Make-to-Order or MTO is a business manufacturing process where customers customize the product they want to buy. The customer places the order first, and then the company manufactures it. In other words, the buyer designs the product with certain specifications. We also call it Build-to-Order or BTO.
Make-to-Order is ideal for companies that want to focus on low volume and highly customized products. It is also ideal for businesses that sell expensive goods. If an item is expensive, it is also costly to hold in storage.
For example, an aircraft maker may have to consider this strategy because airplanes are expensive products.
The aircraft maker can make an airplane according to what the customer requires. It doesn’t even need extra inventory.
Lean-Manufacturing-Japan has the following definition of the term:
“MTO (Make-to-Order) is a manufacturing process in which manufacturing starts only after a customer’s order is received.”
“Forms of MTO vary, for example, an assembly process starts when demand actually occurs or manufacturing starts with development planning.”
In a make-to-order manufacturing system, the company waits for the customer’s order to arrive before making the finished product. In a make-to-stock system, the company produces the goods beforehand and stores them in a warehouse.
By adopting a make-to-order strategy, the company will have a competitive advantage. Being able to give the customer something which is tailor-made is a huge plus in the competitive marketplace.
When a company has a competitive advantage, it means that it has an edge over its rivals. The term ‘marketplace’ means the same as the abstract meaning of ‘market.’
If ‘make-to-order’ products are not in stock, customers have to wait longer for them. They may also have to pay a premium for having something which the supplier has customized.
The MTO strategy starts when customers order something according to their specifications.
The supplier may focus on the internal design or the functioning part of the product. It will then assemble it with the custom-made part of the product when everything is ready.
In many cases, demand determines what manufacturing process the supplier uses. Companies have engineers organizing manufacturing processes as orders come in.
One example of a make-to-order company is German luxury car manufacturer BMW. The carmaker allows customers to buy a car that it has already made.
However, they can customize their vehicle according to their requirements.
BMW lets customers design the interior and exterior, the engine, as well as other features.
Customers understand this system is not the same as buying a car that is already in the showroom. They will have to wait several weeks before they receive their vehicle.
In fact, depending on the specs, they may have to wait up to eight months. ‘Specs’ means ‘specifications.’
Make-to-order is a common process in companies that have a just-in-time strategy. Just-in-time is a manufacturing or inventory strategy in which the company keeps stock levels to an absolute minimum.
Just-in-time contrasts with just-in-case. In a just-in-case system, the company makes sure it has high levels of stocks.
Make-to-order contrasts with make-to-stock. In a make-to-stock system, the company makes finished products before orders come in, i.e., it sells ‘off-the-shelf’ goods. This RTD Knowledge video explains the difference.
The three reasons why a business will choose MTO when it comes to make-to-order vs. make-to-stock:
Minimizing waste doesn’t just apply to your business attempting to reduce expenses on material disposal or that is unnecessary to production. Minimizing waste means that resources are only spent on your product if it benefits your customers. If a process, action, or addition to a product does not add value to the customer, it is considered waste.
All manufacturing takes place upon receiving the customer’s order, directing the company’s operations to just focusing on manufacturing products as efficiently as possible. However, you’ll need to decide when to start production by choosing either forward scheduling or backward scheduling.
Customers will come to you when they want a more personalized shopping experience, making your products unique compared to other make-to-stock companies. Unfortunately, there also come some downsides to being a business that is make-to-order.
Let’s look at three disadvantages that you can face if you decide to take this approach to manufacturing:
Businesses usually experience peaks or spikes in sales. Adding more make-to-stock examples to the article, seasonal periods increase in sales since it’s Christmas. This means that your business might notice lulls in sales, or even a massive boom in demand, both of which can put a major strain on your business.
The nature of a make-to-order business means that your business must always be ready for the next customer order to begin manufacturing as soon as possible. Although, incorrect stock level readings of materials or a ton of orders can result in your business running out of material at a crucial moment, putting you behind on your orders.
It’s not their fault, and if we’re honest with ourselves, we’re all a little impatient. Customers want their products, and they want them now.
Once again, make-to-order, given the nature of the method, customers have to wait a while before receiving their products. And if they must wait longer than they originally realized, this will manifest in their dissatisfaction toward you.
That was a brief overview of the make-to-order definition method and how it could potentially benefit your business.
But, now let’s look at its counterpart, which is again another avenue of a manufacturing technique that you could explore.