BUS606: Operations and Supply Chain Management

Engineer-To-Order Typology and Characteristics

Based on the literature six different supply chain typologies can be defined to describe the range of possible operations: engineer-to-order (ETO), buy-to-order (BTO), make-to-order (MTO), assemble-to-order (ATO), make-to-stock (MTS), and ship-to-stock (STS). The ETO supply chain is described as a supply chain where the customer order decoupling point is located at the design stage, so each customer order influenced the design phase of a product.

The characteristics of the manufacturers with ETO are customized and high-value added products, in low volume with deep and complex product structure in order to meet specific customer requirements. It is primarily associated with large, complex project environments in sectors such as construction and capital goods. However, while the term ETO is used, in the literature exists confusion about the appropriate strategies and there is no major systematic literature reviews or syntheses of knowledge relating to the ETO supply chain type.

Competitiveness

The competitive advantage of ETO companies is based on the fulfillment of individual customer requirements. This approach demands a high flexibility of the manufacturing process. The success factor is the capability to deliver the specific order in time. As a consequence, a short lead time and effective synchronization of the production management processes are key to gain competitiveness.
Between innovation and competitive advantage, there is a complex and multidimensional relationship, in which sustainability plays a primary role. Therefore, the innovation must be characterized by sustainability.

As an example, the competitiveness of steel production is based on a set of internal comparative advantages such as labor costs, consistent economy and foreign trade policy, long-term work experience, energy prices, or highly efficient work organization. These indicators provide us how these factors differ and how they affect the international competitiveness of steel products. Based on that, the EU is losing its competitiveness in those market segments where it is not possible to apply other competitive advantages such us: innovation, know-how, or scientific and research outputs for commercial purposes.

Organizational Model for the ETO's Order Management Process

There are three stages of interaction between ETO companies and their customers. The first is marketing. The second stage is tendering that involves the preliminary development of the conceptual design and the definition of major components and systems. A technical specification, delivery schedule, price, and commercial terms are agreed. Of costs 75–80% are committed at this stage. The third stage takes place after a contract has been awarded and includes non-physical processes, such as design and planning, and physical processes associated with manufacturing, assembly and commissioning. Supply chain management in ETO companies involves the co-ordination of internal processes across these three stages.

ETO companies span a continuum from a fully integrated company that manufactures all components and assemblies at one extreme, to a pure design and contract organization at the other. The appropriate structure for a particular company is dependent upon many factors including cost, capital available for equipment, potential utilization of plant, internal and external capabilities and flexibility. These factors vary from firm to firm giving rise to different levels of vertical integration.

Production Planning and Control: Push Versus Pull

One of the central tasks of production management is production planning. The original tasks of production planning include the planning of the products to be manufactured, as well as the required production factors and processes. Production management contains the tasks of design, planning, monitoring, and control of the productive system and business resources such as people, machines, material, and information. In this context the task of production planning and control is the planning and control of deadlines, delivery dates, capacities and quantities of manufacturing, and assembly processes.

The planning of production processes contains a comprehensive planning of delivery dates oriented to customer orders, a reservation planning of the capacities oriented to each of the machines (sequence planning) and a planning of the personnel and material to be available.

The processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order or in anticipation of customer orders. Production according to the "pull" principle is initiated by customer orders, while the "push" principle is initiated and carried out in anticipation of customer orders and is usually based on demand forecasts. This dilemma is extremely useful when considered the strategic decisions related to the design of the supply chain, and therefore of the production. The objective of the design of a productive system within a supply chain is to find the balance between the two. Balance is described by the decoupling point of the customer order. An ETO manufacturer is a producer following mainly the pull principle across the supply chain with the decoupling point at the beginning of it or even not existing well pure pull is applied.

In terms of the publication the concept of push and pull compared does not correspond to the nature of producing in response or anticipation of customer orders, but it deals with the regulation and control method applied in the production process in order to release orders into production in the different steps. A push control approach initiates production trying to maximize production utilization without considering stocks and the restrictions along the production process. On the other hand a pull approach is based on the TOC and considers the restrictions and stocks in the current and future state of the production system.

Capacity Planning and Maintenance

In this research paper it was considered the core capacity planning tasks and its relationship with maintenance management. First, based on sales information the production master program (PMP) determines what products should be produced and in what quantities at the following planning intervals. The PMP is subdivided into partial processes of sales planning, primary gross needs planning, primary net requirements planning, and approximate resource planning. The result of the PMP is a coordinated production program when considering the productive capacities and sales expectations of the company. In the approximate planning of the resources it is verified if the sales planning and the production programs can be carried out with the available resources according to the type, quantity, and date on which they are planned and compared with available resources. In this context, resources are personnel, facilities, tools and material.

Process programming provides temporary relationships between production orders. There are three methods: progressive programming, regressive programming, and midpoint programming. The programming of the process can be carried out considering finite or infinite capacities. Capacity is the output of an installation for a period of time. Capacity calculation for a production system depends on maintenance in regard of machine availability. Moreover to calculate the total output of the production system the quality and performance rates have to be added. For ETO manufacturers capacity planning vary normally a lot depending on the product type due to the differences in terms of time needed.

The capacity demand is then compared with the supply of available capacity. Based on this there are two options in case the required capacity exceeds the offer. The first is to adjust the capacity by increasing it thanks to overtime or special shifts. The second is to postpone demand peaks by shifting manufacturing orders to later points in time.

Sequencing of orders is carried out later with the help of criteria selected as priority rules or minimization of equipment preparation times. The release of production orders is carried out taking into account detailed resource planning and detailed programming. In doing so, defined release rules or methods are used, such as load-oriented order release.

Theory of Constraints (TOC) and Drum-Buffer-Rope (DBR)

The theory of constraints (TOC) suggests the application of demand-pull approach combined with buffer management to effectively manage inventory. The initial target buffer size, when to adjust the buffer and the quantity to be adjusted are key management decisions that determine whether the demand-pull approach can be successfully applied in practice or not.

DBR is the operational production planning and control approach within the theory of constraints (TOC) introduced by Goldratt (1993). Based on it Gupta et al. (2002) investigated the workings of TOC with the help of simulation. The main principle is to subordinate the production plan to the system's capacity-constrained resource (CCR). Buffers secure the CCR and the finished goods inventory against starvation. The buffers are forecast of processing and transfer times plus a certain amount of safety time. The area between material release point and CCR is covered by the CCR buffer, while the area between CCR and the customers is controlled through the shipping buffer.