Everything you need to know about MTO (made-to-order)
Made-to-order (MTO) is a way for companies to create products only after customers order them. This article explains how MTO works, its benefits, and where it’s commonly used, highlighting its importance in delivering exactly what customers need.
What is made-to-order?
Made-to-order (MTO) is a strategy companies use to create products only after a customer has placed an order. Instead of making a lot of things and hoping people will buy them, companies wait until someone orders something, and then they start making it. This method is very popular in industries where people want things made just for them, like cars or airplanes.
Understanding MTO
With Made-to-Order, everything is made based on what the customer wants. For example, if you order a special toy, the company will start making it only after you tell them exactly what you want. This way, there’s no waste because they only make what is needed. Industries that make special items, like custom cars or planes, often use this method. It helps them ensure that everything they make is just right for the person who ordered it.
By using the Made-to-Order method, companies ensure they create products that people really want. This makes customers happy because they get exactly what they asked for, and it helps companies because they don’t waste materials on things that nobody wants.
Made-to-order is also called mass customization, highlighting its ability to cater to individual customer needs on a large scale.
How does MTO work?
This method is known as a pull-through production or pull-type supply chain. This is because the products are made only when there is a definite demand from customers. This is especially common in industries where each item is made to meet specific customer needs, usually in small quantities, like building planes or boats, making cars, or constructing buildings.
MTO is perfect for products that must be very specifically tailored, like computer servers, cars, or bicycles. It’s also a good strategy for items that are costly to store as inventory because it avoids the need to keep a lot of products on hand that might not sell.
The steps of the MTO process
Here are the main steps companies follow to make products exactly how customers want them.
Step 1: Order placement
The customer places an order, and the company generates a bill of sale.
Step 2: Work order creation
Once the order is confirmed, the company creates a work order to start the manufacturing process.
Step 3: Manufacturing the product
The product is then manufactured according to the customer’s specifications.
Step 4: Delivery
Once the product is ready, it is delivered, and the customer receives their customized order.
The pros and cons of made-to-order strategy
Here are the advantages and disadvantages of using the MTO strategy to customize products.
Advantages of MTO:
Customization
Customers receive products that match their specific requirements perfectly, increasing their satisfaction and loyalty to the brand.
Reduced overstock
Since products are only made after they are ordered, excess inventory does not need to be discounted, helping companies avoid losses.
Less waste
This approach minimizes the amount of unsold goods, reducing waste and contributing to more sustainable business practices.
Full price sales
Companies can sell their products at full price rather than offering discounts to clear out unwanted stock, improving profit margins.
Disadvantages of MTO:
Longer wait times
Customizing products from scratch means customers have to wait longer to receive their orders than for off-the-shelf items.
Higher prices
Customizing products can be more expensive due to the unique parts and finishes required for each order. This can lead to higher costs for the consumer.
Limited economies of scale
Unlike mass production, MTO benefits less from economies of scale, often resulting in lower production costs when items are made in large quantities.
MTO vs. MTS vs ATO – Comparing different production strategies
Each of these strategies offers trade-offs between customization, efficiency, speed of delivery, and cost, making them suitable for different operational contexts and market conditions.
What is made-to-stock (MTS)?
MTS is geared towards producing items before they are ordered. This strategy relies heavily on accurate demand forecasting to determine how many units to produce, aiming to have products readily available when customers decide to purchase.
However, depending on the accuracy of demand predictions, this can lead to challenges such as overproduction or shortages. Excess inventory might become obsolete, especially in fast-paced industries like technology, leading to financial losses and wasted resources.
What is assemble-to-order (ATO)?
ATO is a hybrid model that combines elements of both MTS and MTO. It involves keeping basic components in stock and then quickly assembling them into finished products based on specific orders.
This strategy allows for some level of customization with faster delivery times compared to MTO. While it reduces some of the inventory risks associated with MTS, it still requires careful management of component stocks, which can be costly.
Comparison between MTS, MTO, & ATO
| Feature | Make-to-stock (MTS) | Make-to-order (MTO) | Assemble-to-order (ATO) |
| Production timing | Products are manufactured in advance based on forecasted demand. | Production begins only after a customer places an order. | Basic parts are pre-manufactured; assembly begins after order. |
| Inventory management | High inventory levels to meet anticipated demand. | Minimal inventory; reduces overproduction and storage costs. | Moderate inventory levels of basic components. |
| Customization level | Standardized products. | High customization to meet specific customer requirements. | Limited customization based on available components. |
| Cost efficiency | Economies of scale are possible due to bulk production. | Higher costs due to customized production. | Lower assembly costs, but component storage costs apply. |
| Risk of obsolescence | High risk due to potential misalignment with market demand. | Low risk as products are made to current specifications. | Moderate risk depending on the shelf life of components. |
| Delivery speed | Fast delivery as products are already manufactured. | Slower delivery due to production lead time. | Faster than MTO but slower than MTS due to assembly time. |
| Suitability | Suitable for non-customizable, high-demand products. | Ideal for expensive, highly customized products. | Best for products where some degree of customization is needed, but faster delivery is also important. |
Examples of MTO
The Make-to-Order (MTO) strategy is selectively employed, predominantly in sectors where customization is crucial, and product standardization is less viable. MTO is not typically used for everyday items that cater to mass consumption due to the complexities and costs involved in tailor-made production processes. Instead, it finds its niche in several specialized industries where individual customer preferences and requirements are critical in production.
