Thinking make to order vs make to stock for your business? This article breaks it down for you.
Make to Order (MTO) produces goods only after customer orders, high customization but longer delivery times.
Make to Stock (MTS) produces and stores goods based on demand forecasts for immediate delivery, reduces wait times but risks overproduction and higher inventory costs.
Choosing MTO or MTS requires analysis of product demand, customization needs and operational efficiency to meet customer expectations.
Make to Order (MTO) is a production strategy that produces goods only after customer orders. This pull system is all about efficiency and resource organization, production only starts when a customer places an order. Also known as built-to-order, MTO allows you to:
Offer high levels of product customization, to individual customer preferences and specifications
Reduce inventory costs
Minimize waste, as resources are only used when they add value to the customer’s order
One of the main benefits of MTO is the personalized shopping experience. Customers can fully customize their products, MTO items are different from standard products made to stock. This is particularly effective for businesses that have complex products or require customer input.
But while MTO has many benefits, it also has its own set of challenges which we’ll get into next.
The main benefit of Make to Order (MTO) is the high level of product customization. Key benefits:
Customers can customize their products to their exact specifications, a highly personalized shopping experience.
This customization sets MTO products apart from mass produced products, customer satisfaction and loyalty.
MTO minimizes waste by only using resources when they add value to a customer’s order, big cost savings.Another big benefit of MTO is the reduction in inventory costs. Since products are only produced after an order is placed, businesses don’t need to hold large inventories of finished goods, reducing the risk of stock obsolescence. This alignment with actual customer demand means production meets real needs not speculative forecasts, so resources are used more efficiently and production processes are improved.
Despite the many benefits of Make to Order (MTO) there are some downsides. One of the main disadvantages is longer wait times for customers. Since production only starts after an order is received, customers will wait longer for products than if they were available. This can impact customer satisfaction and potentially lose business especially in a market where fast delivery is important.
MTO can also face challenges with raw material shortages and production delays. Incorrect stock level readings can mean running out of critical materials at the worst possible time, increasing production costs and disrupting schedules.
Making accurate sales forecasts in an MTO environment can be difficult, resulting in insufficient stock and higher operational costs. These factors can complicate the manufacturing process and make it less efficient than expected.
Make to Stock (MTS) is a production strategy where goods are produced based on demand forecasts and stored as inventory for future customer orders. This push system aims to align production with anticipated demand so products are available for immediate delivery when customers order. The main goal of MTS is to produce and store products in advance, reducing lead times and enabling quick fulfillment.
MTS is effective for standardized products with stable demand, like consumer goods and electronics. By using accurate demand forecasts businesses can plan their production schedules efficiently, minimizing the risk of stockouts and ensuring popular products in high demand are always available for immediate purchase.
But while MTS has many benefits it also has its own set of challenges which we’ll get into next.
One of the main benefits of Make to Stock (MTS) is the reduction in customer wait times. By having products ready for immediate shipment businesses can fulfill orders quickly, customer satisfaction. Retail giants like Walmart and Target use MTS to ensure popular products are always available for consumers, a seamless shopping experience.
Another big benefit of MTS is the ability to achieve economies of scale, which includes:* Producing in bulk based on demand forecasts, reducing average cost per unit and increasing cost efficiency.
Using advanced forecasting tools to minimize inventory costs and ensure product availability.
Improving overall production efficiency.
This mts strategy is used by major consumer electronics companies like Apple and Samsung who use MTS to ensure a steady supply of popular items.
Despite the benefits of MTS there are some downsides. One of the main make to stock disadvantages is overproduction which can result in surplus inventory that can’t be sold and incurring additional costs. Miscalculations based on inaccurate sales forecasts can result in dead stock or excess inventory posing significant financial risks.
High inventory holding costs are another big concern for MTS companies. Holding large quantities of stock requires a lot of storage space and resources, impacting cash flow and overall financial health.
MTS also offers limited opportunities for product customization which may not meet specific customer needs or preferences, potentially resulting in lower customer satisfaction.
