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.
- What is Make-to-Order?
- What is Assemble-to-Order?
- Production Management Considerations
- Markets Associated with MTO and ATO
- Advantages and Disadvantages of MTO and ATO
- Key Takeaways
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 qui