1 shows the distinction between these different manufacturing strategies. Four main phases of the product inhouse lifecycle are represented: Design, manufacturing, assembly and inventory of final products. The point where the customer order is perceived by the company’s organization is called the decoupling point. It represents how deeply the customer order penetrates the supply system (Errasti & Poler, 2008).
Once the required new product is approved to be launched, a specific and repetitive problem associated with ETO product appears; it is their long lead-time during different phases. (Pandit & Zhu, 2007) studied this phenomenon and suggested that: “Long leadtime may be caused by many factors such as poor coordination among project participants, especially in the early design phase when owners' requirements need to be properly interpreted and understood, design alternatives need to be evaluated, and final design needs to be selected”. Other mentioned that shortcomings are the difficulties in estimating expensive rework due to late detection of errors, and material waste (Elfving et al., 2002). 2.2 Positioning of our contribution
Figure.1 Decoupling point inside different product strategies The design stage has been highlighted as being time bottlenecks by (Elfving et al, 2005), (Gosling et al, 2007). According to a study of (Elfving, 2003), the long ETO leadtimes is associated directly or indirectly with the design phase. Indeed, it involves both internal and external competencies. Final development results would be affected by the interactions of different partners. Those partners who need to share information about ETO product are engineers, designers, estimators, suppliers, manufacturers, contractors, architects, owners and their supporting information systems (Pandit & Zhu, 2007). We focus on ETO investigation in order to get better understanding of its managerial and organizational layouts. 2.1 ETO product characteristics In (Goslin & Naim, 2009) a significant remark is outlined concerning the variety of used terms to describe the same strategy of ETO and operating environment. Named Project in (Elfving et al., 2005), craft in (Barlow, 1999), one-of-akind in (Hameri, 1997), (Tu, 1997), design-to-order and engineer-to-order in (Hicks et al., 2000). We keep the definition given by (Pandit & Zhu, 2007) “Engineer-ToOrder (ETO) is a type of manufacturing process for highly customized products which are required to be designed and engineered in detail as per the specifications in the order placed by customers. The challenge arises mainly from the social, economic or technical difficulty of synergizing various parties along the procurement chain”. This perception of ETO product outlines two major phases of upmost importance useful to depict: 1-Phase of customer’s order reception & interpretation: When a customer enounces its order, it may correspond either to an existing product (already available) or to a new product requiring feasibility study. In the first case, the processes are well known and less uncertainty appears during the offer preparation while the second case will create a supplementary but necessary delay. 2-Phase of development and manufacturing engineering, industrialization and realization):
(design,
Satisfying customer’s order should consider thoughtfully two distinct phases: customer order’s reception and development and manufacturing phase. Enabling a successful ETO product realization passes through providing a coherent framework allowing ETO order fulfilment. Collaborative approach seems to be useful for addressing the problem of ETO (Elfving, 2003). It is therefore necessary to provide a realistic approach to define and manage ETO product realization. This paper addresses a managerial solution to speed up ETO product fulfilment. Indeed, the distinctive point of our contribution is the ambition to provide a global framework to a company willing to fulfil ETO product. This framework aims at clarifying the needs and consequences of an ETO strategy. Performance objective such as cost, quality and delay are the key factors to perform successful ETO products. However, in this paper the main focus in put on temporal dimension (leadtimes). ETO and especially product development process are time consuming activities. Product development is recognized to be a cross-functional, knowledge-intensive work (Hong et al, 2004). In (Su et al, 2005) the authors underline that product innovation, must link technological competencies such as engineering and process know-how with knowledge about the customer. These works reinforce the idea that partnerships and the knowledge management are of great importance to lead a successful ETO product. Therefore exploring key improvement factors will help to answer in a better way to the following questions “What are the links to set up among different partners? What are the critical components of product? How to ensure a better organization to deal with all components design and manufacturing? How to reduce ETO lead-times?“ 3. ESTIMATE project contributing to ETO framework The need to develop an ETO strategy comes up with evolving customers’ needs, which are not fully satisfied with current product offers. In this case, there is no match between the requirements and the product structure. If the company has the ability and the will to answer these customer’s needs, it should develop and manufacture a new version of the product or a totally new one. The production of this new product could force to collaborate with known and new partners either for development or for manufacturing. Therefore,
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there is a significant need to ensure an efficient management and comprehensible exchange among different partners to speed up the answer to ETO order. The ESTIMATE project comes to support this research issue by providing the stakeholders with an improved management system. 3.1 Overall ESTIMATE concept In this section we describe the overall ESTIMATE platform concept. ETO means that a product will be designed (or redesigned) and manufactured according to the customer’s requirements. If all of the product’s components are of ETO type, i.e. every single component should be (re-)designed and manufactured, the lead-time would be very long disappointing any customer. Nonetheless, this would be rarely the case. For a given customer order, the company should minimize the number of components or parts to reconsider or design from scratch for the ETO Product. Therefore, we assume that in an ETO Product two classes of parts can be found: ETO-parts and MAM-parts. An ETO-part is a component that must be (re-)designed and manufactured specifically for the customer. The MAM-parts gather MTO (Make-to-order), ATO (Assemble-to-Order) and MTS (Make-to-stock) components. The MAM-parts have been already designed and/or manufactured. So, their manufacturing can be monitored more easily. An ETO product is then not managed only by the ETO strategy. Customer Order: ETO product
SRM
MAM
CRM
Configurator
Sales ETO
Study of feasibility & change
(New) supplier search & evaluation
Engineering
Offer
Production Evaluation for data maintenance and update Delivery ETO process
MAM process
Figure 2. ESTIMATE overall concept The figure 2 shows the overall ESTIMATE concept that aims on coherently integrate different processes triggered by customer order. To improve ETO lead-times, ESTIMATE suggests two concurrent treatments: 1- the ETO-process) for ETO-parts (the leftside of the Figure 2), final integration (of ETO-parts and MAM-parts) generating ETO-product and 2the MAM-process (the right side of the figure 2) for MAM parts. These two processes must be supported by IT tools of the company ensuring a fluid information flow. Some of these tools which have been explicitly taken into account in the ESTIMATE project are presented hereafter:
