In manufacturing, Make-To-Order is a term used to describe a process where goods are explicitly manufactured after a customer has placed an order.
In this blog post, let’s look at what it entails, how it works, advantages and disadvantages.
What is Make-To-Order (MTO)?
MTO is also called a “Pull Supply Chain” strategy. This means that any item’s production, assembly, and delivery only happens when someone orders it. Making the item starts with a confirmed customer order, and the amount made depends on how many people buy it.
It is a manufacturing process that starts after receiving a customer’s order. Companies can use this process for products that are customized or unique.
This type of manufacturing helps to ensure that customers receive the exact product they want.
How does it work?
The process begins with the receipt of an order from a customer. Once the customer order is received, it is analyzed, and plans are made for producing the product.
The actual make to order production takes place according to these plans, with the finished goods being delivered to the customer once they are completed.
The MTO approach is used by some industries, like
- Computer servers
- Cars and bridge building
- Fast-Moving Consumer Goods are products like toothpaste, foodstuff that you make yourself, soap, cookies, notebooks, and chocolate.
Make to order process flow
- Receiving customer order
- Analyzing and planning the manufacture of the product
- Manufacturing the product according to the plans
- Delivering the finished product to the customer
- Continual improvement of the process
- Training employees in these methods
- Maintaining records of all orders and products
There are several key benefits to using it for manufacturing products,
- When customers get products that are designed just for them, they will be happier with what they receive.
- More flexibility in product design, as a company can make changes more easily and quickly than with other manufacturing methods.
- There are faster turnaround times, as there is no need to wait for the stock to become available before production begins.
- Reduced inventory costs, as products are only manufactured when customers have ordered them.
- Increased efficiency as the manufacturing process is tailored to meet each customer’s needs.
- Reduces waste and decreases overhead
Disadvantages of Make To Order Manufacturing
While there are many advantages to using it, there are also some potential drawbacks,
- Higher costs are due to the need for customized tooling and machinery and the demand for more skilled labor.
- There are long lead times, as products often take longer to manufacture than those made using other methods.
- Increased complexity in terms of planning and execution.
When is MTO the best option for manufacturing products?
It is a good choice for companies that want more flexibility in product design, faster turnaround times, and increased customer satisfaction. This is more power full than the traditional production strategy to fulfill customer expectations. Customers will have a personalized shopping experience.
However, it is not always the best option, as it can be more expensive and have longer lead times than other manufacturing methods. Whether or not to use MTO depends on its specific needs and customers.
Make-to-Order vs Make to Stock
The key differences between MTO and MTS are as follows.
|You make each product as it’s ordered.||You make a certain quantity of each product and keep it in stock.|
|The customer can specify precisely what they want, down to the individual product and color.||The customer is limited to pre-determined choices.|
|You tailor each product specifically for the customer who orders it.||You use a more “one size fits all” approach.|
|You need only enough inventory on hand to meet customer demand.||You must maintain a more extensive inventory to meet predicted demand.|
|There’s always the potential for delays since every product is made fresh.||You have products that are ready-made and waiting to be sold. Hence no delays.|
What are Make to Order product examples?
Some examples are customized sneakers, made-to-order furniture, made-to-order clothing, and special orders for food items such as personalized pizzas or burgers.
With these products, the customer can select different colors, sizes, and designs made specifically for them.
This type of manufacturing allows for a high level of customization and personalization that often isn’t possible with mass-produced items.
Many companies now offer online platforms that allow customers to fully customize the products they order, down to the most minute detail.
This trend towards increased customization is likely here to stay as consumers become savvier and savvier about the benefits of having precisely what they want – and nothing more.
How does Make to Order impact inventory?
Products made with a make-to-order process tend to have a lower inventory turnover rate.
This is because the products are made specifically for consumer demand, so there is no need to keep large quantities of the product on hand. It will increase production efficiency.
This can be beneficial for businesses that want to avoid dealing with excess inventory, but it can also lead to longer wait times for customers.
Is it better for high-volume or low-volume production?
Generally speaking, Make to Order production is more beneficial for low-volume production companies. This is because setting up the necessary infrastructure for high-volume production can be difficult and expensive.
Also, make-to-stock production often results in excess inventory, which can tie up a company’s financial resources.
However, make-to-order products can be less efficient than make-to-stock production, and it may not be possible to meet customer demand if orders are received too late in the production process.
As a result, companies must weigh the pros and cons of each type of production before deciding which one is best for their business.
What is make-to-order in SAP?
SAP is used when products are not in stock and need to be made for a customer.
This is done using the MRP ( Materials Requirement Planning) function in SAP. MTO is beneficial because it allows businesses to create products tailored to customer needs, increasing sales and customer satisfaction.
In addition, it can help businesses to avoid the high costs associated with inventory management and storage.
However, it can also be complex and time-consuming, so it is essential to carefully consider the best option for your business before implementing it.
Make-to-Order is a manufacturing process where production starts only after receiving an order from a customer. This allows for more customization and variety since the products are not produced in bulk ahead of time.
It can benefit customers and businesses because it results in shorter lead times, less waste, and lower inventory costs. Hoping this reading was helpful for you!