What is Configure-to-Order (CTO)? – Benefits, Implementation

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What is Configure-to-Order

Configure-to-Order is a business process that allows customers to configure the features and options of products or services to their specific needs.

That can be done through an online interface, talking to a customer representative, or both.

Configuring Products and services gives customers more control over their purchases and results in higher satisfaction.

This blog post will discuss its definition, process, benefits, disadvantages, and examples.

What is Configure-to-Order?

Configure-to-Order

Configure-to-order is a business model allowing customers to configure their product and deliver it directly to them. This business model differs from traditional manufacturing, which produces products in bulk and then sells them to retailers or distributors.

With this, businesses make products only after being ordered by a customer, which helps reduce inventory costs.

Steps involved in the Configure-to-Order process

Infographics of Configure to Order Process

Following are the steps involved :

  • First, receive customer orders through various methods such as online, by phone, or in person.
  • Once the order is placed, the software will generate a bill of material (BOM) for the product. This document lists all the components needed to build the product and their quantities.
  • The next step is production planning. The production plan determines how many products can be made per hour/day and what resources are necessary to produce them.
  • Inventory must be checked to ensure enough components are on hand to meet customer demand. If not, the company must contact new suppliers, or the company must order additional inventory.
  • In the next step, the assembly line is set up. That includes organizing the workstations and determining who will do what tasks.
  • Assembly workers must be trained on how to assemble the product and where each component goes.
  • Quality control testing must also be done to ensure that products meet customer specifications.
  • Ship the product to the customer.
  • Collect payment from the customer.

Additional Tips for implementation

  • Replace an existing product line with configure-to-order versions of those products
  • Start producing new products through CTO
  • Offer configurable options on current products
  • All these methods have advantages and disadvantages, so it is important to weigh them carefully.

Benefits

Benefits of Configure to Order

Increased customer satisfaction

Configuring products and services to meet specific needs gives customers more control over their purchases, leading to higher satisfaction.

Improved product quality

Businesses can produce products only after they are ordered, which helps ensure that products meet customers’ specific requirements.

More efficient production processes

Configuring products to order can help streamline production by reducing waste and eliminating unnecessary steps.

Reduced manufacturing and inventory costs

Producing goods only when ordered reduces the inventory that must be kept on hand, leading to manufacturing and storage cost savings.

Faster time to market

Configuring products to order helps businesses get new products to market faster since there is no need to wait for a product to be manufactured in large quantities.

Disadvantages

  • Extra charges for addressing customer complaints and refunds
  • A significant amount of time is needed to create products
  • There is a high risk of inventory shortages
  • It can be difficult to predict customer demand
  • Products may not meet all of the customer’s specifications

Configure to Order vs Engineer to Order

With Engineer to Order (ETO), an order is placed for a product before the manufacturing process has even begun. In this approach, production begins only after receiving customer drawings or specifications outlining the required product features. 

Configure to order is a bit different. This type of manufacturing makes products after receipt of customer orders. In this approach, base products exist before an order is received, but they’re configured according to the customer’s specific needs and requirements.

That allows for greater customization and flexibility, which can be important for businesses that need to meet the unique needs of their customers. In addition, CTO is more common than ETO because it places less risk on the manufacturer. 

FAQs

What is the difference between build-to-stock (BTS) and CTO?

Produce products only after being ordered by a customer, which helps reduce inventory costs. In contrast, BTS companies make products in bulk and then sell them to retailers or distributors. This helps them keep their costs down by reducing the need for storage space and allows them to take advantage of economies of scale.
However, it also means that they may not be able to respond as quickly to changes in demand. Therefore, CTO businesses are better suited to industries where product demand is relatively stable, while BTS businesses are more appropriate for highly cyclical sectors.

What are the examples of configure to order?

When you order a pizza online, you are given the option to customize your toppings. It is an example of configure to order. You can choose what you want on your pizza, and the final product is tailored to your preferences.
Another example is when you purchase a computer from a website. You can select the computer’s specs, such as the processor, amount of RAM, and type of hard drive. The website will then build the computer to your specifications and ship it to you. That allows you to get exactly the machine you need without settling for a pre-built model.

Conclusion

Configure-to-order is a business model that allows customers to configure the features and options of products or services to their individual needs.

That differs from traditional mass production, where products are made in large quantities according to a set design and then customized after purchase.

With this, businesses can offer consumers more variety and choices while maintaining efficient production processes. In addition, configuring products to order can increase sales by choosing the exact product they want.

Configurable products might be the answer if you’re looking for a more customizable shopping experience.