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  • Custom & Make-to-order Manufacturing (MTO)

Custom & Make-to-Order Manufacturing (MTO)

June 27, 2023

When looking at different manufacturing models, there are many to choose from depending on your business needs. You may have heard of the term Custom or Make-to-Order (MTO) manufacturing. They both refer to the process of making a product to a customer’s unique specifications. 

This article will give you the information needed to understand how it all works. We’ll discuss MTO systems in further detail so you can understand the advantages and disadvantages and determine if this system may be the right fit–or addition–for your business.

What is Make-to-Order (MTO)?

Make-to-Order (MTO) is a manufacturing process where the production of an item begins only after a customer places an order. It’s also referred to as Built-to-Order (BTO) manufacturing.

With this pull supply chain strategy, the production, assembly, and distribution process are driven by customer demand instead of projected demand.

MTO manufacturing is closely related to lean production or lean manufacturing, a production methodology designed to minimize waste and maximize productivity.

What is Make-to-Order vs. Make-to-Stock?

While Make-to-Order and Make-to-Stock names are relatively similar, there are some significant differences between the two production models.

Make-to-Stock

Make-to-Stock (MTS) is a traditional production methodology for making items before customers purchase them. The company produces the items in bulk, and then the customer will buy what they want from the inventory.

This is a cheaper production method because you can quickly churn out a high volume of goods, but the downside is the potential waste if the inventory does not sell. Product sitting idle in warehouses and on store shelves can tie up business capital and create major cash flow and other financial issues. 

There are also instances where products become obsolete, and the cost of manufacturing them cannot be recouped because the product is no longer needed. This can happen in fields like technology, where there are advancements.

How Make-to-Order Compares

Make-to-Order removes the mass production strategy. Instead, MTO focuses on creating much smaller batches, but the customer demand guarantees their purchase because they are placing the order.

A Make-to-Order strategy can make sense for a business, depending on the company's product type.

What Are the Advantages of Make-to-Order?

The Make-to-Order strategy may have many advantages depending on your business model.

Increased Product Variety and Competitor Differentiation

By offering customization, businesses can offer a greater variety of products because you aren't holding all the inventory in a warehouse.

Working with a supplier that offers a wide variety of high-quality products can be a great strategy to make your business stand out from competitors who utilize the traditional MTS strategy.

This creates a high-value shopping experience for your customers. Their personal inputs can deliver exactly what they need and make your customer feel valued.

Reduced Inventory Costs

In a traditional production strategy such as Make-to-Stock (MTS), inventory is produced and waits for customers or wholesalers to purchase the goods. This can be costly because it relies on customer demand and market conditions, so product may sit on the shelves for a prolonged period of time.

With a Make-to-Order (MTO) strategy, you only produce what your customer orders and minimize inventory costs. Finished goods go directly to the customer, not into storage.

Improved Cash Flow

An MTO model improves cash flow because you are only making products purchased by the customer. This means no excess inventory and money are tied up in stock waiting to be sold. You are also saving on production and distribution costs.

Reduced Waste

Waste is a concern for a company’s bottom line and for consumers. With just clothing alone, 1.92 million tonnes of textile waste are produced every year, adding enormous strain to the global climate crisis.

Waste reduction can keep the Earth healthy and satisfy customer demand for greener consumption. With the Make-to-Order (MTO) model, companies are eliminating finished product waste and greatly reducing their use of raw materials.

Enhanced Quality

In an MTO model, you can have an enhanced product and more quality control by focusing production on only what the customer wants.

This production strategy allows for higher-quality products to be produced on a smaller scale, with more quality control measures.

Greater Customer Satisfaction

When a customer's order is exactly what they want and need, there will be increased customer satisfaction and loyalty to your business and brand.

Customers also enjoy a more personalized shopping experience when ordering MTO because it is curated for their wants and needs.

Any production strategy that increases customer satisfaction is likely a big win.

What Are the Drawbacks of Make-to-Order?

Make-to-Order (MTO) has its downsides too. Here are some of the drawbacks of an MTO production strategy.

Extended Lead Times

One of the most significant downsides to Make-to-Order is the long wait time from when the customer places the order until they receive the finished product.

This happens because the product is only manufactured after the order is placed.

In a traditional, Make-to-Stock (MTS) process, the products are already created and ready to ship when the customer places their order – this is what makes 1-2 day shipping times possible.

Additional Production Complexity

When customers make custom orders, providing their own style inputs, this can greatly increase production complexity.

