ERP for Engineering Change Order Management

One of the main goals of an ECO is to improve the overall performance of the product being manufactured (i.e. cost reduction, improved quality, market differentiator). In order to determine if using an ECO has improved operations, you must be able to track these Key Performance Indicators (KPI’s) and evaluate the impact. This can be especially difficult, if not impossible, if an organization relies on manually intensive tools. We’ve already discussed the risks inherent in using homegrown or manual solutions for managing your ECO process, so now let’s look at what technology solutions are available to evaluate the impacts of the ECO and help determine the its effectiveness and yielded results.

According to Wikipedia, an “Enterprise Resource Planning (ERP) system provides an integrated view of core business processes, often in real-time, using common databases…”. Within a robust and capable ERP system, it will offer a Manufacturing module that will assist engineering with the management of Bill of Materials along with the ability to do Engineering Change Orders (by modifying the BOM). One of the key benefits of an ERP system in this area is that it is an automated system requiring little or no human intervention to carry out the tasks needed in managing an ECO.

Keeping in mind our Wikipedia definition of ERP, we have the benefit of a system using a common database that can provide the organization “real-time” views of business processes. This is especially important if we are trying to analyze data and making valuable decisions.

Measuring the ECO’s Effectiveness

Earlier the question was posed on how to evaluate the effectiveness of the ECO. A capable ERP system provides the ability to acquire up to date information on historical BOM versions. This functionality can provide management with the tools necessary to perform comparative analysis on previous and current BOM versions. Now we are armed with the valuable and accurate data needed to determine whether or not the ECO had a positive impact on overall quality issues. By taking a snapshot of the BOM versions, we can gain visibility into the outcome of the change, and make a decision if more tweaking will be needed – another ECO, or we have succeeded in our desired result.

Managing Part Changes

Another powerful function of ERP is to provide insight on how a part change will impact other products being manufactured. Going back to our example of obsoleting a particular part component, how does engineering determine where else this part is being used? If they decide to remove it from the procurement sheets, what affect will it have on other product lines? This is called a “Where Used” function within ERP. Manually tracking this could present nightmarish results and tax the “already stretched beyond available bandwidth” of your resources. With ERP’s “where used” abilities, we can make child’s play of this task. The “where used” feature provides clarity as to where a component, sub-assembly, or phantom BOM is used. Not only does it provide clarity, it also provides guidance as to what other BOM’s will need an ECO to correct the problem.

Knowing “where used” can be helpful to procurement in understanding when to discontinue ordering obsoleted parts, and place all future orders with the new BOM component. If any new sub-assembly or phantom BOM’s are going to be needed, having the information on hand will aid in providing lead times of the sourced components. The ERP system provides for automatically setting “End Dates” for the obsoleted part, and the “Start Date” of the new part. The process engineer does not have to manually remember when these changes go into effect for production purposes. No human interaction needed.

Comparative Analysis of ECOs

If management needs to see if our ECO did indeed slow down the rate of defects and returns, tools within an ERP solution can help to compare previous BOM’s and current BOM’s. A quality control manager should have the ability to run a “Matrix per Version” report which is used to compare all existing versions of a Production BOM. This information can be used to view performance of the new BOM vs. the last version BOM. Comparing them side by side should provide visualization to determine if the desired KPI’s were reached. Also, with robust reporting capabilities, finished production orders can be used to investigate manufacturing problems, such as a high rate of defects or cost overruns.

Since it is possible to view historical snapshots of data with an ERP system, executive management now has a tool to assist with making sound business decisions. With the ability to report real-time data, they now have visibility into the entire lifecycle of the manufacturing process. This is powerful. Instead of having only having visibility into snippets of the business, one now has the tools to see the big picture and the means to understand if the ECO was financially effective.

ECOs and ERP Go Hand in Hand

In this era of “big data” the message is clear: “information is power”. The power to collect, report, and analyze data is not a “nice-to-have” in today’s competitive business environment. It is essential to survive and thrive!

It’s clear that utilizing ECO’ss can help a manufacturer improve their overall business performance, but the ECO alone is not enough. The risk is high when ECO’s are improperly managed, which is why we recommend using a manufacturing accounting solution designed to handle the nuances of all manufacturers. An ERP system that provides the type of tools and rich functionality required to effectively implement and manage your ECO system will help any organization make better business decisions, and that will enable you to to differentiate yourself from the rest of the market.

 

– Software Delivered as Promised. No Surprises.

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William Wu

Insight written by William Wu

Executive Vice President at Rand Group

William Wu has over 16 years’ experience consulting for and performing ERP software implementations in the energy, technology, telecommunications, and service industries. With a background in both accounting and business and extensive certifications in ERP systems, William possesses both the drive and skill to move a company from where it is, to where it needs to be.

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