Make-to-Order vs Make-to-Stock, Manufacturing Secrets

What is Make to Order (MTO)?

Make-to-Order (MTO) is a production strategy where products are manufactured only after receiving customer orders. In this approach, businesses do not keep finished goods in stock. Instead, they initiate production based on specific customer requirements. Each method of production will have its own advanced planning process, production efficiency and stock production methods. This enables customization and ensures that products are tailored to meet individual customer preferences.

Make-to-Order Examples

Let’s consider an example of a furniture manufacturer that follows the Make-to-Order approach. When a customer places an order for a custom-designed dining table with specific dimensions, color, and material, the manufacturer will begin production only after receiving the order. This allows them to create a unique piece of furniture that precisely matches the customer’s actual demand / requirements. So he would start from procuring raw materials onwards. But the focus here is to ensure that we don’t have Excess inventory in our manufacturing facility. Here the production process are designed with stock products such that we have the flexibility to produce these Finished goods from Raw Materials.

In this case, you get an individual customer requirements, you need to focus on one work order at a time. This helps mainly for specialized industry with a focussed customer satisfaction and improve the delivery performance and improve production time. These methods helps customers from specialized sectors to improve their competitive edge and increase future sales.

What is Make to Stock?

Make-to-Stock (MTS) is a production strategy where goods are manufactured and stocked in anticipation of customer demand. In this approach, businesses produce items in large quantities based on historical demand patterns and forecasts. The stocked products are readily available for immediate delivery when customers place orders.

It’s like anticipated consumer demand and plan for a production schedules checking to make sure, we dont have any excess inventory. In manufacturing process with inventory control and stock management, we can consider the demand and plan for the production to complete finished product.

Make-to-Stock Example

Consider a smartphone manufacturer that produces a standard model of smartphones in large quantities and stocks them in warehouses. When customers place orders for this specific model, the company can quickly fulfill the orders from the available stock, reducing lead times and meeting immediate demands.

So Make-to-Order Vs Make-to-Stock process have different approach, production methods, costing etc.

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What is Make to Order vs Make to Stock?

Make-to-Order (MTO) vs Make-to-Stock (MTS) are contrasting production strategies that companies employ to meet customer demands efficiently. Each approach offers unique advantages and caters to different business needs. Let’s dive deeper into the characteristics and applications of MTO and MTS to understand their significance in various industries.

Make-to-Order (MTO)

Definition: Make-to-Order (MTO) is a manufacturing strategy where products are produced only after receiving customer orders. In this approach, businesses do not maintain finished goods inventory. Instead, they initiate production based on specific customer requirements, allowing for customization and flexibility.

Characteristics of Make-to-Order

1. Customization: MTO allows businesses to create tailor-made products based on individual customer preferences and specifications. It caters to unique customer needs, leading to higher customer satisfaction.
2. Production Initiation: Production in MTO is triggered by a confirmed customer order. Each order is treated as a separate production job, ensuring that products are specifically made for each customer.
3. Lead Times: Since production starts after receiving orders, MTO may have longer lead times compared to MTS. The time taken to manufacture and deliver customized products can vary based on complexity and demand.

Applications of Make-to-Order

1. Customized Apparel: High-end clothing brands often follow the MTO approach to create bespoke garments for individual customers, providing a personalized and exclusive shopping experience.
2. Engineering and Construction: Companies that design and construct large-scale engineering projects, such as bridges or industrial plants, often adopt MTO to cater to unique project requirements.
3. High-End Furniture: Furniture manufacturers specializing in custom-made, luxury furniture embrace MTO to create unique pieces tailored to customers’ interior design preferences.

Make-to-Stock (MTS)

Definition: Make-to-Stock (MTS) is a production strategy where goods are manufactured and stocked in advance, based on historical demand patterns and forecasts. In MTS, finished goods are readily available for immediate delivery when customers place orders.

