Make-to-Order or MTO is a business manufacturing process where customers customize the product they want to buy. The customer places the order first, and then the company manufactures it. In other words, the buyer designs the product with certain specifications. We also call it Build-to-Order or BTO.
Make-to-Order is ideal for companies that want to focus on low volume and highly customized products. It is also ideal for businesses that sell expensive goods. If an item is expensive, it is also costly to hold in storage.
For example, an aircraft maker may have to consider this strategy because airplanes are expensive products.
The aircraft maker can make an airplane according to what the customer requires. It doesn’t even need extra inventory.
Lean-Manufacturing-Japan has the following definition of the term:
“MTO (Make-to-Order) is a manufacturing process in which manufacturing starts only after a customer’s order is received.”
“Forms of MTO vary, for example, an assembly process starts when demand actually occurs or manufacturing starts with development planning.”
In a make-to-order manufacturing system, the company waits for the customer’s order to arrive before making the finished product. In a make-to-stock system, the company produces the goods beforehand and stores them in a warehouse.
By adopting a make-to-order strategy, the company will have a competitive advantage. Being able to give the customer something which is tailor-made is a huge plus in the competitive marketplace.
When a company has a competitive advantage, it means that it has an edge over its rivals. The term ‘marketplace’ means the same as the abstract meaning of ‘market.’
If ‘make-to-order’ products are not in stock, customers have to wait longer for them. They may also have to pay a premium for having something which the supplier has customized.
The MTO strategy starts when customers order something according to their specifications.
The supplier may focus on the internal design or the functioning part of the product. It will then assemble it with the custom-made part of the product when everything is ready.
In many cases, demand determines what manufacturing process the supplier uses. Companies have engineers organizing manufacturing processes as orders come in.
One example of a make-to-order company is German luxury car manufacturer BMW. The carmaker allows customers to buy a car that it has already made.
However, they can customize their vehicle according to their requirements.
BMW lets customers design the interior and exterior, the engine, as well as other features.
Customers understand this system is not the same as buying a car that is already in the showroom. They will have to wait several weeks before they receive their vehicle.
In fact, depending on the specs, they may have to wait up to eight months. ‘Specs’ means ‘specifications.’
Make-to-order is a common process in companies that have a just-in-time strategy. Just-in-time is a manufacturing or inventory strategy in which the company keeps stock levels to an absolute minimum.
Just-in-time contrasts with just-in-case. In a just-in-case system, the company makes sure it has high levels of stocks.
Make-to-order contrasts with make-to-stock. In a make-to-stock system, the company makes finished products before orders come in, i.e., it sells ‘off-the-shelf’ goods. This RTD Knowledge video explains the difference.
Make-to-order is becoming an increasingly popular strategy in today's dynamic, user-centric business environment. By adopting make-to-order (MTO), businesses can reduce inventory costs, minimize waste, and improve customer satisfaction by delivering customized products that meet their specific needs. Let's understand more about this technique in this blog.
What Is Make-to-Order (MTO)?
The make-to-order (MTO) technique creates goods specifically tailored to each customer's needs, and production only starts after receiving an order. The make-to-order approach comes to great use in specialized industries where products go beyond the standard level and where consumers have their own set of expectations from the brands.
Production remains halted until a customer submits an order from a particular firm. Further, the number of finished goods produced depends on the particular guidelines the customer provides. With this strategy, each product is created specifically for the customer to their exact specifications, ensuring top quality and satisfaction.
Unlike traditional manufacturing approaches, which rely on forecasts and production planning to determine the quantity and timing of product orders, MTO enables businesses to produce goods only when they are requested by customers.
Make-to-Order (MTO) ExampleBusinesses specializing in making customized items frequently use the make-to-order (MTO) method because it enables them to produce things that fit each customer's needs. For example, businesses in the constructing, installing machinery, and manufacturing firms of every sector frequently tailor each project or item to the unique requirements of their customers.
Small companies focusing on handmade goods may also profit from this manufacturing method because it can lower overhead expenses while still enabling them to deliver distinctive and personalized products to their clients. Considering all the above examples and specifications, you can easily determine the significance of the make-to-order method among all kinds of industries today.
For example, if you consider the businesses of a newly opened designer clothes store, a major part of their inventory would consist of fabrics that are stitched only after receiving customer orders. This system is known as Make-to-Order.
Advantages of Make To OrderLet's look at the key advantages of the MTO approach:
CustomizationBusinesses can offer distinctive and personalized items catered to customers' preferences using the make-to-order method. Customization of the products comes with a slightly higher rate since the customer can share design preferences according to their requirements.
Waste ControlWhen a company chooses to follow the make-to-order strategy, it automatically eliminates any chances of products getting wasted after a specific period. This is because, in make-to-order, a company only starts to produce the order of the customers after they have received a green signal from them.
