Staying Competitive: Strategies for Engineer-to-Order Manufacturers

Automation.com regularly references "automated equipment & machine manufacturers." These manufacturers are ETO (Engineer-to-Order) companies.
 
Today, ETO manufacturers, as opposed to repetitive manufacturers, are required to use technology to stay one step ahead of foreign competition.
 
The ETO Institute (www.etoinstitute.org) reviewed a history of automated equipment and machine manufacturers and recognized the dramatic penetration of imports into the machine tool industry. In the 1980s only 20 percent of machine tools were imported; today 70 percent are imported.    Price has become the overriding criteria and domestic machine tool companies cannot compete with low labor cost countries. To survive, ETO manufacturers require new strategies; relying on old business models will lead to ruin.
 
Competitive Strategies Used by ETO Manufacturers:
 
Focus on niche markets.  Competing based on price with a "commodity" machine builder is futile; creating a niche focus of expertise creates product and industry sector distinction. Typically, the larger, more expensive machines need more services and support and generate an alternative revenue stream.
 
New markets. Most ETO machine tool companies are small family-owned businesses that have traditionally relied exclusively or predominantly on the domestic market. Overseas markets represent huge growth potential for ETO manufacturers.  Even domestically, ETO manufacturers are finding untapped sectors such as automotive Transplant factories that require automation equipment.

Invest in new technology.  While many ETO companies do not think twice about spend $250,000 on new equipment to make their plant more efficient, they balk at spending the same amount on ERP (Enterprise Resource Planning) software that will have a much more dramatic bottom-line impact than a single machine tool. This technology is not limited to ERP, and includes CAD, project management, PLM, and Configuration software.
 
Lean thinking throughout the whole organization. Lean manufacturing cuts costs and inventories rapidly to free cash and resources, which is critical in a competitive world economy. Lean supports profitable growth by improving productivity and quality, reducing lead times, and freeing resources. For example, it frees office and plant space and increases capacity so companies can add product lines, in-source component production, and increase output of existing products. ETO manufacturers that implement lean initiatives take advantage of renewed economic growth by increasing sales while controlling costs.

Spotlighting Progressive Lean ETO Organizations

B&K Corporation:

B&K Corporation designs and builds assembly and test systems for the automotive industry. Customers include General Motors, DaimlerChrysler, Ford Motor Company, and many other automotive top tier clients.  B&K’s complex products take six months to a year to manufacture and the price for a complete system ranges from $500,000 to $2.5 million.  B&K CEO, Scott Orendach, commented on the challenges of global competition, “The marketplace has become far more global.  We are dealing with competitors in Europe and in Asia.  Our customers are looking for suppliers that have common manufacturing practices all around the globe, so we are now facing some pretty serious competition.  We have currencies working both for us and against us.  All of these things put pressure on B&K to address its cost issues, standardize and modularize its products.” 

The company replaced their previous ERP (Enterprise Resource Planning) system in May of 2004 and according to Roger Meloy of Cincinnati-based Encompix, “Since B&K went live with our ETO specific ERP system they have seen significant improvements impacting the bottom-line and their overall global competitiveness.  We were able to provide B&K greatly improved information.  They now conduct monthly project meetings with the project managers and engineering using real-time data.  They are able to see the exact status of all projects.  They have much better control over raw material costs and purchasing; they now look at historical pricing so that we know when they are getting the best buy.”

Orbitform

Located in Jackson, Michigan, Orbitform manufacturers precision orbital forming and impact riveting equipment for a wide range of industries and applications.  For twenty plus years the company has provided prototype engineering services for assembly of parts and specialize forming and fastening.  Concentrated heavily in aerospace and automotive sectors, the firm’s intelligent machines monitor and control the assembly process.  According to Orbitform president, Mike Shirkey, “The biggest pressure is that the world has become flat and transparent, and our customers know as much about us as we do.  They know as much about costing structures as we do.  It’s hard and harder to differential what we do from the competition, and therefore our customers dictate what price they are willing to pay.  The end result is that margins have shrunk and companies such as Orbitform are not focusing more on their own market niches and concentrating on what they are really good at.  The result of all this is that companies may be a big as the owners would have predicted say ten years ago, but they are protecting their margins and their ability to make a profit.”  Shirkey also acknowledged the machine tool industry has felt a bit of ripple in raw materials such as steel, although they have benefited from the exchange rates as they have made of their European competitors less attractive. 

Orbitform created a new culture of continuous improvement system which involved every member of the staff.  They call in QOS (Quality Operating System).  They reject the terminology “initiative” because Shirkey insists, “It really needs to be part of our culture.  We are always working on a new generation of measurable improvements.”

Like B&K Corporation, a key aspect of staying competitive for Orbitform was in the investment in technology as critical to support continuous improvement.  Shirkey pointed out several specific technological decisions that allow them to remain increasingly competitive.  “Over the past few years we have made three major investments in new technology.  First, we implemented ETO ERP Encompix.  Second, we made a decision to standardize on Solidworks for our engineering software and invested heavily in training.  Third, within the last couple of years we have implemented a state-of-the-art, comprehensive project management.”

Prognosis for Global Competition in the ETO Environment

Company executives often complain about the challenges of operating an ETO manufacturing business: too much regulation, the cost of health care, unfair competition from overseas. Waiting for the government to do something about these issues, these small, often privately owned companies will go out business and many have already vanished from the landscape. The ETO manufacturers that are going to survive are implementing some of the strategies described above.  Truly lean and progressive ETO companies, like B&K Corporation and Orbitform, are thriving.

About The Author


This article was written by Thomas R. Cutler, President & CEO of Fort Lauderdale, Florida-based TR Cutler, Inc., the largest manufacturing marketing firm worldwide – www.trcutlerinc.com. Cutler is the founder of the Manufacturing Media Consortium of 2000 journalists writing about trends in manufacturing.   Cutler is the lead spokesperson for the ETO Institute (www.etoinstitute.org). Cutler is also the author of the Manufacturer's Public Relations and Media Guide.  Cutler is a frequently published author within the manufacturing sector, more than 200 feature articles annually, can be contacted at trcutler@trcutlerinc.com or at 954-486-7562.

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