Characteristics of Make-to-Stock:

1. Standardization: MTS involves the production of standard products in large quantities. Products are identical and produced based on past sales data and market forecasts.
2. Stock Availability: Finished goods are stocked in warehouses or retail stores, ready for immediate delivery when customers place orders. This ensures fast order fulfillment and shorter lead times.
3. Forecasting: MTS relies on demand forecasting and historical sales data to determine the appropriate inventory levels. Companies use various statistical models and market insights to estimate future demand.

Applications of Make-to-Stock:

1. Fast-Moving Consumer Goods (FMCG): FMCG companies, such as snack and beverage manufacturers, use MTS to produce popular products in bulk to meet constant consumer demands.
2. Electronics and Gadgets: Manufacturers of smartphones, laptops, and other electronic gadgets adopt MTS to keep popular models readily available in the market.
3. Fashion Retail: Fast-fashion retailers produce trendy clothing items in bulk, following the MTS approach to ensure quick availability in their stores.

Choosing the Right Strategy: MTO vs MTS

Selecting the appropriate production strategy depends on various factors, including:

1. Customer Preferences: If customers seek personalized products and are willing to wait, MTO may be the preferred choice. However, if customers expect immediate delivery and standardized products, MTS may be more suitable.
2. Industry and Market Dynamics: The nature of the industry and market demand patterns influence the decision. Industries with rapidly changing trends may lean towards MTO to adapt quickly, while industries with stable demand may opt for MTS.
3. Supply Chain Capabilities: Companies need to assess their supply chain capabilities, including production capacity, lead times, and inventory management, to determine which strategy aligns best with their operational strengths.

Make-to-Order (MTO) and Make-to-Stock (MTS) are two distinct production strategies, each with its advantages and applications. While MTO caters to customization and unique customer requirements, MTS ensures faster delivery and economies of scale. Businesses should carefully evaluate their specific needs, customer demands, and industry dynamics to make an informed choice between the two approaches or consider adopting a hybrid strategy that combines elements of both.

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Make-to-Order vs Make-to-Stock: Advantages and Disadvantages

Advantages of Make-to-Order

• Customisation: MTO allows businesses to offer personalized products, catering to individual customer preferences. This enhances customer satisfaction and builds brand loyalty. Manufacturing cycle is depends or customised based consumer demands.
• Reduced Inventory Costs: Since production is initiated based on actual orders, businesses can minimize inventory holding costs, reducing the risk of overstocking. It helps to avoid excess inventory in the company.
• Market Responsiveness: MTO enables businesses to respond quickly to market trends and changing customer demands, staying competitive in dynamic markets.

Disadvantages of Make-to-Order:

• Longer Lead Times: The time taken for production and delivery in MTO can be longer, as goods are manufactured after receiving orders.
• Complex Planning: Managing diverse custom orders can be challenging, requiring efficient production scheduling and resource allocation.
• Higher Production Costs: Producing customized products in small quantities may lead to higher per-unit production costs.

Advantages of Make-to-Stock:

• Faster Delivery: MTS allows businesses to fulfill customer orders promptly since the goods are readily available in stock.
• Economies of Scale: Bulk production in MTS can lead to cost savings, as larger production runs generally result in lower per-unit costs.
• Efficient Planning: Predictable demand patterns in MTS facilitate more straightforward production planning and inventory management.

Disadvantages of Make-to-Stock:

• Limited Customization: MTS products may not cater to unique customer preferences, potentially leading to reduced customer satisfaction.
• Inventory Holding Costs: Maintaining excess stock can tie up working capital and increase the risk of obsolescence.
• Market Volatility: In rapidly changing markets, MTS products may become outdated or less relevant over time.