- Configurator: This tool supports the sales activities. It generates a valid product structure that satisfies a customer’s requirements with respect to the generic product description provided by configuration model (Peltonen, 2000). Iteration after iteration, the newly designed ETO-parts, once validated, can be integrated to the configurator database. In other words, an ETO-part evolves to a MAM-part. - CRM tool: Customer Relationship Management tool allows managers of the company to set up a rational management of their customers or potential ones. It manages the relationship with customers by employing up-to-date information technology (IT) such as on-line data analysis, data-mining and database management in order to understand, communicate with, and to attract them. Its objective is to satisfy and retain customers (Dyche, 2002). - SRM tool (Supplier Relationship Management) is used to link raw materials, modules and components to suppliers. It contains mainly known partners of the company. Nevertheless, the ETO product requires sometimes new suppliers. The potential partners of the company should then be identified and assessed for ETO project. To support ETO strategy, ESTIMATE suggests considering parallel treatments of ETO and MAM parts. MAM parts whose components are available undergo three major processes (offer preparation, production/assembling and delivery). ETO parts undergo the following steps which can be carried out in parallel: - Feasibility and changes: This is the first activity to carry out after customer’s order reception. It consists in feasibility assessment of the required product by identifying the parts concerned by modifications and evaluating the change possibilities. This phase allows then to distinguish ETO-parts from MAM-parts. - Engineering: it includes the design and industrialization phases that lead to the product definition. Then, the offer can be prepared for submission to customer. The offer contains production and delivery conditions (joining by the way MAM treatment). - Supplier search and evaluation: the potential partners of the Focal Company are selected using special criteria and techniques. Different classes are proposed based on their involvement level in the project - Evaluation for data maintenance and upgrade: it consists in upgrading the configurator’s database by introducing the validated ETO product configurations. 4. Supporting framework to improve ETO product leadtimes For a given ETO order, the framework is defined as follows: - Distinguishing MAM and ETO parts of the final ETO product. Considering five main drivers to ensure an efficient execution of different processes: product, network, organization, planning and risk dimensions. - Shifting strategy from ETO parts to MAM strategy under certain conditions. The ESTIMATE framework is discussed hereafter.
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4.1 Advantages of distinguishing MAM & ETO parts The idea behind the developmentt of an ETO framework is to lead the company gradually towards the definition of a common platform for a family of products in order to optimise the ETO product leadt-times. At the same time, this distinction becomes a managerial solution enabling partners to deal separately and in parallel, with known parts and new ones. We assume that in realistic situations, only some few parts of a given final product should or could be re-designed based on the requirements of the customer. The manufacturing management system should keep track of all non-modified parts i.e. the MAM-parts and manage them according to management strategies MTS, ATO, or MTO. The design of new parts i.e. ETO-part could be managed in parallel reducing the total lead-time. Commonly, ETO companies carry out no repetitive or ‘pulse’ processes relating to the ‘one of a kind’ item delivery process; Engineer to Order are usually systems where the element of repetition is usually limited, in other words “low volume – high variety” (Slack et al, 2004). In ESTIMATE framework, the capitalized knowledge about the previous ETO developed products are used to reduce ETO product lead-times by adopting “shifting strategy”. This strategy will be described in section 5.
parts require some treatments while innovative components and adjustable components belonging to ETO parts require another kind of treatment. This distinction makes easier comprehension of ETO product composition allowing a concurrent execution of different components. - Network dimension: When a customer transmits an order, the product is depicted according its different kind of components (identified through BOM). Different product requirements guide the company to establish the component’s technical specifications. Performing internally these components can not always be possible; so the intervention of partners may occur at different phase product lifecycle (figure5). It is essential to mention that partners are not only suppliers, they may be service providers, sub-contractors... they may intervene during manufacturing, design and engineering /industrialization phases. The company should coherently define the required partners at the right phase. Identifying the right criteria of partners selection and a method of selecting them is of upmost importance to ensure customer order realization. Component and parts specifications
Partners (suppliers, subcontractors, service providers)
4.2 Main drivers for ETO product Essential drivers should be taken into account when dealing with ETO products. We browse five dimensions that can enable the company to improve global lead-times satisfying hence the final customer. These dimensions are summarized hereafter. - Product dimension: The required ETO product by the customer includes different kinds of components. Distinguishing various types of component through a bill of materials (BOM) ensures an accurate consideration of ETOparts which are the time-consuming bottleneck of the ETO product (Figure 4). Product
C1
C2
C3
On catalogue components Adjustable components
C11
C12
C21
C22
C31
C32
Innovative components
Figure 4. Different type of product components An ETO-part can be either innovative and adjustable. An adjustable component is re-designed. Lots of knowledge are already available. An innovative component corresponds to a completely new-to-the-company component. It can be thought such as a from-scratch component. It is reasonable to say that the development complexity and therefore the development lead-times for innovative and adjustable components will not be the same. Listing the critical components allows their early consideration to guarantee shorter lead-times of the overall project. Hence, on-catalogue components belonging to MAM
Raw materials, technical components
Product development Design Engineering Industrialization Know-How, technical components, …
Requirements
Customer
Process specifications
Manufacturing
Delivery
Figure 5. Partners contributions in ETO products Once components of the ordered product have been identified, it becomes easier to distinguish partners categories: -On-catalogue component: suppliers of raw materials are mainly required. -Adjustable components: partners with specific know-how may be required to modify the component. -Innovative component: may require partners’ involvement from design phase for specific components development. The made distinction among partners highlights the necessity of partners’ implication management which becomes critical with product customization. Organization dimension: the adopted strategy of organization (MTS, MTO, ATO, ETO) is directly linked to the kind of components. New component (innovative) requires development and engineering lead-time, it is managed by ETO. However, more the product becomes standard, less it requires long lead-time. On-catalogue components components can be processed under MTO, ATO or MTS strategies (avoiding development lead-times). Because of components availability, the assembling and realization of final product becomes easier.
