Get to know the vital terms of Logistics and Supply Chain Management.
Make-to-order, also referred to as manufacture-to-order, is a production strategy in which the manufacturing process starts only after actual customer orders. MTO, unlike the Make to Stock method of production, in which production occurs before anticipating sales, holds significantly less risk in terms of unsold inventory and customizes each product to the specific needs of the order.
In an MTO system, production gets underway immediately after the order. All necessary design and process documentation is on hand to facilitate the manufacturing process. After the receipt of the order, design work and product manufacture go into action, and over 20% of the value is usually added.
Customer-specific and variability: MTO facilitates product offerings as customized for customers and their specific requirements and requests for customization satisfy the uniqueness of specifications.
Low Cost of inventory: Since all production will only occur on receipt of a sales order, firms do not have to maintain lots, and the cost of storing would be less together with fewer leftovers if the product does not sell.
Quality Control: Production based on demand will give incoming materials a fresh quality based on the expectation of the order submitted, which means a higher level of satisfaction from customers.
Lead Time will be Increased: Production starts only upon placement of an order. It will increase lead time in producing the good since production will be only after the order has been placed, which might influence customer satisfaction if not managed appropriately.
Dependency on Supply Chain: The effective smooth working of the supply chain and availability of the raw materials are an essential criterion for MTO. So, when there is any problem in the supply chain then delivery is going to be delayed in the case of MTO.
Make-to-order is an appropriate solution for products that must be engineered or produced in very low volumes. As it is much more flexible with far lower inventories, successful MTO operations, however, rely on order tracking and production planning at high precision, with reliable suppliers to ensure timely output and high quality.