What does ‘Make To Order – MTO’ mean
Make to order (MTO) is a business production strategy that typically allows consumers to purchase products that are customized to their specifications. The make to order (MTO) strategy only manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product but allowing for more flexible customization compared to purchasing directly from retailers’ shelves.
Explaining ‘Make To Order – MTO’
The make to order (MTO) strategy relieves the problems of excessive inventory that is common with the traditional make to stock (MTS) strategy.
Dell Computers is an example of a business that uses the MTO production strategy wherein customers can order a fully customized computer online and receive it in a couple of weeks.
Known as Made to Order or Build To Order
Make to order, also referred to as build to order (BTO) or made to order (MTO), is a manufacturing process in which the production of an item begins only after a confirmed customer order is received. This type of manufacturing strategy is referred to as a pull-type supply chain operation because products are only made when there is a firm customer demand. This pull-type production model is employed by the assembly industry where the quantity needed to be produced per product specification is one or only a few. This includes specialized industries such as construction, aircraft and vessel production, bridges, and so on. MTO is also appropriate for highly configured products such as computer servers, automobiles, bicycles or products that are very expensive to keep inventory.
The Advantage
The main advantage of the MTO system is being able to fulfill an order with the exact product specification required by the customer. Sales discounts and finished good inventory is also reduced and stock obsolescence is managed. However, for an MTO system to succeed, it should be coupled with proactive demand management. It should also be considered that the MTO system is not appropriate for all types of products.
Further Reading
- Combining make-to-order and make-to-stock inventory policies: an empirical application to a manufacturing SME – www.tandfonline.com [PDF]
- A profit and loss analysis for make-to-order versus make-to-stock policy—a supply chain case study – www.tandfonline.com [PDF]
- A review of production planning and control: the applicability of key concepts to the make-to-order industry – www.tandfonline.com [PDF]
- Make-to-order manufacturing-new approach to management of manufacturing processes – iopscience.iop.org [PDF]
- Make-to-order, make-to-stock, or delay product differentiation? A common framework for modeling and analysis – www.tandfonline.com [PDF]
- Integrated model for supplier selection and negotiation in a make-to-order environment – www.tandfonline.com [PDF]
- Impacts of carbon emission reduction mechanisms on uncertain make-to-order manufacturing – www.tandfonline.com [PDF]
- Capacity coordination in hybrid make-to-stock/make-to-order production environments – www.tandfonline.com [PDF]
- Hierarchical production planning and scheduling in make-to-order environments: reaching short and reliable delivery dates – www.tandfonline.com [PDF]
- Simultaneous production planning of make-to-order (MTO) and make-to-stock (MTS) products using simulation optimization. Case study: Soren Restaurant – www.tandfonline.com [PDF]