When comparing Make to Order (MTO) and Make to Stock (MTS) the key differences lie in their production initiation and focus. MTO is a pull system where production starts only after receiving customer orders, allowing for customized products that meet specific customer demands. MTS is a push supply chain method where goods are produced based on forecasted demand and stored as inventory for immediate fulfillment.
These fundamental differences impact various aspects of the production process, from scheduling and inventory management to customer satisfaction. MTO is about customization and reduced inventory costs, MTS is about mass production and quick delivery.
Understanding these differences is crucial for businesses to choose the right strategy that aligns with their operational goals and market conditions.
Scheduling is a critical part of both Make to Order (MTO) and Make to Stock (MTS) strategies. In MTO production scheduling starts only after a confirmed customer order, requires close coordination between sales, production and suppliers for timely fulfillment. This approach ensures each product is made to meet specific customer requirements but can also result in longer lead times. Effective planning is key to optimizing these processes.On the other hand MTS relies on demand forecasts to schedule production, so items can be produced in advance and stored for immediate delivery. This allows businesses to plan production efficiently, reduce the risk of stockouts and have products available for customers.
Identifying lead times in both is key as it helps businesses decide between MTO and MTS based on their operational flexibility and market demand.
Inventory management is very different between Make to Order (MTO) and Make to Stock (MTS). MTO businesses hold some level of safety stock to mitigate the risk of stockouts given their custom production process. This ensures materials are available when needed but requires close monitoring of inventory levels to avoid shortages.
MTS on the other hand involves holding inventory based on expected demand which can result to overstock or stockouts if forecasts are inaccurate. Advanced cloud inventory systems enable real-time tracking of stock levels, supporting timely decision making for production adjustments.
These systems allow manufacturers to set reorder points so they can maintain optimal inventory levels to support production needs.
Customer satisfaction is affected differently by Make to Order (MTO) and Make to Stock (MTS) strategies. MTO can enhance satisfaction through customized products that meet specific customer requirements, a personalized experience. However the longer lead times of MTO can negatively impact satisfaction especially in markets where quick delivery is expected.
MTS ensures quicker fulfillment by having products available for immediate delivery and fast delivery which can greatly enhance customer satisfaction. However MTS offers limited customization options which may not meet all customer preferences and can affect satisfaction levels.
Updating customers on their order status regularly can help maintain satisfaction especially for MTO products.
Choosing the right strategy is critical to optimize business efficiency and meet customer needs. Make to Order (MTO) is suitable for products that are complex and have many customizations. This strategy allows businesses to offer customized solutions, increase customer satisfaction and loyalty. However it requires efficient coordination and accurate demand forecasting to avoid delays and material shortages.
MTS is suitable when products have little variation and customization, allows for mass production. This make to stock strategy ensures quick delivery and cost effective production, ideal for standardized products with stable demand.Businesses can switch between MTO and MTS strategies to adapt to changing demand and some have successfully integrated both to cater to different market segments.
Accurate demand forecasting is key to determining the right production strategy. Analyzing historical sales data helps businesses understand customer demand predictability and make informed decisions on production scheduling. For example a German manufacturer used confirmed future orders to enhance forecasting for Make to Order products so production met actual customer demand and forecasted demand.
Real-time information from cloud inventory systems allows businesses to manage supply better, reduce the risks of overproduction and stockouts. Effective demand forecasting can mitigate these risks, align production strategies better and improve overall operational efficiency.
Balancing customization with inventory management is key to a successful manufacturing operation. An effective production strategy must implement standardization and process control while having the flexibility to meet specific customer requirements. Flexible manufacturing systems can greatly improve Make to Order production, allow businesses to offer customized solutions without compromising on efficiency.
Achieving this balance ensures customer satisfaction by meeting customer expectations for customization and quick delivery according to customer’s specifications. Businesses that can achieve this balance can save costs, increase customer loyalty and stay competitive.
