Engineer-to-order and configure-to-order in Dynamics 365
By Emil Björk · Microsoft business apps consultant, Gothenburg
How Dynamics 365 handles configure-to-order and engineer-to-order manufacturing — the constraint-based product configurator, project-linked production in Supply Chain Management, engineering change management, and where Business Central needs an ISV.
Make-to-stock manufacturers have a bill of materials before they have an order. Configure-to-order (CTO) and engineer-to-order (ETO) manufacturers do not: the order defines the product. That inversion is what makes these modes hard for ERP, and Dynamics 365 handles the two very differently. CTO is well served in Supply Chain Management by a real product configurator. ETO is served by combining projects, production, and engineering change — capable, but assembled from parts rather than delivered as a single feature.
Configure-to-order
CTO means the product is a fixed set of options — a pump with a choice of motors, seals, and flanges — and every valid combination can be expressed as rules. The customer picks; the system generates the BOM, route, and price.
Supply Chain Management does this with the constraint-based product configuration model. You define a product model with components, attributes, constraints (expressions or table constraints that say which combinations are valid), BOM lines and route operations conditioned on attribute values, and optionally a price model that adds up option prices. On a sales order line for the configurable item, the user runs the configurator, answers the questions, and the system creates a configured variant with its own BOM and route. Master planning and production then treat it as an ordinary item.
Practical guidance from CTO implementations:
- Model the product family, not the catalogue. A configurator with two hundred attributes for one pump family is a maintenance burden nobody will keep current. Start with the options that actually vary, and put rarely-used ones in a free-text "special request" that routes to engineering.
- Decide who owns the model. Product engineering owns the rules; sales owns the questions and the order in which they are asked; finance owns the price model. Without named owners the model drifts from the real product within a year.
- Test with real quotes. Take the last fifty configured orders from the legacy system and reproduce them. Every mismatch is either a modelling gap or a case where the old system let sales order something that cannot be built.
- Reuse configured variants. The configurator can reuse an existing variant when the same answers are given, which keeps the item master from filling up with duplicates. Turn it on.
Business Central has item variants and assembly or production BOMs but no constraint-based configurator. For a handful of options, variants and a per-variant BOM work. Beyond that, CTO on BC means a configurator ISV — several exist on AppSource — or a CPQ front end that generates the BOM and pushes it in. Ask any ISV to show a configured sales line becoming a production order without manual re-keying; that is the step where thin solutions break.
Engineer-to-order
ETO means the product is designed, at least in part, after the order is won — a piece of process equipment, a control panel, a special vehicle. There is engineering lead time inside the delivery lead time, cost is tracked per order, and the BOM changes while the order is in progress.
In Supply Chain Management, the working pattern is:
- A project per order in Project management and accounting, with the sales order linked to it. All cost — engineering hours, purchased items, production — posts to the project, which gives per-order WIP, margin, and revenue recognition.
- Item requirements or project-linked production orders for the things to be built. Production orders created from the project carry its dimensions and post their costs to it.
- Engineering versions and change orders through the Engineering Change Management add-in, which gives released products a version, a formal change request and change order process, and controlled release of new versions into the operational legal entity. Without it, BOM versioning alone works but there is no workflow around a mid-order design change.
- Estimates and forecasts on the project to track budget against actual as engineering discovers what the job really needs.
What to be honest about:
- The project module in F&O is finance-shaped. Engineers will not plan in it. Real engineering planning lives in a PLM or CAD system, and the item and BOM data flows in through a PLM integration — partner connectors exist for the major PLM products, and Engineering Change Management is designed as the landing point for that data.
- Dynamics 365 Project Operations on Dataverse is not the tool for ETO manufacturing. It is for services projects; it does not drive production orders or inventory. ETO manufacturers who are also on Project Operations for services work end up with two project systems, which is uncomfortable but sometimes correct.
- Percentage-of-completion revenue on long ETO jobs works through the project's estimate and revenue recognition process. It needs finance to define cost templates and completion methods early, or WIP will be unexplainable at the first audit.
Business Central can do simple ETO with projects, production orders posted against the project, and manual BOM edits. The lack of engineering change control and the lighter project costing mean a business whose orders routinely change design mid-flight will strain it; a business doing a few bespoke jobs a month with stable designs after order will be fine.
Hybrids
Most real manufacturers are a mix: a configurable standard range with an ETO "special" path for the ten percent that does not fit. The clean way to model it in Supply Chain Management is a configured variant as the starting BOM, copied to a project-specific BOM version when engineering has to intervene. It preserves the configurator's economics for the standard ninety percent and gives the specials a proper cost home.
Where to start
CTO: build the configurator model for one product family end to end, from sales line to shipped order, before touching the second family. ETO: get the project-to-production cost flow and WIP reporting right on one live job before automating engineering change. In both modes the first mistake is modelling the whole catalogue before anyone has shipped an order through the new flow.
Further reading
Related guides
- Shop floor control patterns in Dynamics 365 Supply Chain ManagementHow shop floor execution works in Dynamics 365 Supply Chain Management — the production floor execution interface, job registrations and feedback, time and attendance, the MES integration framework, and what Business Central manufacturers should expect.
- Subcontracting workflows in Dynamics 365 Supply Chain ManagementHow subcontracted production works in Dynamics 365 Supply Chain Management — the service-item and vendor-line-type pattern, vendor resources on routes, material transfers to the subcontractor, receipts that close operations, costing, and the manual steps you should expect.
- Discrete vs process vs lean manufacturing in F&OHow Dynamics 365 Supply Chain supports three manufacturing modes — what each one is, when they apply, and how they coexist in a single tenant.
- Manufacturing in Business CentralBOMs, routings, work and machine centres, production orders, and MRP — what Business Central manufacturing covers and where it stops.
- BOM versioning and engineering change in Dynamics 365 Supply ChainHow F&O handles BOM versioning, engineering change management, and the controlled evolution of product structures over time.
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