Today’s manufacturers face demands from all sides. Supply chain complexities, tight production deadlines, and fluctuations in product demand — these challenges force manufacturers to find innovative ways to optimize each phase of their operations, including their mode of production. One way to do that is to choose between make-to-order (MTO) vs. make-to-stock (MTS) methods, and the decision can impact your processes on multiple levels.
To answer the question, “What is MTO?” this guide:
- Details the advantages and disadvantages of make-to-order manufacturing
- Looks at some best practices for its implementation
- Provides make-to-order examples so you can decide if it meets your needs
- Shows you how the right automation technology can bring your MTO processes to life
What Is Make-To-Order (MTO)?
Also known as a “pull supply chain” strategy, MTO is a manufacturing process in which companies wait until an order is placed for a product before beginning production. It’s well-suited for companies making bespoke products or those with relatively little room for excess inventory or raw materials. MTO also works well for advanced components, such as those in the aerospace and automotive sectors, and personalized consumer goods.
Advantages of Make-To-Order Manufacturing
MTO can be an excellent manufacturing method for some products. It can reduce overhead, elevate product quality, and improve customer satisfaction.
The main advantages of MTO manufacturing are:
- Increased customization. Whether it’s luxury vehicles or handcrafted furniture, some products require extensive customization. Rather than mass-produce standardized goods, MTO manufacturing lets companies build their products according to customer specifications.
- Improved efficiency. Mainstream manufacturing methods produce large quantities of products in the hopes of selling them all. This can result in excess inventory and wasted energy on products that may never be purchased. MTO manufacturing only builds what customers order, boosting production efficiency.
- Higher quality. Products made by MTO may be too intricate for standardized manufacturing processes. MTO lets manufacturers pay closer attention to detail, creating a higher-quality finished product.
- Improved cash flow. MTO reduces excess inventory and manpower and minimizes equipment runtime. The result is lower production costs and higher profitability.
Another advantage of MTO is the higher customer satisfaction it creates. The numbers vary by industry, but customers are generally willing to pay more for personalization. Consumers also display greater brand loyalty and give more recommendations to companies that offer personalized products. With 76% of customers expecting personalization, it’s become a necessity instead of a luxury.
Disadvantages of Make-To-Order Manufacturing
While the MTO manufacturing strategy offers multiple benefits, it also presents some challenges. A few disadvantages of make-to-order manufacturing are:
- Extended lead times. Because MTO manufacturers don’t have pre-built components on hand, it takes longer to deliver the finished product to consumers. This can offset the gains made in customer satisfaction, so it’s important to inform consumers of the reason for any delay.
- Production complexities. MTO manufacturing is usually reserved for complex or customized products, which are often harder to build. These products may require specialized machining or technical knowledge, which increases production costs.
- Unpredictable demand. While other manufacturing processes base production levels on anticipated customer demand, MTO manufacturers must wait until they receive client orders. This makes profitable inventory management more difficult, so companies using this strategy must carefully plan their supply chains.
MTO products also have a relatively high production cost compared to other manufacturing methods. MTO manufacturers must build their goods individually and with less standardization than more uniform goods, which increases the cost of each build. As a result, MTO products are typically more expensive, but customers are often willing to pay more for added personalization.
Best Practices for Implementing MTO
Extended lead times, product complexities, and difficulties with supply chain scenario planning can all prove challenging for MTO companies, but implementing best practices can help you overcome these obstacles.
Understand Planning Processes in MTO
It’s difficult to overstate supply chain design’s influence on planning processes for MTO companies. First, they must manage the delicate balance between having sufficient inventory to fill orders once they’re placed without being bogged down by excess. They must also be able to fill orders as quickly as possible to maintain customer satisfaction, even as customer demands fluctuate unexpectedly.
Effective supply chain design lets MTO manufacturers plan for these fluctuations. These supply chain design components tend to impact supply chain planning for MTO manufacturers the most:
- Demand forecasting. Demand forecasting anticipates shifts in future consumer demand by considering economic factors and trends in historical data. This gives MTO manufacturers a better idea of expected sales so that they can prepare accordingly.
