Every business has different strategies to make sure it is running as efficiently as possible. One strategy that is commonly used is MTO manufacturing. In this article, we will dive deeper into MTO and explore how this production technique can benefit your company.
What is Make to Order or MTO?
Make to Order (MTO) is a business manufacturing technique that allows customers to buy products that have been customized to their specifications or desires. It is a production strategy in which items are produced only after a confirmed order has been received. The number of units produced also depends on the customer’s instructions. MTO is most often used by specialized sectors like aircraft manufacturing, bridge production, construction, etc. It is also widely known as “mass customization.”
Understanding Make to Order
The make-to-order (MTO) production technique means that a manufacturing firm only begins producing the end product once the customer places the order, creating some wait time for the customer to receive the product, but allowing for more pliable customization compared to purchasing directly from retailers’ preconfigured items. MTO has also been referred to as a “Pull Supply Chain” strategy. This type of strategy is where the complete assembly and distribution of any good is driven by real-time consumer demand. MTO is also suitable for complex products such as computer servers, automobiles, bicycles, or costly products to maintain high inventory numbers.
Manufacturing companies often adopt make-to-order strategies in order to manage and maintain inventory levels and provide maximum amounts of customization for clients. The MTO strategy resolves the problems that can arise from having extensive, excess inventories common with traditional make-to-stock techniques.
The main advantage of using an MTO system is that companies can fulfill an order with precise product specifications, as required by the client. Sales, discounts, and finished goods inventory are also reduced, and stock antiquation is also managed. For an MTO system to provide maximum benefits, it should be paired with an ideal demand management system. Before adopting an MTO system, it should be considered seriously. This type of system is not always appropriate for all kinds of products.
Similar to make-to-order is assemble-to-order or ATO. ATO is a business production technique where customers’ products are manufactured quickly, but some aspects are also customizable. Companies that use the ATO strategy typically have the basic parts of the product already produced but not yet assembled. Once a customer’s order has been received, the parts are assembled and shipped to the customer.
Advantages of Make-to-Order Manufacturing
MTO offers users enhanced customizability, reduction in waste, and can cut down on standing inventory. Exact materials are used and never sit stagnantly. Below, we dive deeper into the advantages of MTO manufacturing.
#1. More Efficiency
When many types of goods are made on a large-scale basis, there is a risk of inefficiency because employees and the machines are learning different rules. MTO focuses on making the products according to the customer’s specific preferences, so both the workers and the machines tend to be far more efficient.
#2. Reduced Waste
When inventory sits around unsold, there is a wastage of the materials used to produce them and the time, money, and labor that was put into manufacturing them. Since MTO is utilized after the order is received and the amount needed is specified, far less is wasted, and loss is minimized.
#3. Increased Variety
By producing and selling customized products, MTO offers a wide variety of differentiating products. Customers can choose the specifications exactly how they want them. Everything is different in some way.
#4. Leaner Business
MTO allows you to run a leaner business and minimize materials held in stock when you do not produce products you need to sell. Instead, you would ship the finished products straight to the customer. Thus eliminating the need to store them and wait for a customer to purchase a product.
#5. Decreased Cost
Because there is little to no extra or “safety” inventory set aside to produce volume targets, and because the production environment does not need a large amount of in-process inventory, the cost of MTO is often lower than some MTS strategies. MTO environments require less cost during manufacturing, such as raw materials, warehousing space, and staff.
In Comparison: Make To Order (MTO) vs. Make to Stock (MTS)?
Traditional production strategies included producing products in bulk and then stocking them as inventory until they were ready to be purchased by a customer. This is known as “make-to-stock” or MTS. This system is slightly outdated and prone to wastage; the inventory often sits on shelves in back offices or warehouses awaiting purchases. While this problem is relatively small in an industry like technology, the risk of becoming outdated weighs heavy since the pace of advancement is quick.
In theory, the MTS strategy is suitable for companies to prepare for the rise and fall of demand. However, inventory and production are obtained by creating future demand possibilities based on past data analytics.
There is a good chance that these estimates will be slightly off, which could mean that a company is stuck with a large amount of inventory and too little liquidity. This is one of the main aversions of the MTS method of production. Inaccurate forecasting leads to losses, excess inventory, or stockouts, and when you’re dealing with a fast-paced sector of industry, excess inventory can be detrimental to profit.
MTO and ERP Software
There is such a large variety in manufacturing, quality control, and capacity or inventory constraints. This may become far more complicated than making a single, repetitive product. Thus, software that supports MTO manufacturing is also complex. A fixed structure with pre-configured fields will not allow for growth and a constant flow of improvements for long. MTO software should be apt, a flexible quoting module with an accurate costing. It also must be able to manage variable operations simultaneously and assess capacity resources quickly.
An MTO environment should be driven by demand. It is critical to link the correct information from the sales order through production to ensure on-time delivery. The key is to manage costs while still making a profit. The success of your MTO strategy depends on the ERP system that your company uses. Your software should support you in every stage of the manufacturing process. Below are a few key points to consider when assessing an ERP system:
- Your chosen software should streamline every step of the manufacturing process, from interpreting sales orders to delivery to billing/invoicing.
- Material requisitions and planning to make sure that the correct inventory is in stock to minimize costs
- Scheduling orders into the production process to speed up delivery and avoid delays
- Managing the manufacturing process to acquire more jobs ready for delivery in time
- Collaborating with most accounting software packing
A company’s choice in mode of production is often influenced by the market or by the product they are producing. But once the production mode is determined, the company should follow the best practices possible and utilize a robust ERP system that uses intuitive tools, agile functions, and predictive metrics in order to build an efficient process that can handle any level of scale. MTO is a great option for a company that caters to customers’ needs and specifications and whose products tend to be different from each other, whether slightly or drastically.