What Is Make-to-Order (MTO)?

What Is Make-to-Order (MTO)?

I'm here to explain make-to-order manufacturing directly to you. In this approach, no inventory gets built ahead of time—products are only made once they've been ordered. You see, MTO fits into the pull-through production process, where companies produce based on actual consumer demand. It's common in industries like aircraft and automotive.

Key Takeaways

Make-to-order is a strategy that lets manufacturers hold off on building something until a customer has ordered it, possibly with customizations. The process kicks off only after the order is in. You get advantages like customer-specific customization, less stock obsolescence, lower finished goods inventory, and reduced waste overall. On the flip side, it means higher costs and longer waits for the product. Compare this to make-to-stock, where inventories are produced ahead and sit waiting for buyers.

Understanding Make-to-Order (MTO)

As I mentioned, make-to-order is a business strategy manufacturers use to match consumer demand. It means the company only makes the final product after you, the customer, place the order. This adds wait time for you to get the product, but it opens up more flexible customization options than buying off a retail shelf.

This is a pull-through or pull-type supply chain because products get made only when there's solid customer demand. You'll find this in assembly industries where quantities per spec are low, like one or a few items. Think specialized sectors such as aircraft, vessels, automotive, and construction. It's also good for highly configured products like computer servers, cars, bikes, or anything too expensive to stockpile.

Let me walk you through how the MTO process works: You make an order, and a bill of sale is created. Once confirmed, the company issues a work order. Then the product is manufactured, and finally, it's delivered to you.

Some companies choose MTO to control inventory and offer more customization. It avoids the excess inventory issues you see in other strategies. Take Dell as an example—they use MTO so you can order a fully customized computer online and get it in weeks.

Fast Fact

Just so you know, make-to-order is also called made-to-order or mass customization.

Advantages and Disadvantages of MTO

The biggest advantage of MTO is fulfilling an order with exactly what the customer specifies. If the company delivers just what you want, you're more likely to stick with the brand.

It also cuts sales discounts, reduces finished goods inventory, and handles stock obsolescence. Companies can charge full price, cut waste, and boost efficiency.

But there's a downside: the customization takes time. If products were already on shelves like in MTS, you wouldn't wait for making, assembly, and delivery.

Cost is another issue. Pre-made products are identical, so economies of scale lower manufacturing costs. MTO gets pricier for you because of customizable parts and finishes.

Make-to-Order (MTO) vs. Make-to-Stock (MTS) vs. Assemble-to-Order (ATO)

In make-to-stock (MTS), traditional strategies produce products and stock them until you buy them. Unlike MTO, which cuts waste and boosts efficiency, MTS can lead to wastage and obsolescence as inventory waits on shelves. This is especially bad in fast-moving industries like technology, where things go obsolete quickly.

MTS seems good for handling demand swings, but inventory and production come from forecasts based on past data. Those forecasts can be wrong, leaving too much inventory and low liquidity. That's the main problem—inaccurate forecasts cause losses from excess stock or shortages, and excess can obsolete fast in sectors like electronics.

MTO is like assemble-to-order (ATO), where products are customizable to some extent and produced quickly. In ATO, basic parts are already made but not assembled. When you order, parts get assembled fast and shipped. Costs here are low for assembly but high for components. It's common in electronics, like custom computers with specific monitors and keyboards.

Important Note

For MTO to work, pair it with proactive demand management. Understand that MTO isn't right for all products, like everyday goods.

Industries and MTO Strategies

MTO isn't for every product or industry. Mass-consumption goods don't use it due to the complexities and costs. Instead, it's for specialized areas like aircraft, automotive, construction, computers, fashion, and furniture.

It's common in property development. Developers buy land and sell to buyers who customize designs, floor plans, architecture, and fixtures. Companies like Pulte Homes do this across U.S. states.

Example of MTO Process

Consider custom electric bicycles. When you order, you pick options like frame type, motor wattage, battery size, color, and add-ons. Nothing exists until you submit and pay, starting manufacturing.

Once confirmed, the team reviews specs and sources components—pulling from stock or ordering. With all parts ready, assembly starts: prep and paint the frame, mount the motor, install battery, route wiring, and add features.

After assembly, it's tested for performance, charging, responsiveness, and braking—all post-order, unlike pre-testing for retail. If it passes, it's packed and shipped directly to you, no intermediary storage.

What Steps Should Companies Take to Implement a Make-to-Order Strategy?

MTO is about customizing to meet customer needs. To implement it, companies must market themselves, highlighting customization and showing end products. Then, take orders smoothly and quickly. Manufacture while keeping customers updated on delivery. Finally, deliver the product.

What Industries Commonly Use Make-to-Order Strategies?

MTO lets customers order products made to their specs. It's in aircraft, automotive, construction, computer hardware, and furniture. For example, car makers let you customize vehicle designs.

What Are the Pros and Cons of Make-to-Order Products?

Companies build loyalty by offering MTO, meeting needs of those willing to pay more. It reduces waste and boosts efficiency by using only needed materials. But it takes longer to produce, and costs are high.

The Bottom Line

Most daily goods are mass-produced, but if you can afford it, MTO lets you get customized products like airplanes, homes, fashion, cars, and computers. It helps companies earn more and cut waste, but it costs you more and takes longer.