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- Planning dimension: According to whether the component is known or innovative the planning procedures are not the same. Indeed, for ETO-parts, the company will manage it as a project (requiring design and industrialization lead-times), while in ATO, MTO and MTS strategies, the components and raw materials required for the product are designed and available. Master production planning can be easily adopted to plan execution over a horizon. Planning is envisaged for the assembling, manufacturing and procurement. - Risk dimension: Fulfilling an ETO-product order implies dealing with ETO-parts and MAM-parts. The risks associated to these two kinds of components are not the same; the MAM-risks are mainly known while ETO-parts’ risks have to be identified and assessed. Two kinds of risks are identified, those related to product and those related to partners involving in order fulfillment process. (Figure 6), summarizes the investigative framework of ETO product based upon component’s distinction and main success drivers.
The fact that companies have specific characteristics and belong to different industrial fields highlights the necessity of considering these particularities in performing successful ETO through shifting. In our work, we argue on the necessity of guiding the company to know how operate the ETO shifting and according to which factors? We identify three key factors that may lead the company to switch to other strategies and adapt its organization consequently (Figure 6).
ETO product
Main drivers
ETO framework
MAM Parts
ETO parts
Product
On‐catalogue parts
Adjustable parts
Innovative parts
Network
Suppliers of raw materials
Suppliers of raw materials, of components Serivce providers
Suppliers of raw materials, of components Serivce providers Sub‐contractors
Organisation
MTS/ATO
MTO
ETO
Planning
Master production planning
Master production planning
Project management
Risk (product related)
Delivery of product
Conformity to specsheets, delivery of product
Feasability and conformity to specsheets, delivery of product
Risk (network related)
Partners interactions
Network dimensioning and Partner interactions
Partners search evaluation and selection, network dimensioning and partner interactions
company’s objectives. Indeed, many authors have approved the usefulness of reuse: the reuse of design concepts from previously realized product may help to rapidly find a solution and adjust the design of new product. Hence, new customer orders could be solved by looking for a similar case and adapting its solutions (Brière-coté et al, 2009). (Erens & Verhulst 1997) outline that extensive work and special knowledge used to solve specific development problems will be transferred to as many similar problems as possible. Reusing previous ETO data in fulfilling new customer orders is performed through: 1) determining the similarities with already developed ETO parts (considered as new MAM), 2) managing the remaining unknown part through ETO. Concerning the already developed ETO parts, the deal is about the shifting to whether ATO, MTO or MTS. In (Barlow et al, 2003) they claim that shifting from ETO supply chain to ATO supply chain may be beneficial in achieving performance objectives.
From ETO parts
Repetitivity of demand
Storage costs
Bargaining power of customer
To MTO To ATO To MTS Low
Medium
High
Figure 6. Shifting key factors
Figure 6. ETO product framework This categorization allows a better visibility of ETO product features and provides clear layouts and guidelines about how to treat different components composing the final product and the associated driver to consider. 5. ETO reuse: shifting to ATO, MTO, MTS ETO strategy allows to the company to gain market parts and remain competitive. In our case, company’s goal being the reduction of ETO lead-times, we suggest to treat the new customer demand by exploiting previous ETO projects. The capitalization of knowledge about new parts developments becomes a source of improvement. At the end of ETO projects, new components once developed could be included in database and considered as MAM parts allowing fastening order fulfilment by reuse the existing data. However, if company neglect the reuse of validated design and/or manufacturing data, it may significantly hinder a
We state that repetitivity of demand, storage costs and bargaining power can significantly influence the adopted shifting strategy. In fact, if the company noticed through previous forecasting that: 1. the demand concerning its components is highly repetitive, 2. storage costs of its composing components are acceptable (considered low) 3. customer is not ready to wait long lead-times (customer has high bargaining power and impose fast availability) In this case, ETO shifting allows the company to reuse the previous ETO data in treating the similar parts by adopting the most relevant strategy: MTS. By this way, if future demand occurs, only delivery lead-times would be required guarantying better service to customer. The expected advantage from ETO shifting strategy is mainly the lead-times reduction. In MTO, manufacturing, assembling and delivery lead-times are required, whereas in ATO, only
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assembling and delivery lead-times are required, and MTS necessitate the shortest lead-times (delivery). Moreover, engineering lead-times are avoided.
