Make-to-order is becoming an increasingly popular strategy in today's dynamic, user-centric business environment. By adopting make-to-order (MTO), businesses can reduce inventory costs, minimize waste, and improve customer satisfaction by delivering customized products that meet their specific needs. Let's understand more about this technique in this blog.
What Is Make-to-Order (MTO)?
The make-to-order (MTO) technique creates goods specifically tailored to each customer's needs, and production only starts after receiving an order. The make-to-order approach comes to great use in specialized industries where products go beyond the standard level and where consumers have their own set of expectations from the brands.
Production remains halted until a customer submits an order from a particular firm. Further, the number of finished goods produced depends on the particular guidelines the customer provides. With this strategy, each product is created specifically for the customer to their exact specifications, ensuring top quality and satisfaction.
Unlike traditional manufacturing approaches, which rely on forecasts and production planning to determine the quantity and timing of product orders, MTO enables businesses to produce goods only when they are requested by customers.
Make-to-Order (MTO) Example
Businesses specializing in making customized items frequently use the make-to-order (MTO) method because it enables them to produce things that fit each customer's needs. For example, businesses in the constructing, installing machinery, and manufacturing firms of every sector frequently tailor each project or item to the unique requirements of their customers.
Small companies focusing on handmade goods may also profit from this manufacturing method because it can lower overhead expenses while still enabling them to deliver distinctive and personalized products to their clients. Considering all the above examples and specifications, you can easily determine the significance of the make-to-order method among all kinds of industries today.
For example, if you consider the businesses of a newly opened designer clothes store, a major part of their inventory would consist of fabrics that are stitched only after receiving customer orders. This system is known as Make-to-Order.
Advantages of Make To Order
Let's look at the key advantages of the MTO approach:
Customization
Businesses can offer distinctive and personalized items catered to customers' preferences using the make-to-order method. Customization of the products comes with a slightly higher rate since the customer can share design preferences according to their requirements.
Waste Control
When a company chooses to follow the make-to-order strategy, it automatically eliminates any chances of products getting wasted after a specific period. This is because, in make-to-order, a company only starts to produce the order of the customers after they have received a green signal from them.
Profound management
Businesses can also save time and money by scheduling their employees' work hours based on the volume of orders currently being processed, reducing irrational labor expenses. The made-to-order approach has many benefits for firms, such as less inventory risk, better raw material buying, and simplified labor scheduling.
Disadvantages of Make-to-Order
Delay in deliveries
Customer satisfaction for maintaining the vast consumer base is extremely important for all companies using make-to-order strategies. Thus, while dealing with the manufacturing process using MTO, one should ensure that products are processed efficiently and promptly without compromising on quality or taking longer than usual deadlines.
Increase in demand
An unexpected rise in sales is one of the biggest issues manufacturing facilities face that produce items on demand. A sudden increase in demand may put pressure on the business and lead to disgruntled customers due to delays in orders.
Stockout
It is essential to have suppliers ready to deliver supplies quickly if you want to implement a lean or just-in-time operation based on MTO effectively. The biggest disadvantage of implying make-to-order is that you might get out of stock just in time when you receive the orders. Such situations would easily hamper customer satisfaction and on-time delivery of the package cycle. Based on these make-to-order advantages and disadvantages, you can determine whether MTO works fine with your firm.
Make-to-Order vs Make-to-Stock
In a majority of businesses, the make-to-stock strategy is commonly used as the production process keeps on revolving by issuing orders for a vast range of products. When such a method is adopted, the business tries to do its best in selling the majority of its products and leave the others by storing them in inventory.
But your business could face a major challenge from the perspective of a profit margin if it isn't able to manage the sale of its products efficiently. However, turning your strategies to make-to-order can save you from such approaches. By doing this, you may prevent having a surplus of inventory and limit production to when it is needed.
Choosing between make-to-order and make-to-stock ultimately comes down to your company's needs and capacity for growth. Furthermore, considering things from a general perspective, if you want to choose the better one between make-to-stock vs. make-to-order, then make-to-order might do well based on your business requirements.
Make-to-Order Planning Process
The make-to-order planning process involves bespoke or custom-made products as per the needs and demands of individual customers. The steps in the make-to-order planning process are:
Understand Customer Requirements
Customer preferences are of prime importance in the MTO process, hence this step forms the base for all the following steps. Here the focus is on understanding the customer's needs, preferences, and expectations and then working to make a desired product as per given specifications. For this, detailed discussions take place, and previous feedback, if any is taken along with any other specific details.
Design a Plan
Once the customer's requirements are understood, a plan of action is designed. The key focus while creating the plan is on the time of delivery, cost, raw materials, and other resources. To track progress, various tools and methods are used.
Develop a Prototype
If required, a product prototype is made which is then tested to check its performance and to ensure that it matches the customer's specifications.
Create a Schedule
A production schedule means the sequence in which the various tasks need to be carried out to make the product. It involves allocating responsibilities to workers, specifying timelines, tracking progress, testing the product, and final checking. The production schedule must keep some buffer days for unavoidable delays.
Execute the Plan
It is important to execute the plan well and ensure that roles are well divided. Communication is the key here. The team should be told clearly about their responsibilities and must be held accountable for the assigned tasks. They must be asked to complete work on time.
Monitor and Track
It is important to supervise and monitor the work being carried out to track progress. This makes sure that plan is being executed as expected. If required, you can change the plan a bit to ensure deadlines are met and quality is not compromised.
Make a Delivery Plan
How the product will be delivered needs to be planned in advance. For this, a delivery plan needs to be made. It is important to know the costs involved as it will affect the overall revenue. Pick a cost-effective delivery partner and also know about the risks and delays. When businesses follow these processes well, they will be on the way to achieving 100% customer satisfaction.
Optimize the MTO Process for Better Results
Several businesses use the make-to-order or MTO production method to better control inventory levels and give clients more specialized options. To ensure that you can provide a perfectly tailored solution that results in customer satisfaction and loyalty, explore TranZact's cloud-based production and inventory software. It offers an intuitive platform to manage customer orders and delivery fulfillment seamlessly!
FAQs on Make to Order (MTO)
1. What are make-to-stock and make-to-order?
Make-to-Order is a business approach where firms follow the working principle of no inventory system. Simply put, companies believe in producing immediate results only after receiving customer orders to avoid waste production and prevent the firm from incurring heavy losses.
On the other hand, Make-to-Stock works exactly the opposite. With this approach, businesses store surplus finished goods to supply to customers anytime after receiving orders. This is the basic difference between make-to-stock and make-to-order.
2. Why is make-to-order a beneficial strategy?
With the make-to-order technique, businesses can provide distinctive and individualized goods catered to customers' tastes. Since consumers get the product as per needs, businesses can charge a premium price. Most importantly, a company may increase customer satisfaction and promote repeat business by providing products tailored to customers' requirements.
