What is Make-to-Order?

Make-to-order (MTO), as its name suggests, is a manufacturing process in which the production of a product begins only after a customer’s order is received. This strategy is an example of pull-type production since the manufacturing process is being ‘pulled’ by customer demand. This production model is the opposite of make-to-stock (MTS), in which products are manufactured based on anticipated customer demand.

One of the benefits of MTO is that it allows customers to order products customized to their exact specifications. MTO also minimizes waste, since materials and resources are spent on a product only if an order is placed. This helps alleviate issues associated with excess inventory, which is common in its MTS counterpart.

This model is used extensively in the assembly industry; highly configured products, such as computers, automobiles, aircraft, and marine vessels are assembled using the MTO method.

What Are the LimitationsofMake-To-Order (MTO)?

One of the main drawbacks of MTO is timeliness. Since production isn’t started until an order is received, lead times tend to be lengthy. In contrast, with MTS strategies, products are already on the shelf waiting to be shipped to the customer.

Companies adopting MTO must also ensure their business is primed to take the next customer order and begin manufacturing as soon as possible. As such, inventory of parts or raw materials must closely match or exceed consumer demand. Incorrect inventory levels can have a compounding effect on production times, putting companies behind on orders.

One of the other drawbacks of MTO is cost. Pre-made products are similar, relatively cheaper, and can be mass-produced. MTO, on the other hand, can be more expensive for the consumer since it involves the assembly of customized parts and components.

A Make-to-Order Example

Dell is a perfect example of an MTO approach. While they also sell generic PCs, Dell specializes in building custom machines. On their website, customers are offered a broad range of options for processor types, hard drive sizes, RAM, operating systems, and other components. When the customer selects and submits the components that meet their personal preferences and specifications, Dell sends them a price quote for the customized product.

Once the quote is approved, production begins. On the manufacturer’s side, the parts specified by the customer are sourced and assembled into the product. The final customized PC is then shipped to the consumer.

To run efficiently, Dell must have its inventory of materials and components already on-site or have them arrive ‘Just-in-Time’ to ensure that the manufacturing process remains on schedule and the product is delivered as promised.

While MTO strategies can help businesses offer consumers customized products that meet their specifications, companies must ensure that existing inventory is adequate to match incoming demand and that they have the ability to schedule properly to minimize lead and customer wait times.