Engineer to Order (ETO) Workflow: Definition and Best Practices

Manufacturing is experiencing a shift towards both more customization and shorter lead times. One option for catering to this contrary dynamic is the engineer-to-order manufacturing workflow. ETO has the potential to achieve fast-paced bespoke manufacturing, but only if companies leverage the right tools for the job.

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What is engineer-to-order (ETO)?

Engineer-to-order (ETO) is a manufacturing workflow wherein incoming customer orders prompt both the custom engineering and design, as well as the manufacturing of a product based on customer specifications. ETO is used when producing custom-made or bespoke goods that are made to specific customer requirements or in cooperation with the customer’s own design team. In other words, in ETO workflows, customers don’t order ready products. Instead, product development is part of the work order.

The engineer-to-order workflow is popular in sectors that require complex, highly configurable, or custom items to be produced like aerospace and defense, marine, or medical devices. Examples of ETO products may include test equipment for various machinery, custom-made or aftermarket add-ons for cars, specialized military or lab equipment, etc.

The other portion of ETO operations caters to customers from several sectors who simply have very specific needs for a product and there’s no room for compromise. It could be something like a unique type of paint or chemical mix, a distinct composite material, cosmetic detailing, or anything in between. With modern manufacturing technologies becoming more and more versatile, providing custom engineered-to-order solutions is seeing a surge across diverse sectors.

The difference between engineer-to-order and make-to-order

Engineer-to-order bares some similarities with the make-to-order and assemble-to-order production types. Namely, all three are pull-type manufacturing workflows. This means that it’s incoming orders that “pull” the manufacturing process into motion. Pull-type contrasts with push-type workflows like make-to-stock (MTS) wherein products are manufactured to finished goods inventory or a retailer’s warehouse in anticipation of purchase orders.

Make-to-order manufacturers offer a range of finished products to choose from. For example, a bicycle manufacturer that has 5 different models of bikes on offer. The manufacturing plant is set up and doesn’t need adjustment. Production and assembly can start as soon as an order comes in.

In the case of assemble-to-order (ATO), the customer can configure certain aspects of the product. This is usually achieved by utilizing sub-assemblies that are manufactured beforehand. An ATO bicycle manufacturer may have one or two base models but allow customers to choose from a variety of product configurations or enable configuring themselves by changing dampers, tires, or breaks. ATO thus offers limited customizability, serving as a middle ground between MTO and ETO.

In engineer to order, however, most or all aspects relating to the design and concept of a new product are open for customization. Maybe a customer wants a custom frame bicycle or even a trike, has specific requirements for materials, etc. Large parts of the manufacturing equipment, routings, and workstations of an ETO setup might need to be reconfigured completely with an incoming order because at least a portion of the product design is unknown. Communication with the client, order management, and quoting include many more steps than in MTO or ATO.

Therefore, the chief difference between MTO (and ATO) and ETO is the level of complexity of the respective production processes and the order and inventory management, supply chain, and production planning aspects that this entails.

The engineer-to-order manufacturing process

Since a diverse range of industries and companies operate as ETO, the specific workflows and planning processes can vary wildly in shape and form. Still, there are basic steps in the ETO model which help paint a picture of the process. Let’s break them down next:

1. Specifications and quoting. The ETO process begins with the customer providing details about their requirements and the parties agreeing on a sales order. First, a Request for Quotation (RFQ) or Request for Proposal (RFP) is issued by the client. The manufacturer then asks to provide a detailed work breakdown structure (WBS) or product requirements document (PRD). What follows is a back-and-forth between the parties to clarify costing, project timelines, and delivery dates.
2. Requirements and procurement. Once there is an initial understanding of the project’s requirements, a bill of materials (BOM) is created, detailing all necessary materials and components for the job. Routings and sequencing of the upcoming manufacturing process along with requirements for any new tooling or production line setups are also clarified, and materials and components are sourced.
3. Design and engineering. Next, the project is sent to the engineering team and product realization begins. The R&D team designs the product to the customer’s specifications and, if applicable, may generate a model or prototype of it. This phase is highly iterative as changes might need to be made to the specifications, BOMs, or production line if research should uncover potential pathways or constraints. The customer is usually required to complete an advance payment in the design phase.
4. Confirmation. Once the design process is complete, the product concept is supplied to the customer who will either provide feedback for any changes or confirm it and give approval for go-ahead. In the case of the latter, initial lead times and final costs are agreed upon, the BOM is finalized, and the project is ready to move onto the production phase.
5. Production planning and scheduling. Next, material requirements planning (MRP) is set in motion. The project is issued detailed manufacturing orders across the whole BOM. Production is planned, workstations and sequences are assigned, purchase orders are sent out for required materials, and finally, production is scheduled within the manufacturing system.
6. Manufacturing and assembly. The product is manufactured and assembled according to specifications, usually with the aid of a manufacturing execution system (MES).
7. Delivery, trialing, and review. Once completed, the product goes through final quality assurance before being delivered to the client. Depending on preceding agreements, a trialing phase may follow, helping the client to ensure that the product is in accordance with its specifications and of sufficient quality. Final payments are made and product documentation and analysis are conducted. The ETO process is complete.

The pros and cons of ETO

While the engineer-to-order process flow may shine bright in certain key areas, it does not come without its limitations and challenges. Next, let’s look at the biggest advantages and weaknesses of the ETO manufacturing workflow.

