How to Manage Project-Based Manufacturing

Don’t look to ERP to handle project-based products

Published: Monday, September 20, 2021 - 12:02

During a recent interview with Dirk Dusharme, host of Quality Digest’s QDL, we discussed project-based manufacturing, the umbrella term that covers the types of manufacturing done on a project-driven schedule. Some refer to this as “engineer to order” (ETO), a niche in engineering-focused manufacturing.

As repetitive high-volume manufacturing has been offshored to China, Vietnam, and other locations, many U.S. manufacturers have moved toward mass customization (sometimes called “made to order”) for the consumer market. These typically involve a base product to which the customer can add variations. Project-based products, on the other hand, are unique to each customer from the ground up and have grown significantly now that the technology is able to support it.

Project-based products are largely targeted at the B2B customer. The types of industries that are project-based include those that manufacture equipment for wind turbines, aerospace and defense, and biotech, as well as contract pharmaceutical developers. These projects tend to be long-term and complex.

Project-based manufacturing and processes come with a unique set of headaches not usually experienced by make-to-stock manufacturers. We discuss those issues and some solutions with Matt Mong, VP of Market Innovation at Adeaca.

Standard ERP doesn’t support project-based manufacturing

High-volume manufacturers involved in mass or repetitive manufacturing use enterprise resource planning (ERP) software to help manage materials and tooling for high-volume production. In those cases, supply-chain procurement and production schedules are well known, relatively predictable, and managed in the same system. For a project-based manufacturer, projects rather than products are the core of what they do, and the systems that support that generally sit outside of the ERP system. Integrating project-based systems with existing ERP is difficult to almost impossible. This typically drives companies to use multiple systems, multiple applications, and tools to do the tasks they were unable to accomplish with their ERP system alone.

Projects are the core of your business but an afterthought of your business system. Project businesses typically employ an ERP to manage key parts of their business. However, the core project components are managed outside the ERP and cut off from the rest of the business processes.

When team members are using different tools and working in silos, delays and misaligned information-sharing are usually the result. Nobody knows exactly what’s going on with the projects at any point in time, and if issues pop up, it’s typically too late to take any corrective action.

Therefore, most of the time these companies are simply trying to report on what happened after the fact. At that point it’s too late, clients are unhappy, and margins are lost.

This lack of insight occurs especially at the higher levels in upper management because these executives see only what’s happening with weekly or monthly updates. The only way to rectify this problem is to create one system that manages the company’s processes from end to end. Only with one platform are all elements of the business visible in real time, and these previously disparate processes are viewed as one business operation.

That is exactly what a project business automation system is designed to do.

The term project business automation was first used by Adeaca in 2019. It married the terms “project business”—first used by Karlos Artto and Kim Wikström in a research article published in the International Journal of Project Management in 2005—and “automation” to represent the systemization of the former.

Project business is used to represent all companies that conduct projects as their primary mode of delivering their goods and services to their customers. Project business automation is a business-process management software designed specifically for project-based organizations that integrates all core project business processes into one end-to-end system. Project business automation is now recognized by Forrester as the next category of software solutions for project-driven organizations.

Project business automation provides an integrated and continuously updated view of core project business processes normally managed in disparate applications. These core processes can be categorized in three main functional areas:

1. Project financials and accounting. This covers the financial management of projects and portfolios of projects. It includes, at a minimum, project costing, cost breakdown structures, budget management, estimate at completion, budget at completion, cost to complete, month-end reporting, cash flow management, revenue projections, and revenue recognition. These functions are normally managed in the ERP, other accounting applications, and various spreadsheets.

2. Project management and operations. This is the operational component of projects. It includes, at a minimum, work breakdown structures, project scheduling, risk and issue management, milestone management, resource management, and subcontract management. These functions are normally managed in project management/planning/scheduling applications, custom-built applications, and various spreadsheets.

3. Project insight and analytics. This covers the real-time analysis of projects, portfolios, and the business as a whole. Because all functional areas are integrated, project business automation produces time-phased operational and financial threshold data, giving project-based companies the ability to run their projects with real-time visibility and control over processes, costs, and risks. It includes real-time metrics such as cash flow, margins, estimate at completion, earned value analysis, and variances on several key performance indicators in operations and finance. These types of analyses are normally produced infrequently in spreadsheets and separate business-intelligence applications, and therefore not in real time.

The key point about project business automation is that all these areas are integrated in one system, providing real-time data streams that facilitate the acceleration and automation of processes that is not possible when managed in separate applications.

About The Author

Matt Mong

Matt Mong, Vice President of Market Innovation at Adeaca is a project business evangelist and leads thought leadership efforts for Adeaca. Mong has worked to define and expose the fundamental issues plaguing project-based companies today and the solutions needed to fix them. He coined the product category term Project Business Automation (PBA), now adopted by Forrester, as a new approach to digital transformation for project-driven businesses.