Planning Procurement Activities in ETO Projects

Abstract

The complexity of ETO projects reflects also in the challenges of planning and controlling them. Most ETO companies apply planning procedures based on elements from the traditional project management literature with a linear approach that cannot deal with the challenges of such an environment. Moreover, most of these procedures focus on planning the production activities with little focus on planning the design-, engineering-, and procurement activities. This research looks into how ETO characteristics affect the planning of procurement activities since their outcome have a significant effect on the total cost of the project. The studied literature reveals a need for more knowledge on how to actually plan procurement activities since delayed materials and components contribute to major costs overruns and delays in ETO projects.

Centralized vs Decentralized Production Planning in ETO Environments: A Theoretical Discussion

“…This is rather interesting as the complexity embedded in ETO environments is omnipresent acknowledged yetparadoxicallyoverlooked. Hence, many of todays' ETO firms still departure from a serial production planning philosophy [18], which might explain why the application of centralized and hierarchical production planning systems continue being the norm.…”

“…In so doing, it enables for planning and control activities to not only start according to predetermined time schedules, but also accommodate for planning according to unforeseen events. For instance, when changes in customer orders or engineering changes occur after the production has started LPS enables a proactive approach to handle uncertainties [15]. This is because other levels than just the central decision-making level can exchange information on conditions in their own executions concurrently.…”

“…This is because the latter manufacturers often operate in an environment characterized with higher levels of predictabilities which reduce potential obstacles in planning and control issues and thus favors the universalistic 'one size fits all' planning approach [10]. Despite this being heightened, existing planning approaches applied to ETO are mostly based on a serial production type of thinking [18] which adheres to a 'linearism' way of thinking. A linear strategy implies dependent and sequential phases executed according to a plan established in the beginning of a project [19].…”

“…Despite their dominance both ERP and MRP II have been argued to lack an appropriate level of flexibility and responsiveness. For instance, it is rather challenging to accommodate changes in MRP II in ETO firms, as more often than not, the system relies on a predefined bill-of-materials (BOM) structure, which is not easily changed between projects [18]. Besides, the changes in BOMs are often made in engineering through an iterative process between customers, procurement and sometimes also suppliers, which reinforces the difficulties in changing predefined production plans.…”

The Unexpected Consequences of the Covid 19 on Managing ETO Projects

“…Engineer-To-Order (ETO) is a business strategy where each product is delivered through a project-based approach that ensures the level of customization required by each specific customer [1]. One important characteristic of this strategy is that, due to a need for specific components, material, equipment, as well as specialized workers to install these elements on the final product, most ETO companies have implemented an outsourcing policy that gives them flexibility in choosing suppliers that can deliver within the required quality and price [2].…”