Elfving J.A., Tommelein I.D., Ballard G., 2005, Consequences of competitive bidding in project-based production, Journal of Purchasing and Supply Management 11 (4), pp.173–181.
6. Conclusion & further works
Erens F., Verhulst K., 1997, Architectures for product families, Computers in Industry 33(2–3), pp.165–178.
The proposal of this paper was to investigate a framework for improvement ETO product’s lead-times. The need to develop a thoughtful framework for fulfilling customer’s order is justified by the persisting complexity of ETO product and the continual need of lead-times reduction (among other performance issues). The enounced problematic is currently supported and treated inside the Estimate project. The paper’s contributions are based on suggesting concurrent treatment of ETO parts and MAM parts to gain in overall lead-times. Five essential drivers have been identified to allow comprehensible management layouts when dealing with ETO product: Product, network and organization, management and risk dimensions. These dimensions have been discussed. Guidelines to operate ETO shifting strategy has also been argued to show how make the company benefit from time reduction in ETO processes. Future works aim at developing a common integrative platform that allows improving the processes relating to supplier selection, to reuse of data and knowledge capitalization. The suggested framework (at investigative phase) would be developed more deeply to show key success factors to support the ESTIMATE project platform. The configurator should take into account the identified improvement axis to enounce acceptable lead-times when a customer requests an ETO product. REFERENCES Ali A.,2000. The Impact of Innovativeness and Development Time on New Product Performance for Small Firms, Marketing Letters, Kluwer Academic Publishers, Manufactured in The Netherlands, pp.15-163,. Barlow, J., Ozaki, R., 2003. Achieving customer focus in private house- building: current practice and lessons from other industries. Housing Studies 18, pp.87–101. Brière-coté A., Rivest L., Desroches, A., 2009, Adaptive generic product structure modelling for design reuse in engineer-to-order products, Computers in Industry . Caron F., Fiore A., 1995, Engineer to order’ companies: how to integrate manufacturing and innovative processes International Journal of Project Management Vol. 13, No. 5, pp. 313-319. Dyche J., 2002, Handbook: A Business Guide to Customer Relationship Management. Addison-Wesley Inc, Massachusetts pp. 3–18.
Errasti A., Poler, R., 2008, Engineer to Order Supply Chain Improvement Based on the GRAI Meta-model for Interoperability: An Empirical Study in Enterprise Interoperability III, Springer London. Goslin J., Naim MM., 2009, Engineer-to-order supply chain management: A literature review and research agenda, Int. J. Production Economics. Gosling J., Naim, M., Fowler, N., Fearne, A., 2007. Manufacturer’s preparedness for agile construction. International Journal of Agile Manufacturing 10 (2), pp.113–124. Hameri A.-P., 1997, Project management in a long-term and global one- of-a-kind project. International Journal of Project Management 15 (3), 151–157. Hicks, C., McGovern, T., Earl, C.F., 2000. Supply chain management: a strategic issue in engineer to order manufacturing. International Journal of Production Economics 65 (2), pp.179–190. Hoekstra S., Romme J., 1992, Integral Logistics Structures: Developing Customer Oriented Goods Flow. McGraw-Hill, London. Olhager J., 2003, Strategic positioning of the order penetration point. International Journal of Production Economics 85 (3), pp.319–329. Pandit A., Zhu Y., 2007, An ontology-based approach to support decision- making for the design of ETO (Engineer-To-Order products, Automation in Construction 16 , pp.759–770 Peltonen H., 2000, Concepts and an implementation for product data management, Thesis, Acta Polytechnica Scandinavica, Mathematics and Computing Series, Finnish Academy of Technology. private house- building: current practice and lessons from other industries. Housing Studies 18, pp.87–101. Ramsay J., 2005, The real meaning of value in trading relationships, International Journal of Operations & Production Management, 25, 549. Slack N., Chambers S, Johnston R, 2004, Operations Management. 4th ed., Pearson, London Su C.T., Chen Y.H., Sha D.Y.,2006, Linking innovative product development with customer knowledge:a data-mining approach, Technovation 26, pp. 784–795. Tu, Y., 1997. Production planning and control in a virtual one-of-akind production company. Computers in Industry 34 (3), 271–283.
Elfving J., 2003, Exploration of Opportunities to Reduce Lead Times for Engineered-to-Order Products, Ph.D. Dissertation, University of California, Berkeley, Elfving J., Tommelein I., Ballard G., 2002, Reducing the lead time for electrical switchgear, Proceedings of the 10th Annual Conference International Group in Lean Construction (IGLC 10), Gramado, Brazil, pp. 237–250.
