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Make to Order (MTO): Manufacturing Explained

In the world of manufacturing, there are several strategies that businesses can adopt to meet the demands of their customers. One such strategy is Make to Order (MTO), a production approach where products are not manufactured until a confirmed order is received. This approach contrasts with other manufacturing strategies such as Make to Stock (MTS), where products are made in advance and kept in inventory until sold.

Make to Order (MTO) has its roots in the concept of Just in Time (JIT) manufacturing, a method that aims to minimize waste by producing only what is needed, when it is needed. MTO is particularly beneficial for businesses that deal with highly customized products or those with a high cost of holding inventory. However, it also presents its own set of challenges, including longer lead times and the need for highly efficient production processes.

Understanding Make to Order (MTO)

At its core, Make to Order (MTO) is a production strategy that is customer-centric. It places the customer at the heart of the manufacturing process, with products being created specifically to meet their unique needs and preferences. This is in contrast to a more traditional, product-centric approach where goods are produced in large quantities, with the hope that there will be sufficient demand to sell them.

The MTO approach can be especially beneficial for businesses that deal with highly customized or complex products. By waiting until an order is received before starting production, these businesses can ensure that they are only producing goods that have a guaranteed buyer. This can help to reduce waste and improve overall efficiency.

Key Components of MTO

The Make to Order (MTO) process typically involves several key components. First, the customer places an order for a specific product. This order then triggers the production process, with materials being sourced and production schedules being adjusted as necessary. Once the product is completed, it is then shipped directly to the customer.

One of the key aspects of MTO is that it requires a close relationship between the manufacturer and the customer. This is because the manufacturer needs to have a clear understanding of the customer’s requirements in order to produce a product that meets their needs. This can involve detailed discussions and consultations, particularly for highly customized products.

Benefits of MTO

There are several benefits associated with the Make to Order (MTO) approach. One of the most significant is that it can help to reduce inventory costs. Because products are not made until an order is received, businesses do not need to hold large amounts of stock. This can save on storage costs and reduce the risk of products becoming obsolete before they are sold.

Another benefit of MTO is that it allows for a high degree of customization. Because products are made to order, they can be tailored to meet the specific needs and preferences of each individual customer. This can result in a higher level of customer satisfaction and can help to differentiate a business from its competitors.

Challenges of Make to Order (MTO)

While Make to Order (MTO) offers many benefits, it also presents a number of challenges. One of the most significant is the need for highly efficient production processes. Because products are not made until an order is received, businesses need to be able to start production quickly and complete it within a reasonable time frame. This requires a high degree of coordination and efficiency.

Another challenge associated with MTO is the need for accurate forecasting. Because products are not made in advance, businesses need to be able to accurately predict demand in order to ensure that they have the necessary resources available when an order is received. This can be particularly challenging for businesses that deal with highly customized products, as demand can be difficult to predict.

Managing Lead Times

One of the key challenges associated with Make to Order (MTO) is managing lead times. Because products are not made until an order is received, there can be a significant delay between when an order is placed and when the product is delivered. This can be a disadvantage in markets where speed is a key factor.

To manage this, businesses need to have efficient production processes in place. They also need to communicate clearly with customers about expected delivery times. In some cases, businesses may choose to keep a small amount of stock on hand to meet immediate demand, while still primarily operating on a MTO basis.

Forecasting and Planning

Accurate forecasting and planning are crucial for businesses that use a Make to Order (MTO) approach. Because products are not made in advance, businesses need to be able to accurately predict demand in order to ensure that they have the necessary resources available when an order is received.

This can involve a range of activities, from analyzing historical sales data to conducting market research. Businesses may also need to work closely with their customers to understand their needs and preferences, and to anticipate future demand.

Implementing Make to Order (MTO)

Implementing a Make to Order (MTO) approach requires careful planning and coordination. Businesses need to have efficient production processes in place, and they need to be able to accurately forecast demand. They also need to have a clear understanding of their customers’ needs and preferences, as this will inform the design and production of their products.

One of the key aspects of implementing MTO is developing a close relationship with customers. This can involve regular communication and consultation, to ensure that products are designed and produced to meet their specific needs. Businesses may also need to invest in customer relationship management (CRM) systems, to manage this process effectively.

Production Processes

Efficient production processes are crucial for businesses that use a Make to Order (MTO) approach. Because products are not made until an order is received, businesses need to be able to start production quickly and complete it within a reasonable time frame.

This can involve a range of activities, from optimizing production schedules to investing in advanced manufacturing technologies. Businesses may also need to work closely with their suppliers, to ensure that they have the necessary materials available when an order is received.

Customer Relationship Management

Customer relationship management (CRM) is a key aspect of implementing a Make to Order (MTO) approach. Because products are made to order, businesses need to have a clear understanding of their customers’ needs and preferences. This can involve regular communication and consultation, and may require the use of advanced CRM systems.

CRM systems can help businesses to manage their customer relationships effectively, by providing a central repository for customer information. This can include details of past orders, communication history, and customer preferences. This information can then be used to inform the design and production of products, and to anticipate future demand.

Conclusion

Make to Order (MTO) is a production strategy that can offer significant benefits for businesses, particularly those that deal with highly customized or complex products. By waiting until an order is received before starting production, businesses can reduce waste, improve efficiency, and provide a high level of customization.

However, MTO also presents a number of challenges, including the need for efficient production processes, accurate forecasting, and effective customer relationship management. Businesses that are considering adopting a MTO approach need to carefully consider these factors, and ensure that they have the necessary systems and processes in place to manage them effectively.

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Bryan Sapot
Bryan Sapot
Bryan Sapot is a lifelong entrepreneur, speaker, CEO, and founder of Mingo. With more than 24 years of experience in manufacturing technology, Bryan is known for his deep manufacturing industry insights. Throughout his career, he’s built products and started companies that leveraged technology to solve problems to make the lives of manufacturers easier. Follow Bryan on LinkedIn here.