The Engineer-to-Order (ETO) model is becoming increasingly popular in Malaysia’s competitive manufacturing industry. This approach allows businesses to design and produce products specifically tailored to individual customer needs, ensuring both precision and uniqueness.
Exports of ICT products, driven mainly by manufacturing, accounted for 34.5% of Malaysia’s total exports in 2023, underscoring the importance of the manufacturing sector in the country’s digital economy and its capacity to support customized production approaches, such as Engineer-to-Order (ETO).
ETO provides a clear solution to these challenges. By enabling manufacturers to customize products to customer specifications, ETO enhances product uniqueness and customer satisfaction. Many Malaysian businesses have adopted this approach, leading to increased efficiency and enhanced customer relationships.
Many Malaysian businesses are adopting ETO manufacturing to meet the rising demand for customized products. This approach allows manufacturers to enhance product uniqueness, improve efficiency, and strengthen customer relationships. Learn how ETO can streamline your production process and increase your competitive edge.
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What is Engineer-to-Order (ETO)?
Engineer-to-Order (ETO) creates products based on specific customer requirements. This highly tailored approach suits industries such as aerospace, defense, and heavy machinery. The ETO process demands precise design and production, utilizing engineered systems for accurate and efficient workflows.
Engineer-to-Order (ETO) produces products tailored to specific customer requirements. This highly customized approach is ideal for industries such as aerospace, defense, and heavy machinery.
ETO manufacturing focuses on personalized designs, resulting in a more expensive production process and longer production cycles due to customization. To manage this complexity, many businesses use engineering project management software to streamline design, production, and delivery coordination.
ETO Process
The Engineer-to-Order (ETO) manufacturing process differs from traditional methods, as it involves creating products tailored to a customer’s specific requirements. This model requires a high level of customization and precision, making each product order different from the next.
Below, we’ll explore the key steps involved in the ETO manufacturing process.
Sales engineering
The ETO workflow starts with sales engineering. The customer usually submits a Request for Quote (RFQ) outlining the product requirements. Sales teams work with engineers to review specifications and determine how to meet the customer’s needs, refining quotes through multiple iterations until approval is secured.
Process planning
ETO differs from Make-to-Stock (MTS) as each product is custom-made, requiring unique planning per order. Production processes vary by design, so a flexible plan is essential, involving component sourcing, design documentation, and cost estimation while adapting to production changes.
Inventory management
Effective inventory management is crucial in ETO, where components are specialized. Accurate tracking ensures the right parts are used, maintaining production schedules. Businesses often use manufacturing engineering software for real-time tracking and adjustments.
Manufacturing
Each product in ETO is unique, so manufacturing engineering software is essential for automating scheduling and managing production changes. The Bill of Materials (BOM) outlines the required parts, helping ensure the process runs smoothly and on time.
Due to the complexities of ETO, the production process often involves change orders, requiring modifications on the factory floor. These changes can impact multiple production locations, making precise execution critical. Proper management of the product lifecycle is key to avoiding delays and staying within budget.
4 Best Practices for ETO
While ETO production can be complex and challenging, several best practices can help streamline the process and make it more manageable. Below are key strategies to improve the Engineer-to-Order (ETO) production workflow:
Maintain clear communication across teams
Communication is key in ETO production. Due to the greater customer involvement compared to Make-to-Stock (MTS) or Make-to-Order (MTO) approaches, sales, engineering, and procurement teams must remain closely aligned. This ensures timely adjustments and helps meet customer expectations throughout the production process.
Align engineering with manufacturing capabilities
In ETO, products are often customized, requiring close collaboration between engineering and production teams. They need to assess production capabilities and use tools like checklists to ensure the design fits within available resources, helping manage the Bill of Materials (BOM) and costs.
Prioritize comprehensive documentation
Accurate documentation is vital in ETO production. Every product is unique, so maintaining proper records, such as part numbering and Bill of Materials (BOM), ensures compliance with safety standards. Well-maintained documentation also streamlines the process, minimizing errors and costly delays.
