If there is one thing for certain within the manufacturing and distribution industry, it’s that changes to the manufacturing process are necessary but expensive. In today’s fast-paced market environment, it’s crucial that companies be able to change their engineering processes to accommodate increasing demand or new compliance guidelines – but it’s also important they know how to determine how these kinds of changes will impact their existing inventories.
An engineering change order or enterprise change order, often called an ECO, is what managers can use to track product changes and implement these shifts in design. Determining the cost of even one engineering change can be a challenge, and it’s often time-consuming. In a world where productivity is crucial to bottom lines, inefficient processes when it comes to these changes and their implementation can be detrimental.
The importance of change order insight
It’s crucial to know how to calculate the cost of a change order from a management perspective. Some important questions to ask would be: How will this design change impact my inventory? How much will it cost to completely get rid of one or more of the parts used to create my product and manufacture a new part? Why would an ECO even be necessary?
That last question has a simple answer. A paper from the 2nd Nordic Conference on Product Lifecycle Management noted that changes in product requirements and compliance guidelines necessitate that ECOs be implemented to the fullest effect possible – and that includes measuring exactly how much to put aside in the budget for inventory changes and redistribution.
“There are often multiple ways to implement a requirement change, and it is thus important to identify the most cost-effective option prior to beginning its implementation,” the authors wrote.
Therefore, being able to have the insight required to make budget decisions regarding manufacturing changes is an important part of implementing change orders. Included in an accurate measurement of ECO cost is who is initiating the ECO, which product is being changed, how much it will cost to redesign said product and where this interacts with the inventories associated with these items. Each of these steps comes with a price tag – and it’s integral to have the insight necessary to determine what that expense will be.
When assessing just how much a change order is going to impact inventory, it helps to think in broad terms. Imagine, for example, that your company manufactures medical devices. New compliance standards and regulations are constantly being implemented for the health care industry, and each product change is hopefully accompanied by a change order. When implementing engineering changes, it’s essential to understand how much of your inventory is going to need to be scrapped following one of these modifications. This can help you determine overall cost.
These kinds of inventory calculations are rarely straightforward, and they often require a lot of manual calculation under legacy setups. For instance, let’s say a customer of a major limousine manufacturer wants to switch the kinds of doors it will be getting on its vehicles halfway through a major order. Determining the cost of such a change order is about far more than just much it costs to make the new doors. Other factors that need to be considered include all of the costs and parts that went into the old doors, what can be done with the already manufactured old doors, whether the parts exist to make the new doors, the labor involved, and so on. By trying to calculate all this manually, companies are likely to miss multiple key variables.
Change orders that come from customers typically have to be implemented, but what about potentially unnecessary change orders? Using the same limousine manufacturer, let’s say an internal designer requests to change the color of all doors from black to white while production is ongoing. In this situation, having an accurate idea of what such a change order would cost both now and in the future is key for determining if such an ECO should be followed through on or not.
Cost analysis tools from Inspirage
“Managers can determine exactly how much expense an ECO will incur.”
The Inspirage ECO Cost Analysis Tool offers a way for inventory managers to understand where the charges are coming from associated with their ECOs, and thus have complete oversight as to how much of the budget should be devoted to them.
With the Cost Analysis Tool, in other words, managers can more easily determine exactly how much expense an ECO will incur in terms of how much excess inventory there will be after changes have been made and how much of a certain product will need to be scrapped. This technology solution automates processes, gathers and validates data, and executes analysis of said data so that you know exactly how much future changes will cost your company. It can also be customized to fit the data you want to see and predict the future demand of the products you’re changing.
Get in touch with Inspirage today to learn more about the ECO Cost Analysis Tool and give your business a leg up over your competitors.