The more customization options, the longer product lead and production times required. Examples of MTO custom options include color, size, fabric, material, or different finishes. 

Restricted Quantities

Customers ordering Make-to-Order (MTO) generally need a very small quantity, sometimes only one item.

This can be enormously challenging and costly for businesses. Their machinery and production resources are operating well below capacity.

Increased Variety (SKUs) to Manage

When you add custom MTO options, SKUs can become hard to manage.

A sound inventory management system and warehouse management process will be needed to help track the increased volume of SKUs.

What Are Some Examples of Make-to-Order?

Here are a few common examples of industries that use the MTO process.

Automobiles

When purchasing a car, you can go to the dealership and leave with one in whatever color and options you’d like, or you can order one to your specifications. The automobile company can produce a custom car just for you.

Computers

In the computer industry, Dell specifically, you can custom-build computers and other software. As with cars, you can either go to your local electronics store and come home with a new laptop or order one fully customized to exactly what you need.

Fashion

The fashion industry has been plagued with many fast fashion brands that mass-produce garments. However, many fashion brands are moving to more sustainable practices, which can include MTO.

The custom clothing market is expected to grow as more consumers are conscientious about what, where, and how much they purchase.

MTO is also commonly utilized for bridges, home and building construction, servers, aircraft, and military armaments.

Make-to-Order Planning Process

The planning process can appear ultra-complex, but it's not as daunting once you break it down. The main priority is determining customer demand; is it there and does it align with your niche?

  1. Receive customer orders.
  2. Manufacture products from raw materials through suppliers or in-house.
  3. Review the finished product.
  4. Ship the finished product to customers.

While there may be several steps between each of the ones listed above, this gives you a good overview of how the process works in a Make-to-Order strategy.

Can You Automate Make-to-Order Processing?

Yes! While it seems contradictory, there are ways to automate many parts of the MTO process. In fact, doing so is critical to speeding up production, lowering costs, and maintaining quality products.

When automating your MTO process, it comes down to the right production software program. Opt for software that is intuitive, streamlined, easy-to-implement, and designed for your specific industry. The right software can also enhance product quality and streamline other functions of your business.

What Type of Software Can Help with Automation?

Enterprise resource planning (ERP) is a software solution companies use to manage and integrate their planning, inventory, selling, marketing, finances, and human resources.

ERP software can help automate your business by allowing all departments to communicate and share information, collect information about a project or task, and link pertinent information so all employees can see real-time data.

ERP software can help automate the Make-to-Order business in the following ways:

  • Support a variety of SKUs.
  • Frequent inventory updates.
  • Continually update and alter listings to accommodate customer needs.
  • Manage lead times (and reduce lags) across every business sector and department.

Industry Trends: Future of Make-to-Order MTO

Make-to-Order (MTO) will continue to grow rapidly in the future, with increased awareness, demand, and technological innovation to speed up production and reduce cost.

One area that will touch most consumers is the garment industry with MTO clothing. Here, customers–especially Generation Z–are demanding less waste and more bespoke options.

MTO fashion caters to individual consumer tastes and is sustainable and relatively affordable (compared to big-ticket items like cars and jet planes), providing a best-in-class customer experience.

Beyond just giving customers the ability to pick the perfect shade of blue, MTO manufacturing can offer custom-fitting, made-to-measure clothing at a fraction of the cost of traditional tailoring.     

Demand is growing, with the rise of eCommerce, 3D printing, and other technologies making MTO clothing more broadly available. Within the decorated apparel segment alone, industry experts are forecasting a compound annual growth rate (CAGR) of 12.9% from 2023 to 2030.

Bottom Line

To wrap up our article, Make-to-Order (MTO) manufacturing is a production model where goods are not manufactured until they have been ordered and paid for by the end customer.

This MTO model offers a number of advantages over traditional manufacturing methods, including increased customer satisfaction, reduced waste, improved quality control, and increased business and production flexibility. 

The MTO model also comes with downsides, including longer lead times, higher production costs, and limited availability when comparing the MTO model to Made-to-Stock (MTS) or bulk production.

Overall though, MTO manufacturing can be an excellent option for businesses–offered exclusively, or alongside other traditional production methods–to improve quality, limit waste, and meet growing consumer demand for customization.

An intelligent and intuitive software system for your Make-to-Order business model can help automate processes, speed up manufacturing, and save money.

If you think the Make-to-Order manufacturing method is the right for your business, reach out today to discuss different Make-to-Order business solutions. Chat with us today and ask an Epicor expert any question about your business.