Mastering Make-To-Order (MTO): What is MTO and How It Helps

Make-To-Order (MTO) is a production strategy where production starts only after a customer order is received. MTO is also called a pull supply chain strategy. This way products are made to meet specific customer demand, not excess inventory. This article will explain what is MTO, its benefits and how it differs from other manufacturing strategies.

Quick Facts

• Make-To-Order (MTO) manufacturing aligns production with actual customer demand, reduces waste and allows for more product customization, it’s suitable for industries that need tailored solutions.

• MTO has challenges like longer lead times and more production complexity, requires good demand forecasting and interdepartmental communication to be efficient.

• Best practices via technology and automation improves MTO execution, ensures on time order fulfillment and raw material management.

What is Make-To-Order (MTO)

Make-to-Order (MTO) is a manufacturing strategy where production starts only after a customer places an order. This way the manufacturing process is directly linked to actual customer demand, reducing the risk of overproduction and excess inventory. MTO manufacturing strategy is perfect for businesses that offer customized products, it allows for more flexibility and personalization.

Industries like automotive, aerospace and construction, as well as bespoke items and advanced components are well suited for MTO in many industries. Starting the production after receiving an order allows companies to work closely with customers to fulfill specific, customized orders, many customization options and customer satisfaction and loyalty.

Key Differences: Make-To-Order vs Other Manufacturing Strategies

MTO manufacturing strategy stands out by allowing companies to align production with actual customer demand, which is opposite to Make-To-Stock (MTS) approach. In MTS products are manufactured in bulk based on forecasted demand and stored as inventory until sold. This often leads to excess inventory and holding inventory costs, that’s why a pull supply chain strategy is important.

In MTO a bill of materials (BOM) and bill of process (BOP) is created for each order to ensure all components and procedures are tailored to the customer’s requirements.Another approach is Assemble-To-Order (ATO) which combines elements of MTO and MTS. In ATO pre-manufactured sub-assemblies are stored in inventory and only assembled into finished goods after a customer order is received. ATO offers a balance between customization and efficiency but still involves some inventory.

Lead times for MTO and ATO processes are generally longer than MTS as production or assembly starts only after an order is placed. MTO requires more capital investment due to the specialized nature of production while MTS relies on economies of scale to reduce costs. Despite the differences both MTO and ATO strategies aim to reduce waste and optimize production.

Benefits of Make-To-Order

One of the main benefits of Make-To-Order (MTO) is the significant reduction of waste. Since production starts only after a customer’s order is received, companies can produce products in the exact quantity required for each order, reducing inefficiencies. This manufacturing strategy also allows for more customization, companies can offer products tailored to customer’s preferences. By allowing this level of customization and efficiency MTO creates value for both customers and companies.

Customer engagement is a key part of the MTO model. Involve customers in the design and specification process and you get highly personalized products that meet individual needs, customer satisfaction and loyalty will increase. This personalized approach often leads to customers willing to pay a premium for customized products.

Another benefit of MTO is the cost savings by aligning production with actual customer demand. By reducing waste and excess inventory MTO saves companies money. This approach offers several benefits:

• No need for extensive market forecasting

• Reduce marketing costs for unsold inventory

• Reduce inventory costs by producing only for a confirmed order

These adds up to overall cost efficiency.

Challenges of Implementing Make-To-Order

Implementing a Make-To-Order strategy is not without challenges. One of the biggest hurdle is the longer lead times of MTO manufacturing as production starts only after an order is received. Customers may have to wait longer for their customized products as production starts after the order is placed. This can result to longer delivery times which may not be suitable for all customers or industries.Managing production complexities is another big challenge as each order has unique specifications. The individualized nature of MTO production is generally more expensive than standardized manufacturing. Uncertain demand can also complicate inventory management, requires careful planning and coordination to ensure materials are available when needed.

Adopting industry best practices can minimize these implementation challenges and help businesses manage the complexities of MTO production. Technology and supply chain optimization can help companies improve efficiency and streamline operations.

