Purchasing in an engineer-to-order environment - Part II

Genius ERP: ready out-of-the-box for custom manufacturing.

As discussed in the first part of this blog, widely accepted standard processes have often placed the purchasing team in the hot seat, making it the target of blame for failures and delays. Lack of priority management often adds stress to this already stressful environment by pressuring the purchasing team into "buy it right now" situations. However, this mode of operations does not necessarily mean products will be received right away, as materials will take longer to arrive unless hefty premiums are paid. 

When trying to improve the purchasing process in a custom manufacturing environment, attempting to reliably predict future demand based on sales forecasts is impossible. Similarly, data from the engineering department is not always useful, as complicated items are usually undetermined, since they depend greatly on information gathered from customers. An effective purchasing system requires involvement and communication from every department.

 

There is a structure that can help.

In order to effectively purchase-to-order in an engineer-to-order (ETO) environment, a system must be in place that aligns the priorities of each department to work in-synch. Tools to align priorities need to be available to the entire team. Contrary to common practice, this synchronization is not best achieved through weekly meetings, but rather through a predetermined structured format.

 

A few simple steps to effectively purchase-to-order:

 

Step 1 — Prioritization:

The outside sales team — or application engineers — is provided a structured method, including appropriate and sequential application questions. This ensures that all the information gathered at the beginning of the sales cycle can be considered when establishing a reliable promised delivery date needed for a custom ETO project. This information could be gathered and entered in the company's customer relationship management (CRM) system to prevent the loss of pertinent information and to ensure that the right questions will be asked. The customer’s desired return on investment should be included so as to ensure that two items out of the customer’s desired price, quality, and lead time are prioritized. If the parties involved cannot prioritize two of these three qualities, then failure is assured as one of these three qualities will fail, and Murphy's Law has a way of ensuring it will usually be the one that causes the most financial damage to a customer. 

 

 

Step 2 — Simplification:

Inside sales (sometimes called the program/project manager) ensures that all the details are clear and easy to understand in order to create an estimate using a template Bill of Materials (BOM). This template is then shared with the engineering and purchasing team.

 

Step 3 — Categorization:

Elements of a BOM — components, subcomponents, items, and required steps — are separated by their lead times and action priorities. For example, structural items, mechanical items, and electrical items could be categorized under ‘long lead time.'  In order to effectively execute this in a synchronized effort, a company must adopt a progressive BOM release system, where the actual BOM can be released as it is completed without losing track of the complete versus the incomplete items and tasks.

 

Step 4 — Identification:

The sections in the BOM should align with the production and purchasing priorities and pull the task priority in those departments. There may be exceptions to this rule when projects with shorter lead times require the most time and resources in the shop. In order to speed up the progressively released BOM, I would recommend using tools such as CAD2BOM to have a consistent identification system between the product drawings and the ERP item names and descriptions. Furthermore, CAD2BOM would allow for a seamless and automatic connection between lead times, engineering priorities, and production priorities, flawlessly transferring newly created items into the BOM and converting them into demand for both purchasing and manufacturing.

In summary, to succeed and surpass customer expectations in an ETO environment, manufacturers must trade lean and efficient processes for rich and effective performance. This is best achieved through the implementation of a system that can handle the requirements of purchasing-to-order, in a collaborative and synchronous path across multiple departments. What are your thoughts?

 

Peter Mol

Peter has extensive experience working with mid- and c-level management teams, helping them to increase their throughput and level of performance. He has consulted with plants in a variety of manufacturing industries, including automotive, fabrication, food, plastics, stamping, aluminum and steel.

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