To, co chcesz zrobić, to posortować rekordy w partycjach. Oto zapytanie, aby zrobić to, co chcesz :
WITH sorted AS (
SELECT id, ROW_NUMBER() OVER(PARTITION BY ProductTypeId ORDER BY id ASC) as rownum
FROM product
)
UPDATE product
SET [order] = s.rownum
FROM product p
INNER JOIN sorted s on (p.id = s.id);