Make to Order (MTO) or Made to Order is a business production strategy that allows consumers to purchase products tailored to their specific requirements. This model differs from traditional mass production where goods are produced in large quantities regardless of individual customer specifications.
Definition of Make to Order (MTO)
Make to Order (MTO) involves commencing production only after a customer places an order, ensuring that the product meets their particular needs and preferences. This strategy is especially prevalent in industries where customization is critical, such as bespoke clothing, custom furniture, and specialized machinery.
Key Components and Process
- Order Placement: The process begins when a customer submits an order detailing their specifications.
- Design and Planning: The manufacturer finalizes the design and plans the production process based on the customer’s requirements.
- Production: The product is then manufactured, assembled, or customized according to the specified design.
- Quality Control: Rigorous quality checks are conducted to ensure the product meets the desired standards.
- Delivery: The finished product is delivered to the customer.
Benefits of Make to Order (MTO)
- Customization: Offers personalized products tailored to individual specifications.
- Reduced Inventory Costs: Eliminates the need to maintain large inventories, thus reducing holding costs.
- Better Demand Management: Minimizes the risk of overproduction and obsolescence since production is based on actual orders.
Drawbacks of Make to Order (MTO)
- Longer Lead Times: Production cannot begin until an order is received, leading to longer delivery times compared to off-the-shelf products.
- Variable Costs: Costs can vary significantly depending on the customization required.
- Complexity: Managing and fulfilling unique customer orders can increase operational complexity.
Real-World Examples
- Custom Furniture: Companies like IKEA offer MTO services for furniture, allowing customers to choose materials, colors, and configurations.
- Automobile Industry: Luxury car manufacturers provide MTO options where customers can customize their vehicles’ features and specifications.
- Technology Sector: Brands like Dell offer MTO for computers, where customers can select hardware components according to their needs.
Historical Context of Make to Order (MTO)
The concept of MTO can be traced back to traditional craftsmanship, where artisans created goods tailored to individual customer orders. With the advent of industrialization, mass production became the norm. However, MTO has seen a resurgence in recent years due to technological advancements that enable efficient customization.
Applicability of MTO in Modern Business
In today’s market, where consumer preferences are increasingly diverse, MTO provides a competitive edge by offering bespoke products. It is particularly valuable in industries that prioritize quality and customization over mass production.
Comparison with Other Production Strategies
- Make to Stock (MTS): In contrast to MTO, Make to Stock involves producing goods based on forecasted demand and keeping them in inventory until sold.
- Assemble to Order (ATO): A hybrid approach where components are produced in advance and assembled into final products upon receiving customer orders.
Related Terms
- Just-in-Time (JIT): Inventory strategy aimed at minimizing inventory by producing or ordering goods only as needed.
- Lean Manufacturing: Production philosophy focused on minimizing waste and maximizing value.
Frequently Asked Questions (FAQs)
Q1: What industries benefit most from MTO?
- Custom manufacturing, high-end retail, and sectors requiring specialized equipment.
Q2: How does MTO impact customer satisfaction?
- Positively, as it provides tailored solutions that align with individual customer needs.
Q3: What is the main challenge of implementing MTO?
- Balancing customization with cost and lead time efficiency.
References
- Johnson, M. E., & Davis, T. (1998). “Improving the Match between Supply and Demand in Supply Chains.” Harvard Business Review.
- Fung, V. K., Fung, W. K., & Wind, Y. (2007). “Competing in a Flat World: Building Enterprises for a Borderless World.” Wharton School Publishing.
Summary
Make to Order (MTO) or Made to Order is a strategic approach to production that emphasizes customization and efficiency. While it offers significant advantages such as reduced inventory costs and enhanced customer satisfaction, it also presents challenges, particularly regarding lead times and operational complexity. Understanding the intricacies of MTO can help businesses better meet consumer demands and stay competitive in a rapidly evolving market.