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Supporting framework to improve Engineer-To-Order product lead-times Aicha Amrani, Salah Zouggar, Marc Zolghadri, Philippe Girard IMS Laboratory, CNRS 5218, Bordeaux University 351, Cours de la liberation, Talence cedex 33405, France. E-mail:{firstname.lastname @ims-bordeaux.fr} Abstract: Company’s competitive advantage can be achieved through its agile capability to satisfy customers’ needs by developing and manufacturing efficiently customized products. So performing ETO (Engineer-ToOrder) product with lower lead-times is a real challenge that requires new approaches. This paper investigates a new framework to help decision-makers in adopting the right management systems to organize customer order fulfillment from request to delivery. The European Project “ESTIMATE”, Eurostars Program, is lead to sustain successful ETO processes. The ESTIMATE framework aims at providing guidelines to perform successful ETO product. Main drivers for ETO product fulfillment are identified regarding several dimensions and a strategy of decreasing lead-times is explored and discussed in detail. This strategy is called “shifting strategy”. Keywords: ETO products, NPD projects, Supply chain management 1. INTRODUCTION In today’s market, the customer can request different products. Products can be customizable or standard, complex or simple. When a product is well defined i.e. it is already developed, it belongs to “on-catalogue” products. In this case, the fulfilment consists on production management after the reception of customer’s order or sales forecasts. However, customized product is specific with particular customer requirements. In this case, a new product development (NPD) project should be launched. The company is then involved in designing, engineering and manufacturing the products (Carron & Fioré, 1995) immediately after receiving customer’s order. This class of supply chain is called Engineer-to-Order (ETO) supply chain. ETO product development is considered to be time consuming (Ali, 2000) due to the necessity of requirements gathering, check the availability of components, quoting, feasibility assessment, engineering, manufacturing, etc. Performing ETO products is even more critical when the focal company (company which launches the product development project) has to look for partners to contribute to the product development. Key research and developments are still needed to support ETO product management. Some authors have already addressed the importance of partner’s integration during product development project. Characterized by time-limited projects, companies are forced to delegate realization of some complex modules or equipments to third parties for any phase of research, development, engineering, procurement and manufacturing (Carron & Fioré, 1995). Suppliers or subcontractors could be devoted to manufacture some components or subsystems that should be then delivered and assembled in the manufacturing or assembly sites of focal company (Ramsay, 2005).
978-3-902661-81-4/10/$20.00 © 2010 IFAC
This partner’s involvement in different phases of NPD project requires a specific integration among them. Including new partners means new organizational and interactions solutions. This paper defines an adequate framework extracted from the ESTIMATE’s approach which supports decisions related to ETO customer order fulfilment. It is mentioned in (Goslin & Naim, 2009) that strategies for organisations operating in low volume, highly customised (ETO environment) have received less attention from researchers than high volume, standardised (MTS environment). So, main issues to which this paper tries to answer are “Is it possible to help an ETOoriented company to reduce its lead-times? What are the potential collaborations to develop with partners? Are these collaborations impacted by the lifecycle’s phases?” The paper is structured as follows, section 2 emphasises background review to introduce specificities of ETO and the scope of our work. In section 3, the overall ESTIMATE’s concept is presented to highlight its objective and the expected execution of different ETO processes. Section 4, highlights the required elements for ETO framework. It discusses some issues that must be considered when a company set up ETO product management. Mainly we describe the ETO-shifting strategy which looks for decreasing delivery delay. Finally some conclusions end this paper after evoking future works. 2. BACKGROUND REVIEW The wide variety of products induces companies to adopt different manufacturing strategies, namely Make-To-Stock (MTS), Assemble-To-Order (ATO), Make-To-Order (MTO) and Engineer-To-Order (ETO), see (Hoekstra & Romme, 1992), (Olhager, 2003), (Goslin & Naim, 2009).
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The figure 1 shows the distinction between these different manufacturing strategies. Four main phases of the product inhouse lifecycle are represented: Design, manufacturing, assembly and inventory of final products. The point where the customer order is perceived by the company’s organization is called the decoupling point. It represents how deeply the customer order penetrates the supply system (Errasti & Poler, 2008).
Once the required new product is approved to be launched, a specific and repetitive problem associated with ETO product appears; it is their long lead-time during different phases. (Pandit & Zhu, 2007) studied this phenomenon and suggested that: “Long leadtime may be caused by many factors such as poor coordination among project participants, especially in the early design phase when owners' requirements need to be properly interpreted and understood, design alternatives need to be evaluated, and final design needs to be selected”. Other mentioned that shortcomings are the difficulties in estimating expensive rework due to late detection of errors, and material waste (Elfving et al., 2002). 2.2 Positioning of our contribution
Figure.1 Decoupling point inside different product strategies The design stage has been highlighted as being time bottlenecks by (Elfving et al, 2005), (Gosling et al, 2007). According to a study of (Elfving, 2003), the long ETO leadtimes is associated directly or indirectly with the design phase. Indeed, it involves both internal and external competencies. Final development results would be affected by the interactions of different partners. Those partners who need to share information about ETO product are engineers, designers, estimators, suppliers, manufacturers, contractors, architects, owners and their supporting information systems (Pandit & Zhu, 2007). We focus on ETO investigation in order to get better understanding of its managerial and organizational layouts. 2.1 ETO product characteristics In (Goslin & Naim, 2009) a significant remark is outlined concerning the variety of used terms to describe the same strategy of ETO and operating environment. Named Project in (Elfving et al., 2005), craft in (Barlow, 1999), one-of-akind in (Hameri, 1997), (Tu, 1997), design-to-order and engineer-to-order in (Hicks et al., 2000). We keep the definition given by (Pandit & Zhu, 2007) “Engineer-ToOrder (ETO) is a type of manufacturing process for highly customized products which are required to be designed and engineered in detail as per the specifications in the order placed by customers. The challenge arises mainly from the social, economic or technical difficulty of synergizing various parties along the procurement chain”. This perception of ETO product outlines two major phases of upmost importance useful to depict: 1-Phase of customer’s order reception & interpretation: When a customer enounces its order, it may correspond either to an existing product (already available) or to a new product requiring feasibility study. In the first case, the processes are well known and less uncertainty appears during the offer preparation while the second case will create a supplementary but necessary delay. 2-Phase of development and manufacturing engineering, industrialization and realization):