A well-known example of a company using the MTO strategy is Dell. Dell allows customers to order fully customized computers online. After placing an order, customers typically receive their custom-built computer in a few weeks.
Common industries using the MTO strategy
Here are some industries that commonly use the made-to-order strategy to customize products based on customer needs:
Aircraft
Each aircraft is often built to specific airline requirements, including seating configurations and onboard amenities.
Automotive
Car manufacturers offer customers the option to select various features, such as color, interior materials, and technological upgrades.
Construction
MTO is widely used in construction projects, particularly in building homes that meet specific buyer preferences regarding layout, design, and materials.
Computers
Companies like Dell allow customers to specify components such as processor type, RAM size, and storage options.
Fashion
High-end fashion brands often tailor clothing and accessories to individual customer sizes and style preferences.
Furniture
Custom furniture can be made to order to fit specific dimensions and aesthetic requirements of customers.
How to implement a made-to-order strategy?
Adopting the MTO strategy allows companies to tailor products specifically to customer preferences, enhancing satisfaction and loyalty. Here’s how companies can effectively implement this strategy:
Step 1: Develop a clear marketing strategy:
Begin by crafting marketing initiatives that emphasize your product’s customization capabilities, enticing potential customers by showcasing the unique benefits they can receive.
Highlight customization
Promote your products’ customization capabilities. Use marketing materials that clearly demonstrate how products can be tailored to meet specific customer needs.
Provide examples
Show examples of past customizations to give potential customers a clear idea of what they can expect. This could be through photo galleries, case studies, or customer testimonials.
Step 2: Optimize the order process
Streamline the ordering process to make it as easy as possible for customers to specify their requirements and place their orders.
Simplify ordering
Ensure that the order process is user-friendly, from product selection to customization options. Consider implementing an interactive online system where customers can visually customize their orders.
Train customer service
Equip your customer service team with the tools and training to efficiently handle queries and facilitate the order process.
Step 3: Enhance production flexibility
Adjust your production processes to accommodate a variety of customer specifications efficiently, ensuring that customization does not slow down manufacturing.
Adapt production lines
Modify production lines to accommodate customization. This may involve investing in flexible manufacturing systems that can easily switch between different product configurations.
Keep customers informed
Develop a system to update customers on the progress of their orders. This could be through automated emails, SMS updates, or a tracking page on your website.
Step 4: Ensure efficient delivery
Organize and optimize your delivery system to ensure that each custom product reaches the customer promptly and in perfect condition.
Plan logistics
Organize logistics to handle variable delivery schedules efficiently. This might involve partnerships with reliable shipping companies or investing in a logistics system that can adapt to changing demands.
Guarantee quality control
Implement stringent quality control checks before dispatch to ensure that the customized product meets all specifications and quality standards.
Step 5: Follow up post-delivery
After delivery, actively engage with customers to gather feedback and provide support, enhancing their satisfaction and fostering long-term loyalty.
Seek feedback
After delivery, contact customers to ask for feedback on the product and their overall experience. This can help you refine your MTO process and address any areas for improvement.
Offer support
Provide after-sales support to address any issues customers might encounter with the product. Ensure they have customer service access if they need modifications or repairs.
The bottom line
To sum up, make-to-order (MTO) is a way companies make things exactly how customers want them. It can cost a bit more and take longer, but it’s great for ensuring everyone gets what they need.
FAQ
What does MTO mean in business?
In business, MTO stands for “Make-to-Order.” It’s a way companies make products specially for each customer who orders them, starting production only after the order is placed.
How does MTO benefit customers?
MTO benefits customers by giving them exactly what they want. They can choose specific features or designs, ensuring the final product meets their needs and preferences.
What industries commonly use MTO?
Industries that often use MTO include custom furniture, fashion design, and high-end electronics. These sectors value the ability to meet specific customer requests.
What is MTO in purchasing?
In purchasing, MTO refers to buying materials or products that are not made until the customer has placed an order. This method helps reduce storage costs and waste.
Is MTO more expensive than other methods?
Yes, MTO can be more expensive than mass production methods because each item is specially made, which can involve more labor and sometimes more expensive materials.
