Make to Order
MTOMake to Order (MTO) is a production strategy where manufacturing starts only after a confirmed customer order is received.
Make to Order (MTO) is a pull-type production approach. Production is initiated by actual demand, not by a forecast. This contrasts with Make to Stock (MTS), where products are made in anticipation of future orders and stored as finished goods inventory.
In an MTO environment, a customer order triggers the creation of a work order. This work order then prompts the purchasing of necessary raw materials and the scheduling of production. This process is common for products that are highly customized, expensive to store, or have infrequent demand. It allows for a high degree of product personalization to meet specific customer requirements.
MTO significantly reduces the risk of obsolescence and lowers holding costs for finished goods. By producing only what is sold, manufacturers minimize waste associated with overproduction. The main trade-off is a longer lead time for the customer, as production does not begin until the order is placed and materials are procured.
Successful implementation requires flexible production scheduling and reliable supply chains. Planners must accurately forecast raw material needs to avoid stockouts. Strong supplier relationships are critical to ensure timely delivery of components. Operations must be able to switch between different product configurations with minimal changeover time.
A custom metal fabrication shop receives an order for 50 specialized brackets. The shop then orders the specific grade of steel and schedules machine time on its CNC press brake. The total lead time from order placement to shipping is three weeks.
What is the main difference between Make to Order and Assemble to Order (ATO)?
MTO begins production from raw materials after an order is received. ATO pre-builds components and completes final assembly after receiving an order, resulting in a shorter lead time than MTO.
How does MTO affect inventory levels?
MTO lowers or eliminates finished goods inventory. It can, however, increase raw material and work-in-progress (WIP) inventory if not managed with a just-in-time approach.
Is MTO suitable for all types of manufacturing?
No, it is best for low-volume, high-variety, or customized products. It is not efficient for high-volume, standardized products where customers expect immediate availability.
What are the biggest challenges of implementing MTO?
The primary challenges are managing longer customer lead times and handling supply chain disruptions. Unreliable supplier delivery can halt production and delay customer orders.
How can a manufacturer reduce lead times in an MTO system?
Lead times can be reduced by improving production scheduling, shortening changeover times, and holding strategic safety stock of long-lead-time raw materials.
Make-to-Stock
MTSMake-to-Stock (MTS) is a production strategy where items are manufactured based on demand forecasts to maintain a stock of finished goods.
Assemble-to-Order
ATOAssemble-to-Order is a production strategy where products are built from pre-made components after a customer places an order.
Engineer-to-Order
ETOEngineer-to-Order (ETO) is a production method where a product is designed and manufactured only after a customer order is received.
Lead Time
Lead time is the total time elapsed from when a customer places an order to when they receive the finished product.
Work Order
A work order is a document that authorizes and details a specific job, such as manufacturing a product or performing maintenance.
Just-In-Time
JITJust-In-Time is a production strategy where items are created or delivered only as they are needed, minimizing inventory.