Posted in Operations and Supply Chain Terms, Total Reads: 336
Definition: Make to Order
Make to Order (Manufacture to order) is a manufacturing process in which manufacturing starts only once the order is received from the customer or demand occurs. This is embedded with the pull type supply chain system since the customer pulls the machine and the manufacturing facility starts pulling the parts because of the demand in the market.
The opposite of Make to order is Make to stock where the manufacturing occurs to stock the final product which can be supplied to the market whenever demand occurs. This is done to prevent any lag between the demand and supply in the market. It is a push type production system. MTO can be of different types. In some cases, the assembly starts after the order is confirmed from the customer and in another, manufacturing facility starts pulling the parts to assemble the machine in case of demand. This business strategy allows the customer to get the product customized to suit their requirements. The disadvantage with this system is that it created additional wait time for the product to be delivered but also solves the problem of excessive inventory which is common with Make to stock strategy and thereby saving significant costs. Dell computers/laptops is a good example of Make to Order system.
The final product may have a combination of standard and custom parts. If only the standard parts are there, it is typically called assemble to order process.
This approach is good for highly customized parts like laptops or products where the cost of holding the inventory is significant. For Example Aircrafts. The decision to follow MTO or MTS is very crucial and shall be considered taken in consideration a lot of factors.