Embrace automation for better efficiency
To improve efficiency in ETO, implementing systems like MRP and ERP is crucial. These tools automate key tasks such as accounting, inventory management, and supply chain coordination. Automation helps reduce manual work and allows manufacturers to focus on strategic production needs.
If you’re ready to implement these practices, investing in the right ERP system can make a significant difference. Click the banner below to explore HashMicro’s cloud-based ERP system and learn more about how it can streamline your ETO process at an affordable price.
The Benefits and Drawbacks of ETO
Engineer-to-Order (ETO) offers clear advantages, but it also brings several challenges. Let’s take a look at the main benefits and disadvantages of ETO manufacturing to understand how it affects businesses.
Benefits of ETO manufacturing
- Customization and flexibility: ETO allows manufacturers to produce products tailored exactly to the customer’s specifications, offering flexibility and an advantage in specialized markets.
- Higher profit margins: Since ETO products are unique and custom-made, they can be priced higher, helping businesses increase profit margins and capture more value per order.
- Stronger customer relationships: Customization helps build trust with customers. Offering ETO products ensures that businesses meet client needs exactly, leading to higher customer satisfaction and long-term loyalty.
- Specialized focus: ETO is ideal for producing low-volume, high-complexity products. This focus on specialized production allows manufacturers to position themselves as experts in niche markets.
Disadvantages of ETO manufacturing
- Longer lead times: Because engineer-to-order involves creating products from scratch based on customer specifications, it often leads to longer production cycles, delaying delivery times.
- Increased production costs: Custom designs, specialized materials, and frequent changes can increase the cost of production. These added costs can lower profit margins, especially if not managed carefully.
- Limited production capacity: As each product is made to order, ETO requires specialized labor and resources, which can make scaling production difficult and limit the company’s capacity to handle large orders.
- Complex inventory management: Managing inventory in ETO is more complex due to the use of specialized parts for each order. This increases the risk of errors and delays when inventory isn’t tracked properly.
To provide a clearer comparison, here’s a table that outlines the key benefits and disadvantages of ETO:
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Benefit |
Disadvantage |
| Customization and flexibility | Longer lead times |
| Higher profit margins | Increased production costs |
| Stronger customer relationships | Limited production capacity |
| Specialized focus | Complex inventory management |
Examples of ETO
Engineer-to-Order (ETO) products are found across various industries, addressing specific needs that mass production can’t meet. Here are some examples of ETO products that highlight the diversity of this manufacturing approach:
- Packaging machinery: Equipment designed to meet the specific requirements of production lines for different products, ensuring efficient and precise packaging.
- Medical devices: Equipment and instruments for healthcare providers, such as surgical tools or diagnostic machines, built to meet particular functional and regulatory needs.
- Industrial automation systems: Complex automation systems built to control processes in industries like automotive or electronics manufacturing.
- Marine vessels: Ships and boats built for unique operational needs, such as those used in offshore drilling or rescue missions.
- Semiconductor fabrication equipment: Equipment built for semiconductor manufacturers, accommodating the precise requirements of chip production.
- Robotics systems: Robots designed for specific tasks in various industries, from assembly lines to medical applications.
- Renewable energy solutions: Solar power or wind turbine systems built to meet particular location or energy production needs for long-term sustainability.
5 Challenges with ETO
Although ETO offers significant benefits, it also presents challenges. Here are some of the most common issues faced by ETO manufacturers during the production and sales process:
Uncertain pricing and estimates
In ETO, the full product specifications are often unclear during the quoting stage. As a result, pricing, lead times, and technical details remain uncertain, making it difficult to provide accurate quotes and performance data upfront.
Struggling to meet tight deadlines
When an RFP arrives, key details required for a proposal may not yet be available. This forces the manufacturing team to work under tight timelines, with engineering teams rushing to convert client specifications into a viable solution.
