Quick Definition
Made-to-order is a term that describes a product that is made to the specification of an internal design, a supplier, or a customer.
What is Made to Order?
"Made to Order" (MTO) is a manufacturing strategy that revolves around producing products based on individual customer orders rather than in anticipation of future demand, which is the hallmark of the "Make to Stock" (MTS) approach. This production strategy is deeply rooted in customer-centricity, responsiveness to customer needs, and minimizing wastage in the supply chain.
In a "Make to Order" system, the production process begins only when a customer places a confirmed order. This approach is in direct contrast to "Make to Stock," where products are manufactured in advance, stored as finished goods, and sold from inventory. MTO is particularly suitable for customized products or items with highly variable specifications that are difficult to predict accurately.
The MTO strategy is grounded in several key principles:
- Customer-Centric: MTO places a strong emphasis on meeting individual customer requirements and specifications. Each product is tailored to the unique needs of the customer, allowing for a high degree of customization.
- Minimized Excess Inventory: Unlike MTS, which carries the risk of excess inventory and obsolescence, MTO minimizes wastage by producing goods only when there is a confirmed order. This lean manufacturing methodology reduces the financial burden of maintaining large inventories.
- Lean Manufacturing: MTO aligns with the principles of lean manufacturing, which seek to eliminate wastage, optimize production processes, and deliver value efficiently. It promotes "Just-in-Time" (JIT) manufacturing, where materials and components are procured and production is scheduled to coincide precisely with customer demand.
- Shorter Lead Times: MTO often results in shorter lead times compared to MTS. The production process begins promptly upon receiving a customer order, allowing for faster delivery times and improved customer satisfaction.
- Mass Customization: MTO enables businesses to offer a level of customization that goes beyond what mass-produced, MTS goods can provide. Customers can specify their unique preferences, leading to a highly tailored final product.
- Competitive Advantage: MTO can provide a competitive advantage in industries where customer requirements vary widely, and responsiveness to consumer demand is critical. Companies like Dell have successfully adopted a build-to-order model, allowing customers to configure and order computers to their exact specifications.
To illustrate the difference between MTO and MTS:
- In an MTS scenario, a manufacturer produces a certain quantity of a standardized product in advance and stores it as finished goods. These goods are then sold from inventory as customer orders come in. This approach is suitable for products with stable demand and predictable sales patterns.
- In contrast, under the MTO method, the manufacturer only begins the production process when an individual customer places an order. The production schedule is initiated in response to confirmed orders, allowing for a higher degree of customization and responsiveness to customer needs.
It's important to note that the MTO strategy requires efficient order processing, production scheduling, and inventory management to ensure that customer requirements are met within delivery times. Manufacturers often employ templates and standardized processes to streamline the MTO order process and minimize production lead times.
Modern manufacturing solutions play a crucial role in enhancing made-to-order (MTO) processes. By efficiently managing order production and manufacturing processes, these solutions allow businesses to respond swiftly to customer requests. They optimize the allocation of raw materials and reduce the need for excessive forecasting, making MTO production more cost-effective. Additionally, modern manufacturing solutions support assemble-to-order strategies, ensuring that finished products align precisely with customer specifications. This approach differs from make-to-stock (MTS) manufacturing, as it tailors production to individual orders, providing greater flexibility in the business model. In summary, modern manufacturing solutions empower businesses to streamline MTO processes, offering economies of scale and improved customer satisfaction.
While MTO is ideal for meeting unique customer demands and avoiding excess inventory, it may be less suitable for businesses focused on high-volume, mass-produced goods. MTO tends to be more prevalent in industries where low volume, customization, and meeting individual customer specifications are critical to achieving a competitive edge and ensuring customer satisfaction. It aligns with the broader trend of mass customization, where businesses seek to combine the benefits of mass production with individualized products to meet consumer needs effectively.
