Visibility: The Key to Success in Project-Based Manufacturing
Why is visibility in project-based manufacturing so crucial? As we dive deep into the world of discrete manufacturing, we see two kinds of set up – a product based manufacturing set up or a project based manufacturing set up. In a project-based setup, all the products are manufactured to exact customer specifications. This can be either an engineer-to-order (ETO) scenario, where the design exists and manufacturing starts once the order is received or a make-to-order (MTO) scenario, where manufacturers start from the design phase. In both the cases, I have seen project-based manufacturers face a challenge in a step that comes even before execution – The Quotation.
Quotation – Are you doing it right?
Quotation (also known as project estimation) is a very crucial component of the project-based manufacturing business. Getting accurate and timely product cost estimates of materials/parts/sub-manufacturing components from a sub-contractor or vendor could be a deal maker – both in case of an independent quote (your customer’s time to market could depend on it) or a bid. Both, in an ETO, where building a complex machine from scratch or an MTO scenario, where customizing it to fit the customer’s need, you need to get a true picture of the costs to ensure expected margins.
Today there are applications that allow you to send messages out to your sub-contractors or vendors to procure the material costs to be included in your quotation. You can then calculate the costs based on your learnings from previous projects and best practices. With this visibility into real-time costs, you are not only able to quote your customer quickly but also establish visibility around a fair profit margin that can be earned. Cost-structure visibility is the first step towards a successful project.
Question: Do you have/use a single integrated system that gives you end to end visibility and enables you to create quick and accurate quotations?
Project-based manufacturing phases
Once you got confirmation of the customer and won the project, you start the execution. This can be divided into three phases. Let us consider these phases and see how visibility plays an important role in each of them:
The design phase is the first step in project-centric manufacturing companies. The goal is to design the product and have a detailed understanding of the manufacturing and installation phase. This phase involves very close involvement of the customer – sketching out estimates of manufacturing costs (fixed and variable), production volumes, and agreeing on timelines. Many design engineers are involved in this phase who ensure difficult operations, high costs, and many other important factors that are all documented. Sometimes the design phase may be an internal cost i.e., may not be a cost to the customer.
Change is the only constant
An important aspect to consider in this phase is accounting for project change orders (internal or external). Project change orders entail many aspects – accurately managing resources, forecasting the number and capacity of engineers to be utilized. Having clear visibility not only helps in optimizing these resources but also ensuring an on-time delivery. In some cases, we see that change orders come in but revised deadlines are not worked out which in turn makes the on-time delivery, impossible. Visibility, in such cases, minimizes risks and mitigates the possibility of something falling apart.
Once the customer approves all the final designs, the manufacturing phase begins. The specifications of products are worked out in more detail by working on the design and manufacturing of the products after obtaining the necessary processing machinery, tools etc. Therefore, this phase factors in equipment utilization over and above resource utilization. This makes the manufacturing phase a lot more complex than the design phase. Visibility into the efficiency of the equipment is a critical factor for the success of this phase and the project. Today, applications are available which allow functions like preventive maintenance that mitigates the risks of having any last-minute failures ensuring on-time delivery.
Visibility would enable you to have data-driven conversations with your customers, in case there is a timeline challenge and the customer wants to go to market sooner than you estimated. This approach helps you deliver better service to your customers and ultimately builds customer trust.
Customer trust – How important is it in project-based manufacturing?
Research says that a 5% increase in customer retention can lead to an increase in profits between 25% and 95%1. Repeat customers spend 33% more than new customers2. A 10% increase in customer retention levels results in a 30% increase in the value of the company3 making customer experience and retention critical in project-based manufacturing.
This is the phase where the ETO-components are installed, on-site. This phase requires a lot of inventory items (not only materials) that the crew uses for installation. Therefore, apart from visibility across the activities, visibility into each item and smaller parts that aid in the installation process becomes critical. Let us take a change order scenario where the manufacturing project was delayed – an activity was moved to a future date and another approved activity got included in the present. Now, a system sees that change and moves the delivery date for items required for the delayed activity as it is needed later when the installation starts. Therefore, visibility not only enables forecast ability of your costs but also optimizes your inventory, preventing wastage.
Data and smart systems – the way forward
While visibility across the three phases is the cornerstone for the success of your project, it is equally important for your team to have a clear understanding of the project scope (including project change orders). To achieve that, having one system is necessary to give visibility of all the change orders, scope, the revisions, etc…
Data is fundamental to the three phases. Timesheets from the project engineers, resource and machine utilization until the installation phase, training post utilization – there is a sea of data that is available. It is a necessity to have capabilities to bring all these data points together as it contains a wealth of strategic information.
In a project-based manufacturing business, through enhanced visibility, manufacturers can gain several benefits in the form of resource and cost savings. Know more on how To-Increase’s Advanced Project Management for Microsoft Dynamics 365 for Finance and Operations allows end-to-end Visibility in Project-Based Manufacturing, thereby improving productivity, efficiency and the cost to profit ratio.
- Bain & Company, along with Earl Sasser of the Harvard Business
- Bain & Company, along with Earl Sasser of the Harvard Business