(design,
Satisfying customer’s order should consider thoughtfully two distinct phases: customer order’s reception and development and manufacturing phase. Enabling a successful ETO product realization passes through providing a coherent framework allowing ETO order fulfilment. Collaborative approach seems to be useful for addressing the problem of ETO (Elfving, 2003). It is therefore necessary to provide a realistic approach to define and manage ETO product realization. This paper addresses a managerial solution to speed up ETO product fulfilment. Indeed, the distinctive point of our contribution is the ambition to provide a global framework to a company willing to fulfil ETO product. This framework aims at clarifying the needs and consequences of an ETO strategy. Performance objective such as cost, quality and delay are the key factors to perform successful ETO products. However, in this paper the main focus in put on temporal dimension (leadtimes). ETO and especially product development process are time consuming activities. Product development is recognized to be a cross-functional, knowledge-intensive work (Hong et al, 2004). In (Su et al, 2005) the authors underline that product innovation, must link technological competencies such as engineering and process know-how with knowledge about the customer. These works reinforce the idea that partnerships and the knowledge management are of great importance to lead a successful ETO product. Therefore exploring key improvement factors will help to answer in a better way to the following questions “What are the links to set up among different partners? What are the critical components of product? How to ensure a better organization to deal with all components design and manufacturing? How to reduce ETO lead-times?“ 3. ESTIMATE project contributing to ETO framework The need to develop an ETO strategy comes up with evolving customers’ needs, which are not fully satisfied with current product offers. In this case, there is no match between the requirements and the product structure. If the company has the ability and the will to answer these customer’s needs, it should develop and manufacture a new version of the product or a totally new one. The production of this new product could force to collaborate with known and new partners either for development or for manufacturing. Therefore,
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there is a significant need to ensure an efficient management and comprehensible exchange among different partners to speed up the answer to ETO order. The ESTIMATE project comes to support this research issue by providing the stakeholders with an improved management system. 3.1 Overall ESTIMATE concept In this section we describe the overall ESTIMATE platform concept. ETO means that a product will be designed (or redesigned) and manufactured according to the customer’s requirements. If all of the product’s components are of ETO type, i.e. every single component should be (re-)designed and manufactured, the lead-time would be very long disappointing any customer. Nonetheless, this would be rarely the case. For a given customer order, the company should minimize the number of components or parts to reconsider or design from scratch for the ETO Product. Therefore, we assume that in an ETO Product two classes of parts can be found: ETO-parts and MAM-parts. An ETO-part is a component that must be (re-)designed and manufactured specifically for the customer. The MAM-parts gather MTO (Make-to-order), ATO (Assemble-to-Order) and MTS (Make-to-stock) components. The MAM-parts have been already designed and/or manufactured. So, their manufacturing can be monitored more easily. An ETO product is then not managed only by the ETO strategy. Customer Order: ETO product
SRM
MAM
CRM
Configurator
Sales ETO
Study of feasibility & change
(New) supplier search & evaluation
Engineering
Offer
Production Evaluation for data maintenance and update Delivery ETO process
MAM process
Figure 2. ESTIMATE overall concept The figure 2 shows the overall ESTIMATE concept that aims on coherently integrate different processes triggered by customer order. To improve ETO lead-times, ESTIMATE suggests two concurrent treatments: 1- the ETO-process) for ETO-parts (the leftside of the Figure 2), final integration (of ETO-parts and MAM-parts) generating ETO-product and 2the MAM-process (the right side of the figure 2) for MAM parts. These two processes must be supported by IT tools of the company ensuring a fluid information flow. Some of these tools which have been explicitly taken into account in the ESTIMATE project are presented hereafter:
- Configurator: This tool supports the sales activities. It generates a valid product structure that satisfies a customer’s requirements with respect to the generic product description provided by configuration model (Peltonen, 2000). Iteration after iteration, the newly designed ETO-parts, once validated, can be integrated to the configurator database. In other words, an ETO-part evolves to a MAM-part. - CRM tool: Customer Relationship Management tool allows managers of the company to set up a rational management of their customers or potential ones. It manages the relationship with customers by employing up-to-date information technology (IT) such as on-line data analysis, data-mining and database management in order to understand, communicate with, and to attract them. Its objective is to satisfy and retain customers (Dyche, 2002). - SRM tool (Supplier Relationship Management) is used to link raw materials, modules and components to suppliers. It contains mainly known partners of the company. Nevertheless, the ETO product requires sometimes new suppliers. The potential partners of the company should then be identified and assessed for ETO project. To support ETO strategy, ESTIMATE suggests considering parallel treatments of ETO and MAM parts. MAM parts whose components are available undergo three major processes (offer preparation, production/assembling and delivery). ETO parts undergo the following steps which can be carried out in parallel: - Feasibility and changes: This is the first activity to carry out after customer’s order reception. It consists in feasibility assessment of the required product by identifying the parts concerned by modifications and evaluating the change possibilities. This phase allows then to distinguish ETO-parts from MAM-parts. - Engineering: it includes the design and industrialization phases that lead to the product definition. Then, the offer can be prepared for submission to customer. The offer contains production and delivery conditions (joining by the way MAM treatment). - Supplier search and evaluation: the potential partners of the Focal Company are selected using special criteria and techniques. Different classes are proposed based on their involvement level in the project - Evaluation for data maintenance and upgrade: it consists in upgrading the configurator’s database by introducing the validated ETO product configurations. 4. Supporting framework to improve ETO product leadtimes For a given ETO order, the framework is defined as follows: - Distinguishing MAM and ETO parts of the final ETO product. Considering five main drivers to ensure an efficient execution of different processes: product, network, organization, planning and risk dimensions. - Shifting strategy from ETO parts to MAM strategy under certain conditions. The ESTIMATE framework is discussed hereafter.
