Why Use an Engineering Change Order

In this global and highly competitive business environment, it is vital to maximize the manufacturing efforts of any organization. Any deviation in your overall cost of goods sold can mean the difference between rewarding your shareholders and losing hard-earned market share to your competition. It is vital that manufacturers take every opportunity to improve their overall business performance and increase their competitive advantage.

In my 3 part series on engineering change orders (ECO), I will explore the reasons manufacturers use ECO’s, the problems manufacturers face when trying to initiate and manage ECO’s through home-grown or disparate manual systems, and how a manufacturer can leverage new technologies to better enable their ECO process and experience real competitive advantage.

Let’s look first at what engineering change orders are, and when they should be utilized in your manufacturing business.

What are Engineering Change Orders

One way to improve your cost, quality, or marketing advantage is by implementing an Engineering Change Order (ECO) for a particular product. In it’s simplest form, an ECO is a modification that will have an effect on a manufactured product or manufacturing process.

An ECO can be triggered by one of the following pieces in the manufacturing puzzle (or a combination of several):

  1. Production Bill of Material (BOM)
  2. Manufacturing process
  3. Dimension of a Part Drawing – part tolerance issue
  4. Procurement process
  5. Tooling
  6. Customer requirements

For purposes of this series, we will focus on evaluating the impacts of an ECO in relation to a Production Bill of Materials.

The Bill of Materials (BOM) is the basic building block for manufacturing a part. It can be thought of the same as a list of ingredients for baking a cake. In manufacturing, these building blocks can be anything from nuts and bolts to the paint used to finish the product. A Bill of Materials can be comprised of three items:

  1. Components: raw materials used to manufacture a product; typically items that are purchased from an outside vendor.
  2. Sub-assemblies: a produced item integral to the manufactured part, such as a car frame.
  3. Phantom BOM’s: another production BOM used in conjunction with other BOM components or sub-assemblies.

A modified BOM (adding, deleting, or replacing components, sub-assemblies or a phantom BOM) is typically used to either schedule future engineering changes or to keep track of past ones. This is why a BOM plays a big part in the ECO process – it provides us a mechanism to evaluate the positive or negative effects the engineering change has made. It is visual, and gives a design engineer, quality control manager or process engineer the baseline to make sound business decisions.

Why Use an Engineering Change Order?

So why would a person involved in the manufacturing life-cycle want to initiate and implement an ECO? An ECO can be enacted for a variety of reasons, most of which revolve around solving a problem with the current item being manufactured, or a problem with the current manufacturing process (called a Manufacturing Change Order (MCO), which I will discuss in a subsequent article). Generally, the reason is a required corrective action related to the following productions issues associated with a manufactured part item:

  1. Out of control production costs: the actual costs have exceeded budgeted costs
  2. Excessive Scrap: the scrap count exceeds the amount allotted when the job was set up
  3. Rework: there is an excess of time, effort, and money needed to make a finished product right
  4. Defects: manufacturing has exceeded the part per million (ppm) defect guidelines that Quality Control has put in place
  5. Warranty claims: exorbitant warranty claims are increasing the costs of goods sold
  6. Obsolete components: the need to outsource a different component based on the lack of availability of resources from outside vendor(s)
  7. Compliance violations: any newly enacted laws affecting how the product performs in the market place, and whether those create a violation

Now that we know what an engineering change order is, we understand why ECOs should be part of every manufacturers business. In my next post, we’ll look at some of the issues surrounding how most manufacturers manage their ECO’s and the situations these shortcomings can create.

– 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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