Designing a performance measurement system to support materials management in engineer-to-order: a case study

There are many different production situations that can be employed to meet demand. In the engineer-to-order (ETO) production situation, products are manufactured to meet specific customer needs by unique engineering or significant customization. In such an environment, failing to supply the required materials in the right quantities and at the right time increases the risk of breaching due date agreements and thereby losing customer satisfaction. As such, materials management is one of the most important and critical processes within production planning and control in ETO. To bring attention and improvement to this area, ETO companies may benefit from a performance measurement system (PMS) that systematically monitors how well materials management is carried out. The design of a company's PMS varies with its production situation. Within the large body of literature on performance management and measurement, limited literature specifically addressing performance measurement in ETO has been identified. After being approached by a Norwegian ETO company requesting a PMS for materials management, the authors therefore set out to design the PMS from scratch, using literature on ETO, materials management and performance management and measurement as a starting point. The paper presents the proposed PMS. It provides a basis for further studies on the topic, and could be used by managers in ETO companies to assess and improve their materials management practice.