Challenges in estimating lead time
Accurately forecasting lead time, cost, and risk is a significant hurdle in ETO. The uncertainty in the early stages makes it hard to provide a reliable assessment for quotes, potentially delaying the project approval and complicating the contract process
Profit margins at risk
In ETO, a lack of clarity can lead to rushed and imprecise estimates. Without enough time to refine designs, companies may face squeezed profit margins as the estimated costs often don’t match actual production expenses.
Potential for losing the project
To manage risk, manufacturers may add buffer time or contingencies in their pricing and lead times. However, excessive buffers can make the offer less competitive, risking the loss of the project to competitors who can offer more attractive terms.
Why You Need HashMicro ERP for ETO Optimization
In Engineer-to-Order (ETO), managing customized products efficiently is crucial. 50% of all ETO products are sold globally, highlighting the need for a robust solution to handle custom orders. A cloud-based engineering ERP system like HashMicro’s simplifies the process, boosting efficiency and reducing costs.
ETO goods account for a significant portion of capital and consumer goods produced. There is a need to speed up and refine the process as clients’ tastes become more refined. The demand for speedier rollouts and shorter lead times puts pressure on ETO product manufacturers.
Many of these systems facilitate a direct transfer of newly engineered goods via API connections or CSV upload. This reduces many manual stages and automates a significant portion of the process.
With precise BOMs, a plant can leverage its ERP for cost functionality and connect to finance departments. The manufacturing department gains access to reliable data for labor planning, enabling effective management of inventory and shop floor control. These processes help control costs and minimize idle time.
To summarize, here’s how HashMicro ERP benefits ETO:
- Manage the unique requirements of ETO products: With its robust BOM management and flexibility, HashMicro ERP handles the complex nature of custom orders efficiently.
- Eliminate manual tasks through automation: By automating critical processes like procurement, costing, and scheduling, HashMicro ERP frees up time for more strategic activities.
- Track various manufacturing activities through a single dashboard: HashMicro’s system provides centralized control over production workflows, giving users real-time insights into inventory, costs, and progress.
- Align finance, manufacturing, and sales teams: The ERP system connects departments, ensuring everyone is on the same page and can track costs, inventory, and order status efficiently.
- Develop accurate cost functionality: Accurate costing models and real-time data help optimize budgeting and reduce waste, ensuring that the manufacturing process stays within financial targets.
- Track processes with real-time updates: HashMicro ERP offers real-time monitoring of project progress, allowing businesses to make adjustments on the fly.
- Accelerate the manufacturing process: With features like automated production scheduling and dynamic resource management, HashMicro ERP reduces lead times and increases production efficiency.
HashMicro’s cloud-based engineering ERP system is the perfect solution for businesses seeking to streamline their ETO process, improve accuracy, and ensure profitability.
Conclusion
Engineer-to-Order (ETO) presents a unique opportunity for businesses focused on delivering highly customized products. However, it also comes with challenges related to pricing, lead times, and managing complex production processes. Businesses must adopt efficient systems to stay competitive and meet customer expectations.
With growing customization demand, businesses need automated systems that seamlessly integrate departments. HashMicro Engineering ERP Software offers real-time updates, tracks the Bill of Materials (BOM), and ensures accurate cost management, contributing to faster production and improved profitability.
Adopting a cloud-based ERP system like HashMicro enables businesses to optimize their ETO processes effectively. Ready to enhance your operations? Book a free demo today to see how HashMicro ERP can help streamline your production and boost growth.
FAQ About Engineer-to-Order
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What is an MTO engineer?
A Make-to-Order (MTO) engineer designs products based on customer orders using standard configurations, with minimal customization.
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What are the key differences between ETO and MTO?
ETO involves highly customized products requiring extensive engineering, while MTO uses standard designs and focuses on fulfilling orders with less customization.
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How can ETO help improve customer satisfaction?
ETO ensures products are tailored to customer specifications, which helps improve satisfaction by meeting specific needs.
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What industries benefit the most from ETO manufacturing?
Industries like aerospace, defense, and custom electronics benefit most from ETO manufacturing due to their need for specialized products.
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How do engineers manage complex ETO products?
In ETO manufacturing, engineers collaborate closely with clients to ensure that the product meets all specifications.
