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  Manufacturing Insights   |   October, 2008
Double Output with Same Staff: Engineer-to-Order Manufacturers Find Productivity Solutions
by Thomas R. Cutler
 

Increasing capacity by adding new staff should be the last option for a manager, rather than the first. New staff immediately increases operating costs for the firm by utilizing management time dedicated to the hiring process, the employees’ salary as well as substantial hiring fees. New employees also require added resources such as office space, computers, training, and supervision. Not all new employees survive the first year which is also costly. Even a successful new employee, particularly in key technical departments such as Engineering and Manufacturing, require many months of experience before they can be 100% productive.

Dennis Parass, of Burlington, Ontario-based Questica, (www.questica.com) noted, “Every business needs to improve profits, reduce costs and build better products. We all want to shorten cycle times, manage cash flow, identify profitable products and deliver on time and on budget. But project oriented ETO (engineer-to-order) manufacturers have special areas of concern that are critical to their success.”

Success in a competitive market is forcing every manufacturer to make their business more responsive to client demands. The pressure is constant for better, faster, and cheaper solutions. This is particularly difficult for engineer-to-order businesses. It often seems impossible to improve the level of service to clients and increase productive capacity without adding staff, yet according to Parass, ”The key is to streamline your business process, speeding up the process and freeing up critical staff from clerical tasks to focus on income generating tasks. Inherently, Engineer-to-Order companies have talented staff. They are typically confident that they could expand their sales if they had the additional resources. They are also, without exception, very aware of the fact that most of their key staff is burdened with significant clerical responsibilities.”

Consider an Engineering Department
Freeing up engineering staff from clerical duties is the most profitable option. Designers typically spend fifty percent of their time writing up Bills of Materials (BOM), reissuing drawings and BOMs, communicating with Purchasing, processing Change Orders, issuing lists and reports and meeting with staff in Sales and Manufacturing. Finding a way to free up a quarter of their time has the effect of increasing engineering capacity. Parass said, “Four experienced designers now have the capacity of five experienced designers…the impact of freeing up design capacity has a multiplying effect on manufacturing capacity.”

Generally the number of shop staff is four to eight times the number of designers in a company. Increasing engineering capacity means that more shop hours can be sold, increasing company profits with minimal increase in fixed costs.

A major profit impact by speeding up the design process is realized in reducing material costs. Engineer-to-Order businesses usually define the materials required after they get the client order. Because this is a creative process and changes from the client occur frequently and it is not unusual for Engineering to use more time than planned. The result is that Purchasing has less time to buy the materials in order to meet promised delivery dates; time constraints reduce or eliminate the possibility of price shopping. Typical ETO firms spend 35-50% of Sales as materials. When Purchasing receives the BOM from the designer sooner and has time to solicit competitive bids, significant savings can be realized. In a $10 million/year Sales firm spending $ 4 million in materials a 3% gain (with competitive bidding) alone represents a $120,000 annually.

Engineering History Increases Plant Capacity
Another major contributor to plant capacity is found in using prior engineering history to reduce new engineering. Implementing a system that allows staff to find and use the information gleaned from prior projects has a direct bottom-line impact. Parass insists, “Providing Sales and Estimating staff with the ability to quote clients based on similar past projects not only improves the accuracy of estimates but it also reduces the time to quote and qualify clients. More importantly it can reduce the engineering work required and speed up the order to ship timeline.” The combination of streamlining the business process and freeing up key staff has a major impact on plant capacity.

Handling Specialty, a Niagara region custom manufacturer specializing in lift systems, was able to triple their sales in a five year period after implementing Questica SE while keeping the same size staff throughout that period, exactly the same number of designers and shop staff, the same size plant and inventory. What changed was their ability to eliminate certain staff positions such as job costing replacing them with Marketing, IT and Quality support staff. Profits during this period were six times those of the previous five years.

There are great opportunities for ETO companies to increase competitiveness and profits by focusing on improved business processes. It is critical that technology solutions for this dynamic manufacturing process provide a practical, powerful, and affordable system for small and mid-sized custom manufactures.


Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based TR Cutler, Inc. (www.trcutlerinc.com). Cutler is the founder of the Manufacturing Media Consortium of three thousand journalists and editors writing about trends in manufacturing. Cutler is a member of the Society of Professional Journalist and author more than 300 feature articles annually regarding the manufacturing sector. Cutler can be contacted at trcutler@trcutlerinc.com..... See More Details.

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