Profound managementBusinesses can also save time and money by scheduling their employees' work hours based on the volume of orders currently being processed, reducing irrational labor expenses. The made-to-order approach has many benefits for firms, such as less inventory risk, better raw material buying, and simplified labor scheduling.
Disadvantages of Make-to-Order Delay in deliveriesCustomer satisfaction for maintaining the vast consumer base is extremely important for all companies using make-to-order strategies. Thus, while dealing with the manufacturing process using MTO, one should ensure that products are processed efficiently and promptly without compromising on quality or taking longer than usual deadlines.
Increase in demandAn unexpected rise in sales is one of the biggest issues manufacturing facilities face that produce items on demand. A sudden increase in demand may put pressure on the business and lead to disgruntled customers due to delays in orders.
StockoutIt is essential to have suppliers ready to deliver supplies quickly if you want to implement a lean or just-in-time operation based on MTO effectively. The biggest disadvantage of implying make-to-order is that you might get out of stock just in time when you receive the orders. Such situations would easily hamper customer satisfaction and on-time delivery of the package cycle. Based on these make-to-order advantages and disadvantages, you can determine whether MTO works fine with your firm.
Make-to-Order vs Make-to-StockIn a majority of businesses, the make-to-stock strategy is commonly used as the production process keeps on revolving by issuing orders for a vast range of products. When such a method is adopted, the business tries to do its best in selling the majority of its products and leave the others by storing them in inventory.
But your business could face a major challenge from the perspective of a profit margin if it isn't able to manage the sale of its products efficiently. However, turning your strategies to make-to-order can save you from such approaches. By doing this, you may prevent having a surplus of inventory and limit production to when it is needed.
Choosing between make-to-order and make-to-stock ultimately comes down to your company's needs and capacity for growth. Furthermore, considering things from a general perspective, if you want to choose the better one between make-to-stock vs. make-to-order, then make-to-order might do well based on your business requirements.
Make-to-Order Planning ProcessThe make-to-order planning process involves bespoke or custom-made products as per the needs and demands of individual customers. The steps in the make-to-order planning process are:
Understand Customer RequirementsCustomer preferences are of prime importance in the MTO process, hence this step forms the base for all the following steps. Here the focus is on understanding the customer's needs, preferences, and expectations and then working to make a desired product as per given specifications. For this, detailed discussions take place, and previous feedback, if any is taken along with any other specific details.
Design a PlanOnce the customer's requirements are understood, a plan of action is designed. The key focus while creating the plan is on the time of delivery, cost, raw materials, and other resources. To track progress, various tools and methods are used.
Develop a PrototypeIf required, a product prototype is made which is then tested to check its performance and to ensure that it matches the customer's specifications.
Create a ScheduleA production schedule means the sequence in which the various tasks need to be carried out to make the product. It involves allocating responsibilities to workers, specifying timelines, tracking progress, testing the product, and final checking. The production schedule must keep some buffer days for unavoidable delays.
Execute the PlanIt is important to execute the plan well and ensure that roles are well divided. Communication is the key here. The team should be told clearly about their responsibilities and must be held accountable for the assigned tasks. They must be asked to complete work on time.
Monitor and TrackIt is important to supervise and monitor the work being carried out to track progress. This makes sure that plan is being executed as expected. If required, you can change the plan a bit to ensure deadlines are met and quality is not compromised.
Make a Delivery PlanHow the product will be delivered needs to be planned in advance. For this, a delivery plan needs to be made. It is important to know the costs involved as it will affect the overall revenue. Pick a cost-effective delivery partner and also know about the risks and delays. When businesses follow these processes well, they will be on the way to achieving 100% customer satisfaction.
Optimize the MTO Process for Better ResultsSeveral businesses use the make-to-order or MTO production method to better control inventory levels and give clients more specialized options. To ensure that you can provide a perfectly tailored solution that results in customer satisfaction and loyalty, explore TranZact's cloud-based production and inventory software. It offers an intuitive platform to manage customer orders and delivery fulfillment seamlessly!
FAQs on Make to Order (MTO) 1. What are make-to-stock and make-to-order?Make-to-Order is a business approach where firms follow the working principle of no inventory system. Simply put, companies believe in producing immediate results only after receiving customer orders to avoid waste production and prevent the firm from incurring heavy losses.
On the other hand, Make-to-Stock works exactly the opposite. With this approach, businesses store surplus finished goods to supply to customers anytime after receiving orders. This is the basic difference between make-to-stock and make-to-order.
2. Why is make-to-order a beneficial strategy?With the make-to-order technique, businesses can provide distinctive and individualized goods catered to customers' tastes. Since consumers get the product as per needs, businesses can charge a premium price. Most importantly, a company may increase customer satisfaction and promote repeat business by providing products tailored to customers' requirements.