- Capacity planning. Without enough raw materials on hand, MTO manufacturers cannot produce their goods. Capacity planning lets MTO companies assess what resources they’ll need to complete the orders they expect to receive so that they have enough on hand to fill them without delay.
- Order management encompasses every step of the product journey, from reception to processing to fulfillment to customer service. MTO manufacturers must have clear visibility into their order management workflows to ensure each order is completed according to specification.
The right technology can help you design a supply chain that catalyzes the rest of your MTO processes. Supply chain optimization solutions centralize your workflows to give you greater transparency into your order management operations and offer advanced predictive analytics functionalities that deliver greater accuracy in your demand forecasting and capacity planning workflows. The result is smarter, more data-driven decision-making for MTO manufacturers — and a more resilient supply chain that lets you fill orders as you receive them.
Streamlined Communication
Building MTO products requires clear communication between all departments involved. For example, Sales must convey all of their customer’s desired customizations to Manufacturing so that the finished product is built as requested.
Supply chain optimization software provides a centralized hub over which each MTO manufacturing department can connect. With fewer organizational silos in place, your team can easily communicate requirements for products and other supply chain factors, keeping all stakeholders on the same page.
Efficient Workflow Management
Efficiency is a must for MTO manufacturers. Mass production techniques are often ill-suited for MTO products, so companies that use this strategy must find other ways to build their products as quickly as possible. Process optimization is vital to boosting efficiency, so use your supply chain optimization software’s workflow management functionalities to see how you can optimize your processes.
Customer Engagement Strategies
MTO manufacturing boosts customer engagement, and supply chain design makes it possible. For example, customers who are kept aware of their status are much less likely to be annoyed by the longer delivery time associated with MTO products. Supply chain optimization software can alert you to any bottlenecks you may encounter, letting you pass important updates to the consumer.
Supply chain solutions also provide valuable feedback on which products are being purchased the most. This information lets you see which features your customers prefer and more accurately forecast future demand.
Make-To-Order Examples and Common Industries
With so many consumers preferring personalized products, MTO has become popular across many industries, including:
- Automotive: Customers can order high-end vehicles according to spec.
- Fashion: Customers can work with designers or tailors to create a custom look.
- Custom furniture: Customers can request unique dimensions, materials, or decorations.
Another industry that frequently uses MTO manufacturing is the aerospace sector. Aircraft are too large, complex, and expensive to mass produce and expect to sell later, so aircraft manufacturers only build them when they receive orders from clients.
Industry Trends Influencing MTO
MTO was once the norm, but more recently, it’s been reserved for niche products. However, several consumer and industry trends are changing that, like:
- The rise of e-commerce. The intent has granted consumers access to more brands and simplified communications between merchants and customers. This means consumers can shop for products that meet their exact specifications and settle for nothing less.
- Technological advancements. Product complexities once made MTO manufacturing take much longer than standardized processes, but additive and subtractive innovations — such as 3D printing and computer numerical control (CNC) machining — have enabled manufacturers to build complex products faster than ever.
- Sustainability. Social responsibility, including sustainability, has become essential for companies hoping to earn their consumers’ brand loyalty. MTO manufacturing reduces waste and energy consumption, making it more environmentally sustainable.
With these trends at play, MTO manufacturing is no longer just for high-end products or local artisans. It’s proving to still be a viable means of production for manufacturers of all types and sizes.
Leveraging Automation and Technology in MTO
While MTO processes typically require more customization than MTS methods, many industries still find plenty of opportunities to boost their efficiency by implementing automation and the latest manufacturing advancements.
For example, some supply chain optimization solutions possess automation functionalities that assist with order placement and fulfillment and the analytics and reporting needed to maintain consistent levels of raw materials. By leveraging automation and the most recent technological innovations, manufacturers can enjoy the benefits of MTO without being hindered by its drawbacks.
GAINS’ supply chain performance optimization platform can automate your MTO processes. Our first-in-class solution goes beyond the traditional silos of enterprise resource planning, supply chain planning, and network design, giving you total visibility into production from start to finish.
The result is greater agility amidst fluctuating demands and readier access to the raw materials needed for MTO methods. Specifically designed to manage volatility and uncertainty, GAINS helps companies manage volatility and uncertainty, optimizing their manufacturing processes. Check out our solutions today.