The Risk in Using Homegrown and Manual Systems to Manage Engineering Change Orders

In my previous post, we discussed what an engineering change order is, and why a company might consider using one.

On the surface, implementing an engineering change order (ECO) looks straight forward. Make a decision to make the change and tell manufacturing it needs to be done (commonly known as “throwing it over the engineering wall to manufacturing”). There are two issues that stem from this: the ability to execute the changes to the Production BOM, and the capability to monitor and track those changes. The changes to the BOM are referred to as “Versions”, and it is highly important to have a system in place to help manage and maintain version control. This can be a full-time job on it’s own.

Most organizations rely on their internal resources in IT to develop the tools needed to handle the management and execution of ECO’s. These homegrown systems are modified and built to meet the needs of the organization’s processes. Although developed with good intentions, most of these systems lack the robustness needed to accurately perform, monitor, and track the results of these changes. This is where the problems start to pile up.

Generally, when one homegrown system is in use, there are many more throughout the organization being used to tackle a series of different business processes. As a single solution, this can be a manageable vehicle to usher the ECO process down the line. The breakdown occurs when several disparate homegrown systems attempt to communicate with one another. In order to manage the shortcomings, the organization reverts back to using Excel spreadsheets. We call this “excel-mania”. Excel, while a remarkable product, is not the most efficient program to use when trying to manage the ECO process. Due to the static data within the sheet itself and the inability to share real time data, manufacturers are better off using an ERP system that is dynamic and has the ability to update records on the fly.

Another problem with using spreadsheets is the fact they become “Silos of Information” and are inaccessible to others in the organization. In today’s manufacturing scene, there is a solid focus on managing and analyzing data in order to make decisions that will create differentiation. The right information needs to be available at the right to time, to make the right business decisions that will have a true impact on the organization. This is not attainable with ECO management by Excel. Stale or out of date data can have damaging effects on the proposed ECO. The main issue here is the possibility of the wrong changes being instituted as a result of faulty data surrounding changes to the BOM.

As anyone using Excel knows, managing spreadsheets is a manually intensive process that results in poor productivity and waste of a talented resources. However, the more serious consequence of inaccurate and out of date data is the potential to push these incorrect changes through. If that occurs, it will not become apparent until the end of the production line, when quality control realizes the error. These incorrect BOM modifications will have a negative impact to the budgeted production costs, and that will certainly affect scrap, rework, defects, and warranty claims.

The available tool set offered by Excel for manufacturers to evaluate production orders is very limited. For example, when dealing with purchased items, sub-assemblies, and phantom BOM’s, how would Excel recalculate the Routing Schedule (Routings: the instructions needed to produce a manufactured item) for the newly included change? How would it factor in the lead times needed for purchasing the components? As one can see, this quickly becomes a domino effect that will grow exponentially down the line.

As mentioned above, accessing the right information can prove to be challenging with Excel; especially if the information you need is on someone else’s desktop. This may hinder your ability to analyze the historical data, which is essential when compiling a comparative analysis of the BOM versions to determine if our ECO was indeed effective. More on this later.

Why Managing ECO’s is So Difficult

The short-comings of tracking our ECO’s goes beyond that of singularly blaming homegrown solutions. The sheer complexity of the inter-working pieces of an ECO are yet another contributing factor. A change in the BOM can have multiple ramifications on downstream processes and procedures within manufacturing. Once executed, the ECO will wreak havoc on everything it touches if not properly managed.

There are many items that need attention that are overlooked with a manual system. The inherent characteristics that result from the interaction of humans can create a plethora of issues. It can be overwhelming to attempt to manually keep track of the variations, versions, and timing of an ECO. Not only will it be difficult to remember all of the moving parts of the change, it will also introduce risk and the opportunity for error. Since each sequence of events is tightly inter-connected, the slightest miscalculation in the monitoring process will cause chaos. It may be a quick fix (costing time and money), or it may be a devastating result.

The very nature of manufacturing processes is complex; our ECO is not only going to change the BOM itself, but may have also have an impact on many other parts of the process:

  1. Production: New processes may need to be introduced as a result of the proposed change. The way a manufacturer used to produce an item may not lend itself well to the revised change. Routings and operations times will certainly be impacted. This may involve changing an assembly process, a tooling change, or altering drying and staging time.
  2. Quality Control: Depending on the type of operational change needed to accommodate the ECO, quality control department may have to institute new testing methods, which could in-turn add time to processes and effect line speed.
  3. Engineering: When an ECO is introduced, all pieces in the manufacturing value chain are up for grabs. The repercussions can be felt from the front of the lifecycle (engineering) to the end of the line (inventory, warehousing, and shipping), but engineering is tasked with creating and managing the ECO process. Without the proper tools to accomplish this, engineering will be challenged
  4. Supply Chain: If a part has been obsoleted by engineering, has purchasing been notified to cancel the open order of 10,000 bolts? Or will the organization run the risk of ordering dead parts that will tie up working capital? Will the part dimension the new item be an issue when it comes to warehouse storage? Will the shipping container have to be packed a different way?
  5. Sales: With the introduction of a new BOM component comes the possibility of having a SKU change. How will sales be informed of the new part and know not to sell the old one?
  6. Finance: We must determine if the new version of the BOM actually contributed to the bottom line, what the difference between actual and budgeted costs were, and if the production remained on target

With all of this in mind, it’s easy to see why managing engineering change orders is highly complex, and requires a sophisticated system. While homegrown systems and Excel spreadsheets may be the genesis of your ECO management plan, failing to consider the shortcomings of this solution can quickly turn the advantages of an ECO into complications for your organization. In my next post, I will explore a better way to manage your engineering change orders through the use of focused enterprise resource planning (ERP) solutions, and talk about the advantages of purchasing an ERP system over trying to build your own tool for managing your ECOs.

– 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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