Make-to-order (MTO) and assemble-to-order (ATO) are manufacturing workflows that use the pull system, meaning that production starts when an order comes in. As such, they are mostly used by companies that manufacture customizable products. In this post, we go over their differences, pros and cons, and production management considerations.

Table of Contents

What is Make-to-Order?

Make-to-order, or MTO, is a manufacturing strategy in which goods are produced from scratch once an order is received. It is a “pull” type supply chain management system, meaning that production is always triggered by actual demand for goods in the form of customer orders. The main advantage of MTO is being able to produce goods to the customer’s specifications and ordered quantities, thus reducing inventory and simplifying demand planning.

MTO is contrasted with Make-to-stock, or MTS – a “push” type production strategy whereby goods are produced into finished goods inventory according to demand forecasts. Unlike in make-to-stock, order quantities in MTO manufacturing are usually much smaller and range from one to a few. Many of the components for these products may require sub-assembly before finding their way into the final product. Per unit costs for made-to-order goods are thus usually higher and lead times are longer, due to the custom-made nature of the products. This makes companies utilizing MTO more specialized and in need of larger capital investments compared to most small to medium MTS operations, though not on the level of large mass-producing MTS enterprises.

What is Assemble-to-Order?

Assemble-to-Order, or ATO, is a manufacturing strategy in which products are assembled from previously completed sub-assemblies once an order comes in. The ATO workflow is used for goods that still have some customizability but the sub-assemblies are made to stock before orders come in. Assemble-to-order is thus closely related to MTO and can be viewed as a crossway between MTO and MTS. Because it combines some customizability with competitive pricing and shorter lead times than MTO, assemble-to-order is gaining popularity in many industries.  

Assemble-to-order usually requires somewhat less capital investment than MTO. This is due to not having to keep the whole manufacturing operation and supply chain in constant anticipation of incoming customer orders, as is the case with the make-to-order process. In ATO, some or even most of the sub-assemblies and components that an end product consists of, can be made to stock to await final assembly once orders arrive.

Production Management Considerations

Because production is triggered with an incoming customer order, both MTO and ATO usually have longer lead times than make-to-stock operations. To counter this, manufacturers employing these production strategies usually have much closer coordination with suppliers. Since manufacturing volumes are smaller, they also keep less components and raw materials in stock. This makes diligent supply chain management a must as procurements and production scheduling need to be thoroughly planned.

Whereas companies employing MTS can rely on an existing stock of finished goods to satisfy demand quickly, MTO and ATO producers usually do not keep finished goods inventory at all. A modest safety stock might be kept only in select cases, for example to anticipate sudden increases in demand for more popular SKUs. Make-to-order and assemble-to-order are excellent routes to opt for when finished goods have different customer-defined configurations or when components and raw materials are highly segregated, meaning they will only be used in specific SKUs, for a specific number of units, or per individual customer.

The trade-off between MTO and MTS has traditionally been shorter lead times vs higher customization. With growing customer demand for both higher customization and shorter lead times in a number of markets, some manufacturers are transitioning into hybrid MTS/MTO solutions. This is becoming a reality thanks to the onset of new manufacturing technologies that speed up customization, such as industrial scale 3D-printing and robotics, strategically placed decoupling points in the production line, etc. It is likely that more and more industries will see an emergence of these hybrid setups in the near future.

Video tutorial on how to manage Make-to-Order Manufacturing with MRPeasy:

https://youtube.com/watch?v=jbCnz0oNogk%3Ffeature%3Doembed

Markets Associated with MTO and ATO

Most companies employing MTO belong in the assembly industry like construction or industrial equipment and machinery. Together with its close relative engineer-to-order, or ETO, MTO is also the go-to solution for producing highly specialized, custom-designed or custom-engineered goods that are usually manufactured from scratch per unit or a few units. This is mostly the case for manufacturers in high-tech, industrial equipment, vessels, aerospace, and similar industries.

ATO, on the other hand, is most common for companies that produce a base product which can be modified to a more modest extent. A good example would be the automotive sector or a personal computer, laptop, or server manufacturer. With the latter, customers can choose between many different components for a base product when making the order. Computers can have a wide range of different modules, cooling solutions, power supply units, etc., to choose from, whereas the motherboard and chassis are the same in all instances. The specific modules can be in stock awaiting final assembly after the order with the client’s custom specifications is confirmed.

Advantages and Disadvantages of MTO and ATO

Main advantages of MTO and ATO include:

Main disadvantages of MTO and ATO include:

Key Takeaways

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