Advantages of engineer to order

The most obvious advantage of engineer-to-order ahead of other manufacturing types lies in the customizability of the product. The manufacturing market is experiencing a shift towards more customization as customer appetite for specific needs keeps growing. Thankfully, the increasing adoption of technologies like 3D printing, automation, and robotics promises to live up to these expectations. Adept ETO manufacturers can provide a no-compromises solution to a range of custom requirements whether in design, dimensions, resistances, materials, or cosmetic details of the product.

Flexible ETO manufacturers are happy to take on projects with small quantities of custom goods. This can be helpful in many circumstances where traditional manufacturing companies would entail nosebleed expenses in setting up production lines and developing products just to produce a small quantity of goods. For anyone wanting to cater to niché markets or get solutions for very specific applications, ETO is an obvious avenue to explore.

Finally, ETO can provide a viable solution for ensuring competitive returns on investment and a fast time to market. With flexible and adjustable production facilities, experienced R&D teams, and well-set-up supply chains, ETO producers can provide a short path for breaking into new markets and delivering new products relatively fast. What’s more, once the product is ready and attracts a competitive position in a market, producing more of it can then be set up through a contract manufacturer, for example.

Challenges of engineer to order

Perhaps the biggest disadvantage of engineer-to-order lies in the added project costs from needing to develop new products compared to simply procuring standard products. Not only does the customer have to dish out extra expenses to fuel the R&D process – in advance, no less – but the much more intricate and time-consuming collaboration between both parties also entails extra costs. On top of that, there are added expenses from staffing, documentation, compliance, project management, etc., which all raise the final cost of the manufactured product.

As we saw, ETO can promise a faster time to market for new products in many cases. Still, a much longer lead time is practically guaranteed for an engineer to order process flow as compared to off-the-shelf or even configurable merchandise. The ETO process inevitably entails a longer paper trail, more thorough communication between parties, extra time to design, engineer, and prototype the product, develop new production schedules, etc. This elongates the lead time and also makes it more difficult to assess.

Engineer-to-order can further entail other potential pitfalls compared to MTO or MTS workflows. For one, the probability of errors or overlooking details rises with creating custom products and quality assurance needs to be exceptional in ETO workflows. Furthermore, ETO manufacturers are often only capable of offering a limited selection of the types of goods able to be produced as extensive changes to the production lines and workstations may be unfeasible. Finally, ETO relies on highly skilled and experienced engineers, a high level of organization of the manufacturing business, and meticulous relations with sub-contractors and suppliers.

Engineer to order best practices

Finally, here are 5 best practices and recommendations to consider for manufacturers.

• Establish deep channels of communication. Because ETO manufacturing requires much more customer input compared to MTS or MTO, open, accessible, and documented communication with the customer must be established. This holds true from the RFQ stage through production and shipping. As the production requirements often involve several iterations and design changes, engineers, sales, procurement, purchasing, and manufacturing staff must communicate regularly. Invest in business communication platforms or procurement software that’s integrated throughout the manufacturing and R&D process. 
• Increase standardization and reconcile engineering and manufacturing. Because product design is either new or being produced for a specific end-use, product design within an ETO environment can be highly innovative and creative. It is essential that manufacturing and engineering work closely to reconcile engineering needs with production capabilities. This can be done through checklists and increased standardization of procedures to help define the company’s inherent capabilities. 
• Adopt systematic change management. In ETO, customer specifications can change and engineering designs are often refined during the project. A change management system should be capable of capturing, documenting, and communicating any changes in project specifications, material selections, design alterations, etc. Changes must be communicated effectively across all departments to ensure everyone is aligned and the project stays on schedule. Utilize formal change orders, workflows, and approval processes to ensure that changes are implemented consistently and effectively while mitigating risks like cost overruns or delays. Integrated change management tools within manufacturing ERP systems can provide a centralized platform for managing these complexities.
• Focus on accurate documentation. By providing unique products, ETO manufacturing can carry added liability through safety requirements, regulations, and other variables.  Accurate documentation from the beginning to the end of the process is critical. Things to consider include consistent part numbering, accuracy of BOMs, precise cost models, robust real-time inventory management, and end-to-end traceability.
• Deploy system automation – All the sales expertise, engineering, and skilled production work count for little if cost, waste, and workflow can’t be managed appropriately. In the modern manufacturing environment of subcontractors and hyperextended supply chains, it’s essential for a manufacturer to have a powerful MRP system or enterprise resource planning software in place to manage the inventory and production flow. 

To help manage the wealth of unique requirements, cloud-based manufacturing ERP systems like MRPeasy should be on the productivity tool shortlist for ETO manufacturers. This software allows creating and managing dynamic multi-level BOMs, automatically tied into inventory, procurement, and order management. The system hugely simplifies calculating product cost and lead time, and includes powerful production planning and scheduling tools, built-in end-to-end traceability, quality assurance and inspections, automated reporting, and a host of other functionality crucial for handling ETO workflows.

Key takeaways

• Engineer to order (ETO) is a manufacturing workflow wherein incoming customer orders prompt both the custom engineering and design and the manufacturing of a product based on customer specifications.
• Like make-to-order and assemble-to-order, ETO is a pull-type system in which production is prompted by incoming orders instead of producing goods in anticipation of sales like in push-type make-to-stock workflows.
• Engineer to order is popular in sectors that require complex, highly configurable, or custom items to be produced like aerospace and defense, marine, or medical devices.
• The ETO process consists of a number of phases including quoting, requirements and procurement, design and engineering, confirmation, production planning and scheduling, manufacturing and assembly, and delivery, trialing, and review.
• The chief advantages of ETO include a high level of customization and faster time to market with new products. Disadvantages range from longer lead times and added project costs, to more complex workflows and change management.

Frequently asked questions

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