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4.1 Advantages of distinguishing MAM & ETO parts The idea behind the developmentt of an ETO framework is to lead the company gradually towards the definition of a common platform for a family of products in order to optimise the ETO product leadt-times. At the same time, this distinction becomes a managerial solution enabling partners to deal separately and in parallel, with known parts and new ones. We assume that in realistic situations, only some few parts of a given final product should or could be re-designed based on the requirements of the customer. The manufacturing management system should keep track of all non-modified parts i.e. the MAM-parts and manage them according to management strategies MTS, ATO, or MTO. The design of new parts i.e. ETO-part could be managed in parallel reducing the total lead-time. Commonly, ETO companies carry out no repetitive or ‘pulse’ processes relating to the ‘one of a kind’ item delivery process; Engineer to Order are usually systems where the element of repetition is usually limited, in other words “low volume – high variety” (Slack et al, 2004). In ESTIMATE framework, the capitalized knowledge about the previous ETO developed products are used to reduce ETO product lead-times by adopting “shifting strategy”. This strategy will be described in section 5.
parts require some treatments while innovative components and adjustable components belonging to ETO parts require another kind of treatment. This distinction makes easier comprehension of ETO product composition allowing a concurrent execution of different components. - Network dimension: When a customer transmits an order, the product is depicted according its different kind of components (identified through BOM). Different product requirements guide the company to establish the component’s technical specifications. Performing internally these components can not always be possible; so the intervention of partners may occur at different phase product lifecycle (figure5). It is essential to mention that partners are not only suppliers, they may be service providers, sub-contractors... they may intervene during manufacturing, design and engineering /industrialization phases. The company should coherently define the required partners at the right phase. Identifying the right criteria of partners selection and a method of selecting them is of upmost importance to ensure customer order realization. Component and parts specifications
Partners (suppliers, subcontractors, service providers)
4.2 Main drivers for ETO product Essential drivers should be taken into account when dealing with ETO products. We browse five dimensions that can enable the company to improve global lead-times satisfying hence the final customer. These dimensions are summarized hereafter. - Product dimension: The required ETO product by the customer includes different kinds of components. Distinguishing various types of component through a bill of materials (BOM) ensures an accurate consideration of ETOparts which are the time-consuming bottleneck of the ETO product (Figure 4). Product
C1
C2
C3
On catalogue components Adjustable components
C11
C12
C21
C22
C31
C32
Innovative components
Figure 4. Different type of product components An ETO-part can be either innovative and adjustable. An adjustable component is re-designed. Lots of knowledge are already available. An innovative component corresponds to a completely new-to-the-company component. It can be thought such as a from-scratch component. It is reasonable to say that the development complexity and therefore the development lead-times for innovative and adjustable components will not be the same. Listing the critical components allows their early consideration to guarantee shorter lead-times of the overall project. Hence, on-catalogue components belonging to MAM
Raw materials, technical components
Product development Design Engineering Industrialization Know-How, technical components, …
Requirements
Customer
Process specifications
Manufacturing
Delivery
Figure 5. Partners contributions in ETO products Once components of the ordered product have been identified, it becomes easier to distinguish partners categories: -On-catalogue component: suppliers of raw materials are mainly required. -Adjustable components: partners with specific know-how may be required to modify the component. -Innovative component: may require partners’ involvement from design phase for specific components development. The made distinction among partners highlights the necessity of partners’ implication management which becomes critical with product customization. Organization dimension: the adopted strategy of organization (MTS, MTO, ATO, ETO) is directly linked to the kind of components. New component (innovative) requires development and engineering lead-time, it is managed by ETO. However, more the product becomes standard, less it requires long lead-time. On-catalogue components components can be processed under MTO, ATO or MTS strategies (avoiding development lead-times). Because of components availability, the assembling and realization of final product becomes easier.
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- Planning dimension: According to whether the component is known or innovative the planning procedures are not the same. Indeed, for ETO-parts, the company will manage it as a project (requiring design and industrialization lead-times), while in ATO, MTO and MTS strategies, the components and raw materials required for the product are designed and available. Master production planning can be easily adopted to plan execution over a horizon. Planning is envisaged for the assembling, manufacturing and procurement. - Risk dimension: Fulfilling an ETO-product order implies dealing with ETO-parts and MAM-parts. The risks associated to these two kinds of components are not the same; the MAM-risks are mainly known while ETO-parts’ risks have to be identified and assessed. Two kinds of risks are identified, those related to product and those related to partners involving in order fulfillment process. (Figure 6), summarizes the investigative framework of ETO product based upon component’s distinction and main success drivers.
The fact that companies have specific characteristics and belong to different industrial fields highlights the necessity of considering these particularities in performing successful ETO through shifting. In our work, we argue on the necessity of guiding the company to know how operate the ETO shifting and according to which factors? We identify three key factors that may lead the company to switch to other strategies and adapt its organization consequently (Figure 6).