Monitoring market trends and using cloud-based solutions can help businesses adapt their production strategies. Market trends and competitor strategies can greatly impact production strategy decisions, businesses must continuously monitor these market dynamics to stay competitive and produce products.
Cloud-based solutions allow businesses to scale up operations without the need for expensive hardware upgrades. These systems provide mobile access, allow staff to manage inventory from anywhere and any device, improve operational efficiency.
Adapting production strategies through technology not only improves response to market changes but also overall operational efficiency.
In this digital age, technology can greatly improve production strategies whether you’re using Make to Order (MTO) or Make to Stock (MTS). Advanced Planning and Scheduling (APS) systems and cloud-based inventory management solutions are game changers, allow businesses to adapt quickly to market trends and optimize their processes. These technologies streamline operations, reduce costs and improve overall production efficiency, they are must have tools for modern manufacturing.Using APS software businesses can create production plans and schedules fast, the agility to respond to changing demand. Cloud-based inventory management systems further improves operational efficiency by providing real-time inventory tracking and integration with other enterprise systems.
With these technologies businesses can always be ready to meet customer demand whatever their strategy.
Advanced Planning and Scheduling (APS) software is a powerful tool that improves production management by allowing businesses to create plans and schedules fast. For example SupChains developed a machine learning model for a manufacturer, it improved forecast accuracy for MTO products by 30%. This kind of precision helps businesses to align production with actual customer orders, reduce waste and optimize resources.
APS software also improves flexibility in manufacturing environments, businesses can adjust production schedules in real-time based on market changes. This agility is crucial for businesses that need to respond quickly to customer demand and stay competitive.
Cloud-based inventory management systems streamline production and improve forecasting accuracy, overall operational efficiency. These systems update production schedules and generate manufacturing orders, so businesses can maintain optimal inventory levels and avoid overstocking or stockouts.
Integrating cloud-based inventory management with ERP/MRP software further improves operational efficiency by providing a single view of the entire supply chain. This integration allows businesses to make decisions fast, adapt to market changes and always be ready to meet customer demand effectively.
Choosing between Make to Order (MTO) and Make to Stock (MTS) is a key decision that depends on many factors, product complexity, customer demand and market dynamics. MTO offers high customization and low inventory costs but has longer lead times and potential material shortages. MTS ensures quick delivery and economies of scale but risks overproduction and high inventory holding costs.
By understanding the differences between MTO and MTS businesses can make informed decisions that align with their operational goals and customer expectations. Leveraging APS software and cloud-based inventory management can further improve production efficiency and responsiveness. Ultimately the right strategy depends on your business needs but with the insights in this guide you’re ready to make an informed decision that drives success and customer satisfaction.
The main difference is MTO waits for customer order before production, for customization and MTS produces based on demand forecasts for quick availability. So if you want something tailored just for you, MTO is the way to go!
Make to Order (MTO) lets you customize products to your liking, reduces waste and inventory costs. Production matches what customers need, everything is more efficient.
Make to Stock (MTS) is a headache due to overproduction and high inventory costs. Limited product customization and you end up with surplus stock that messes with your cash flow.
APS software improves production management by creating flexible plans that match customer demand, reduces waste and optimizes resources. You can respond to market changes faster and keep things running smoothly.
Demand forecasting is important because it aligns your production strategy with customer needs, reduces the chance of overproduction and stockouts. It maximizes resource efficiency and overall performance.
Make to Forecast (MTF) like Make to Stock (MTS) produces goods based on demand forecasts before customer orders, to keep inventory ready for immediate delivery. It relies on accurate forecasting to avoid excess stock or shortages. Make to Order (MTO) produces only after customer orders, allows higher customization and reduces inventory costs by producing to actual demand.
Make to Order (MTO) produces the entire product after customer orders, allows full customization but longer lead times. Assemble to Order (ATO) is a hybrid: components are produced and stocked based on forecasts, but final assembly happens after the order. It offers faster delivery than MTO but still allows some customization. ATO is for modular products where customers configure options from predefined components, balancing sales opportunities and inventory costs.