Best Practices for Make-To-Order

Implementing best practices is key to overcoming the challenges of Make-To-Order manufacturing. These practices include accurate demand forecasting, streamlined communication across departments and leveraging technology and automation to improve production efficiency and output.

Following these will make MTO manufacturing smoother.

Demand Planning and Forecasting

Accurate product demand forecasting is essential for MTO manufacturers to balance production schedules and manage raw materials procurement. Analyzing economic factors and past sales data helps companies determine future customer demand and plan accordingly. Forecasting future demand is critical for production planning and inventory management in MTO to ensure manufacturing readiness and customer fulfillment. This proactive approach ensures optimal stock levels of raw materials and timely order fulfillment.

Sales teams play a big role in demand forecasting as they have direct customer interaction and can provide valuable market insights. Accurate demand forecasting leads to optimized production schedules and pull supply chain operations, ultimately improving overall MTO manufacturing efficiency and suppliers.

Streamline Communication Across Departments

Communication between departments is key to MTO success. Centralized communication through supply chain software can provide timely updates on manufacturing and customer requirements so all departments are aligned and working towards the same goal.

Improved department coordination improves overall production, reduces lead times. This centralized approach ensures everyone involved in the manufacturing process is informed and can respond quickly to changes or updates.

Technology and Automation

Leveraging technology and automation can improve Make-To-Order processes in many ways:

• Faster response times

• More accurate order management to fulfill customer orders faster

• Raw material management to ensure materials are always available when needed

Technology such as 3D printing is making MTO products more accessible to consumers. These innovations allow for more customization and faster production times, making MTO more attractive.

Industry Trends Impacting MTO

E-commerce and consumer demand for personalized products are changing the Make-To-Order manufacturing strategy. As more customers want unique and personalized shopping experiences, MTO demand is growing, driving innovation and adoption across industries.

Companies in automotive, fashion, furniture and clothing have implemented MTO to meet customer requirements. MTO’s flexibility to adapt to changing market demands makes it a viable option for all types and sizes of manufacturers.

How to Implement MTO in Your Business

To implement Make-To-Order in your business follow these steps:

• Define your strategy and plan resources accordingly.* Set up processes that follow MTO principles, where you manufacture products only after a customer order to ensure customization and efficiency.

• Use technology to streamline.

• Train your staff for the new manufacturing approach.

Creating prototypes to validate product designs before full production can help ensure the final product meets customer expectations. Monitor project progress and be prepared to adjust based on feedback to continuously improve MTO.

Conclusion

In summary, Make-To-Order manufacturing offers many benefits, including reduced waste, more customization and cost savings. While there are challenges with MTO, such as longer lead times and higher costs, adopting best practices can mitigate these and ensure a successful implementation.

As the market evolves and consumer demand for personalized products grows, businesses that adopt MTO will be well positioned to meet these changing needs. By understanding MTO and implementing it well, you can increase customer satisfaction and business success.

FAQs

What is Make-To-Order (MTO)?

Make-To-Order (MTO) is a manufacturing approach where production only starts after a customer has ordered, so the manufacturing process is aligned with actual customer demand. This reduces inventory and enhances customization for customers.

What are the main differences between MTO and MTS?

MTO (Make-to-Order) produces items based on specific customer requests, so customization, whereas MTS (Make-to-Stock) produces and stores large quantities of products for anticipated demand. So the main difference is whether production is driven by orders or sales forecast.

What are the benefits of MTO?

Benefits of MTO include reduced waste, more customization, higher customer satisfaction and cost savings through inventory management. MTO can improve operational efficiency and meet customer demands.

What are the challenges of MTO?

Implementing Make-to-Order (MTO) faces challenges such as longer lead times, production complexities, higher costs and inventory management. Addressing these is key to success.

How do I start MTO in my business?

You can implement MTO by defining your strategy, planning resources, setting up processes and technology. Training staff and monitoring progress will ensure a smooth transition.