ETO product
Main drivers
ETO framework
MAM Parts
ETO parts
Product
On‐catalogue parts
Adjustable parts
Innovative parts
Network
Suppliers of raw materials
Suppliers of raw materials, of components Serivce providers
Suppliers of raw materials, of components Serivce providers Sub‐contractors
Organisation
MTS/ATO
MTO
ETO
Planning
Master production planning
Master production planning
Project management
Risk (product related)
Delivery of product
Conformity to specsheets, delivery of product
Feasability and conformity to specsheets, delivery of product
Risk (network related)
Partners interactions
Network dimensioning and Partner interactions
Partners search evaluation and selection, network dimensioning and partner interactions
company’s objectives. Indeed, many authors have approved the usefulness of reuse: the reuse of design concepts from previously realized product may help to rapidly find a solution and adjust the design of new product. Hence, new customer orders could be solved by looking for a similar case and adapting its solutions (Brière-coté et al, 2009). (Erens & Verhulst 1997) outline that extensive work and special knowledge used to solve specific development problems will be transferred to as many similar problems as possible. Reusing previous ETO data in fulfilling new customer orders is performed through: 1) determining the similarities with already developed ETO parts (considered as new MAM), 2) managing the remaining unknown part through ETO. Concerning the already developed ETO parts, the deal is about the shifting to whether ATO, MTO or MTS. In (Barlow et al, 2003) they claim that shifting from ETO supply chain to ATO supply chain may be beneficial in achieving performance objectives.
From ETO parts
Repetitivity of demand
Storage costs
Bargaining power of customer
To MTO To ATO To MTS Low
Medium
High
Figure 6. Shifting key factors
Figure 6. ETO product framework This categorization allows a better visibility of ETO product features and provides clear layouts and guidelines about how to treat different components composing the final product and the associated driver to consider. 5. ETO reuse: shifting to ATO, MTO, MTS ETO strategy allows to the company to gain market parts and remain competitive. In our case, company’s goal being the reduction of ETO lead-times, we suggest to treat the new customer demand by exploiting previous ETO projects. The capitalization of knowledge about new parts developments becomes a source of improvement. At the end of ETO projects, new components once developed could be included in database and considered as MAM parts allowing fastening order fulfilment by reuse the existing data. However, if company neglect the reuse of validated design and/or manufacturing data, it may significantly hinder a
We state that repetitivity of demand, storage costs and bargaining power can significantly influence the adopted shifting strategy. In fact, if the company noticed through previous forecasting that: 1. the demand concerning its components is highly repetitive, 2. storage costs of its composing components are acceptable (considered low) 3. customer is not ready to wait long lead-times (customer has high bargaining power and impose fast availability) In this case, ETO shifting allows the company to reuse the previous ETO data in treating the similar parts by adopting the most relevant strategy: MTS. By this way, if future demand occurs, only delivery lead-times would be required guarantying better service to customer. The expected advantage from ETO shifting strategy is mainly the lead-times reduction. In MTO, manufacturing, assembling and delivery lead-times are required, whereas in ATO, only
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assembling and delivery lead-times are required, and MTS necessitate the shortest lead-times (delivery). Moreover, engineering lead-times are avoided.
Elfving J.A., Tommelein I.D., Ballard G., 2005, Consequences of competitive bidding in project-based production, Journal of Purchasing and Supply Management 11 (4), pp.173–181.
6. Conclusion & further works
Erens F., Verhulst K., 1997, Architectures for product families, Computers in Industry 33(2–3), pp.165–178.
The proposal of this paper was to investigate a framework for improvement ETO product’s lead-times. The need to develop a thoughtful framework for fulfilling customer’s order is justified by the persisting complexity of ETO product and the continual need of lead-times reduction (among other performance issues). The enounced problematic is currently supported and treated inside the Estimate project. The paper’s contributions are based on suggesting concurrent treatment of ETO parts and MAM parts to gain in overall lead-times. Five essential drivers have been identified to allow comprehensible management layouts when dealing with ETO product: Product, network and organization, management and risk dimensions. These dimensions have been discussed. Guidelines to operate ETO shifting strategy has also been argued to show how make the company benefit from time reduction in ETO processes. Future works aim at developing a common integrative platform that allows improving the processes relating to supplier selection, to reuse of data and knowledge capitalization. The suggested framework (at investigative phase) would be developed more deeply to show key success factors to support the ESTIMATE project platform. The configurator should take into account the identified improvement axis to enounce acceptable lead-times when a customer requests an ETO product. REFERENCES Ali A.,2000. The Impact of Innovativeness and Development Time on New Product Performance for Small Firms, Marketing Letters, Kluwer Academic Publishers, Manufactured in The Netherlands, pp.15-163,. Barlow, J., Ozaki, R., 2003. Achieving customer focus in private house- building: current practice and lessons from other industries. Housing Studies 18, pp.87–101. Brière-coté A., Rivest L., Desroches, A., 2009, Adaptive generic product structure modelling for design reuse in engineer-to-order products, Computers in Industry . Caron F., Fiore A., 1995, Engineer to order’ companies: how to integrate manufacturing and innovative processes International Journal of Project Management Vol. 13, No. 5, pp. 313-319. Dyche J., 2002, Handbook: A Business Guide to Customer Relationship Management. Addison-Wesley Inc, Massachusetts pp. 3–18.
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Elfving J., 2003, Exploration of Opportunities to Reduce Lead Times for Engineered-to-Order Products, Ph.D. Dissertation, University of California, Berkeley, Elfving J., Tommelein I., Ballard G., 2002, Reducing the lead time for electrical switchgear, Proceedings of the 10th Annual Conference International Group in Lean Construction (IGLC 10), Gramado, Brazil, pp. 237–250.
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