Distribution and Manufacturing Software Guides

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Make to Order (MTO)

Make to Order (MTO) or Build to Order (BTO) is a production approach where once a confirmed order for products is received, products are built.  This approach is considered good for highly configured products, such as automobiles, computer servers, or for products where holding inventories is very expensive like aircraftBuild to Stock (BTS) is the dominant approach used today across many industries and refers to products that are built before a final purchaser has been identified, with production volume driven by historical demand information.    

A BTO system does not mean that all suppliers in the supplier chain should be producing only when a customer order has been confirmed. Clearly, it would not make economic sense for a manufacturer of low value high volume parts to employ BTO. It is appropriate that these should be identified and built to a supplier order, effectively BTS. Part of the challenge in a BTO supplier network is in the identification of which suppliers should be BTO and which BTS. The point in the supply chain when this change occurs is called the ‘decoupling point’.

The main advantages of the BTO approach in environments of high product variety is the ability to supply the customer with the exact product specification required, the reduction costly sales discounts and finished good inventory, as well a reduction in stock obsolescence risk.

The main disadvantage of BTO is manufacturers are susceptible to market demand fluctuations leading to a reduced capacity utilization in manufacturing. Hence, to ensure an effective use of production resources, a BTO approach should be coupled with proactive demand management. Finding the correct and appropriate balance of BTO and BTS to maintain stock levels appropriate to both the market requirement and operational stability is a current area of academic research.

 





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