Unlocking the Potential of Make to Order (MTO) Manufacturing Strategy
Make to order (MTO), or made to order, is a forward-thinking business production strategy that enables consumers to purchase products specifically crafted to their unique specifications. In this manufacturing process, production begins only after a confirmed customer order is received, presenting businesses with the opportunity to seamlessly integrate customization into their offerings.
Key Benefits of MTO
- Customer Customization: MTO allows businesses to tailor products exactly to customer requirements, enhancing customer satisfaction.
- Reduced Stock Obsolescence: By producing items only on order, businesses minimize the risk of unsold, outdated stock piling up in warehouses.
- Inventory Efficiency: MTO reduces the need for large amounts of finished goods inventory, consequently lowering storage costs and waste.
Drawbacks of MTO
- Longer Wait Times: Custom production requires a longer lead time, potentially making customers wait before they receive their tailor-made products.
- Higher Costs: Customized production is often more expensive compared to mass-produced goods due to the specialized nature of the manufacturing process.
Understanding the Make to Order (MTO) Process
The MTO strategy means that a firm starts manufacturing the final product only after the customer places an order. This leads to extra wait time but offers unparalleled customization compared to purchasing products directly from retailers.
As a pull-type supply chain strategy, products are crafted solely based on confirmed customer demand. This approach is especially valuable in specialized industries such as aircraft, shipbuilding, bridge construction, and more. MTO is ideal for complex and highly configurable products like computer servers, automobiles, and bicycles, where maintaining extensive inventory isn’t feasible.
A notable example of an MTO strategy in action is Dell Computers, where customers can order fully customized computers online, which are assembled and delivered to them within a few weeks.
The biggest advantage of the MTO system lies in its ability to deliver products that meet exact customer specifications, reducing the need for sales discounts, and managing stock obsolescence effectively. However, the MTO system’s success relies on proactive demand management and isn’t suitable for every product type.
In contrast, [assemble to order (ATO)] is another production strategy where pre-manufactured parts are assembled once an order is received, allowing for quick fulfillment and a moderate level of customization.
Comparing Make to Order (MTO) and Make to Stock (MTS)
Traditional production methodologies like make to stock (MTS) produce and keep inventory ready for purchase. However, this method can lead to inventory wastage and obsolescence, particularly in fast-paced industries such as technology.
In MTS, production is driven by future demand forecasts, which can often be inaccurate, leading to excess inventory or stockouts. The MTS method works best when demand fluctuations are predictable, but that’s often not the case, which can result in financial losses due to either overstock or obsolete inventory.
Navigating the Limitations of Make to Order (MTO)
While MTO offers impressive customization potential, it also comes with challenges related to timeliness and cost. Since MTS enables immediate purchasing, customers don’t face delays in receiving products, whereas MTO requires waiting until the product is made, assembled, and delivered as per their instructions. Moreover, the cost of producing unique, made-to-order products is typically higher compared to mass production benefits enjoyed through economies of scale.
Overall, while MTO offers significant benefits in terms of customization and inventory management, businesses must weigh these against the potential downsides to determine the best production approach for their offerings and customer expectations.
Related Terms: Make to Stock, Assemble to Order, Supply Chain, Inventory, Economies of Scale.
