Make-to-order
What is make-to-order (MTO)?
Make-to-order (MTO) is an approach to production planning in which manufacturing is initiated once a customer order is received. Make-to-order is considered a pull-type operation because the event that initiates production activity – the customer order – starts with order fulfillment and works backward through the production sequence to arrive at a plan or schedule. That is, production is “pulled” by demand. In contrast, make to stock (MTS) is a push-type operation.
Make-to-order planning is growing in prevalence because it is compatible with the market trend of “mass customization,” which entails small batch or lot sizes manufactured at mass-production efficiencies. As a pull operation, make-to-order incorporates customized features into the production run. Make-to-order also helps to minimize excess inventory, which frequently results in waste. As such, MTO is often a component of lean manufacturing and just-in-time (JIT) scheduling.
A major challenge of MTO planning is to minimize lead time despite the fact that the production cycle commences only after the order is received. This means that make-to-order is more amenable to products with relatively short production cycles. To reduce lead time, manufacturers may employ a make-to-stock approach for intermediate product components that require a significant lead time of their own, so that process steps using such intermediate components can commence more quickly after an order is received. This is the concept behind demand-driven material requirements planning (DDMRP).
Some functionality found in a modern advanced planning and scheduling (APS) system is designed to optimize make-to-order planning. APS software enables planners to quickly assess changes in quantity or delivery date, as well as changes in manufacturing capacity, and adjust the MTO plan to meet the new demands.
Make-to-order planning process
Make-to-order begins with the customer order, so the production work order is created from the sales order. The manufacturing process then proceeds in accordance with the bill of materials (BOM) and bill of process (BOP).
In make-to-order production planning, stock levels of finished and intermediate products are not key process parameters. Instead, one of the focuses of make-to-order planning is the replenishment of raw material and supplier-provided component inventories to maintain production readiness and flow. This means that a critical aspect of MTO planning is close coordination of the entire supply chain.
Make-to-order planning also requires an ongoing evaluation of future demand changes and their effects on the manufacturing process. Continuous evaluation and adjustments can be conducted through APS software.
MTO planning benefits
Performing make-to-order planning with a robust APS system enables manufacturers to offer the flexibility and timeliness required by mass customization.
Additional benefits
- Reduced costs associated with inventories and warehousing
- Compatibility with lean and just-in-time practices
- Reduced waste
- Competitive advantage of customizable products
- Greater customer satisfaction