Most ETO (Engineer-to-Order) manufacturers do not identify themselves as such. They are conveyor manufacturers, custom elevator manufacturers or tier one automotive moldmakers. They represent hundreds of other industry sectors making one-of-a-kind big ticket items.
Often family owned, the majority of ETO manufacturers are privately held. Most are not familiar with the ETO designation until they seek technology and discover that ETO involves a series of processes unlike repetitive manufacturing. At that point they may accept the ETO label to procure the right technology solution.
Technology providers in the ETO space have faced an uphill battle to get manufacturers to recognize ETO nomenclature. The ETO Institute has been tracking and advising these manufacturers for the past two years. Some trends have emerged that may help technology providers do a better job understanding their market.
- ETO market continues to emphasize "the product" rather than "the business." Many smaller and mid-tier ETO companies are launched and still owned by the engineer/entrepreneur/inventor. Sadly, this person often continues to believe that designing the better mouse trap will enable them to survive. In a global economy today, it takes much broader understanding of the integrated business environment to survive and thrive. Many established ETO companies with great niche products simply implode due to their inability to adapt to this changing business model. Some file for bankruptcy protection while others are consolidated with competitors.
- Lack of technology, an inability to improve process efficiencies, and personnel productivity is a big issue for many small and mid-size ETO companies in North America. With an improved business climate, many ETO companies are scrambling to get product delivered and are suffering margin reduction because they lack the resources needed to get products built , through quality assurance, and shipped. (See our recent webcast "Re-Writing the Rules for ETO Manufacturers".)
The current influx of new business is making that lack of investment very obvious and painful. The few companies that continued to modernize are reaping the benefits in 2005 even with the increased global competition.
- Technology providers must communicate better about the business processes of ETO and the requirement of lean manufacturing, continued process improvements, technology advancement as a competitive requirement in a global economy and step away from the market segmentation. There is also a great need to understand that spending to support growth takes time for smaller ETOs. Software upgrades and infrastructure overhauls are big ticket items that still produce pricing sticker shock among ETO manufacturers who are just on their first or second generation of technology.
The ETO Institute believes vendors must focus on three levels of technology investment (ideally simultaneously) to help ETO manufacturers achieve their business goals.
- The Point Solution: A CAD system for the engineering department or project management software is needed to plan and control projects. While delivering considerable benefits these solutions typically just improve existing business processes. The same activity is completed faster and more accurately.
- The Integrated Solution: Here the data flows seamlessly throughout the entire company, data accuracy is improved, re-keying of data eliminated. Management now has the timely information to make informed decisions.
- The Optimized Solution: Here the investment in technology is used to facilitate a program of continuous improvement, removing non-value added activities, reducing lead times, driving waste and cost from the organization.
Concentration on one rather than all three solution categories is often what prevents vendors from penetrating the ETO market. Meanwhile, many ETO companies often stop investing in technology once the implementation is complete. Spending either gets diverted into another project or personnel get bogged down with irrelevant operational details and lose sight of the big picture. Smart ETO companies are those that have a strategy and realize that investing in technology is only the start and not the ultimate solution.
Thomas R. Cutler is the lead spokesperson for the ETO Institute. He can be reached at email@example.com or at 954-486-7562.