Two-phased Engineer-to-order Model as Competitive Advantage

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master_Karppinen_Teemu_2018.pdf (3.77 MB)

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Perustieteiden korkeakoulu | Master's thesis
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Date

2018-11-07

Department

Major/Subject

Strategy

Mcode

SCI3051

Degree programme

Master’s Programme in Industrial Engineering and Management

Language

en

Pages

101 + 9

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Abstract

The aim of this research is to find out how change orders and their negative effects can be reduced by using a two-phased Engineer-to-Order (ETO) model and other strategies. An in-depth single case study method is used to achieve this objective by relying on both qualitative and quantitative data in order to observe change order dilemma and give valuable suggestions for the case company. Change order dilemma forces manufacturers to accept change orders even though their negative effects are higher than what can be charged from the customer. However, refusing to accept changes can cause other issues, such as negative customer experience and lost sales. The case company manufactures induction machines and operates in the low-volume ETO sector where profits are low, competition is intense and product lead times are between 12 and 28 weeks. The literature review focuses on change order dilemma by reviewing the constituents of change order occurrence and ways of mitigating change orders and their negative effects. Moreover, the principles of ETO supply chains, common manufacturing issues in the ETO sector and possible strategies for gaining competitive advantage are reviewed. The research concludes that change order occurrence is high in challenging product groups which include numerous special components. In addition, certain countries, customers and industry specifications increase the likelihood of changes. The negative effects of change orders disturb the order-delivery process and cause additional and hidden costs that are not possible to charge from the customer afterwards. A scenario analysis reveals that the total value of change orders can amount to more than one percent of the annual revenue of the case company. Findings suggest that both the two-phased ETO model and other strategies, such as increasing transparency between critical stakeholders and enhancing the current change order management practices, are required to overcome change order dilemma and enhance the efficiency of ETO supply chains. The two-phased ETO model helps reduce the number of change orders and mitigate negative effects of change orders. An implementation plan for the two-phased ETO model is developed to increase its usage and clarify criteria and internal instructions to use it for the right projects.

Description

Supervisor

Tanskanen, Kari

Thesis advisor

Taskinen, Antti

Keywords

change order, engineer-to-order manufacturing, management, supply chain

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https://urn.fi/URN:NBN:fi:aalto-201811135789

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[dipl] Perustieteiden korkeakoulu / SCI