Choosing between Make-to-Order and Make-to-Stock strategies depends on various factors, such as the nature of the business, customer preferences, and market dynamics. Both approaches offer distinct advantages and disadvantages, and the optimal choice will vary from one industry to another. Companies must carefully assess their production capabilities, customer demands, and financial objectives to determine the most suitable strategy for their business. Striking the right balance between customization and efficiency can unlock growth opportunities and elevate customer satisfaction, fostering long-term success in the competitive marketplace.

FAQ’s on Make-to-Order vs Make-to-Stock

1. Make-to-Order vs Make-to-Stock Advantages and Disadvantages

Make-to-Order (MTO) allows customization and reduces inventory costs, but it may result in longer lead times and higher production costs. On the other hand, Make-to-Stock (MTS) offers faster delivery and economies of scale, but it may lack customization and incur inventory holding costs.

2. What MTO vs MTS Differences Mean for Scheduling and Planning?

The main differences between MTO and MTS impact production planning and scheduling. MTO requires agile scheduling to accommodate custom orders, while MTS benefits from streamlined production planning based on historical demand data and forecasts.

3. What is Make-to-Stock?

Make-to-Stock (MTS) is a production strategy where goods are manufactured and stocked in advance, anticipating future customer demand. The stocked products are available for immediate delivery when customers place orders.

4. What is Make-to-Order?

Make-to-Order (MTO) is a production strategy where products are manufactured only after receiving customer orders. This approach allows for customization and tailoring products to individual customer preferences.

5. Which is Better? Make-to-Order vs Make-to-Stock?

The choice between MTO and MTS depends on business objectives and customer demands. MTO offers customization but may have longer lead times, while MTS provides faster delivery but lacks customization. Businesses must consider these factors to determine the better strategy for their specific needs.

6. Difference between Engineer to Order and Make to Order?

Engineer-to-Order (ETO) involves creating custom products based on unique customer specifications. In contrast, Make-to-Order (MTO) manufactures standard products but initiates production only after receiving customer orders.

7. Make-to-Stock Definition?

Make-to-Stock (MTS) is a production approach where goods are manufactured in advance and kept in stock, ready for immediate delivery when customers place orders.

8. MTS vs MTO vs ETO Manufacturing methods examples

MTS (Make to Stock), MTO (Make to Order), and ETO (Engineer to Order). Each method has its own characteristics, advantages, and disadvantages, along with real-world examples to illustrate their applications. Make-to-Order Vs Make-to-Stock is different from others individually.

MTS (Make to Stock)

MTS is a manufacturing method where products are produced in anticipation of customer demand, based on sales forecasts and historical data. Finished goods are stocked in inventory before customer orders are received. This approach aims to minimize lead times and ensure products are readily available for immediate shipment.

Advantages:

• Quick order fulfillment: Since products are already in stock, orders can be fulfilled rapidly.
• Economies of scale: Batch production can lead to cost savings due to higher production volumes.
• Smooth production: Production schedules can be more predictable, allowing for efficient resource planning.

Disadvantages:

• Risk of overstocking or stockouts: Incorrect demand forecasts can result in excess inventory or shortages.
• Storage costs: Maintaining inventory can lead to storage and carrying costs.
• Limited customization: Products are standardized and may not cater to specific customer preferences.

Example: An automobile manufacturer produces a certain number of cars based on projected sales data. These cars are then stored in a warehouse until customers place orders.

MTO (Make to Order)

MTO is a manufacturing method where products are only produced once an order is received from a customer. This approach allows for greater customization and tailoring of products to meet specific customer requirements.

Advantages:

• Customization: Products are made according to customer specifications, leading to higher customer satisfaction.
• Reduced inventory costs: Since production is based on actual orders, there is less risk of overstocking.
• Unique offerings: Businesses can differentiate themselves by offering unique, personalized products.

Disadvantages:

• Longer lead times: Production starts only after an order is received, which can result in longer delivery times.
• Production complexity: Customization may lead to more complex and less efficient production processes.
• Risk of production bottlenecks: Sudden spikes in demand can strain production resources.

Example: A furniture manufacturer creates customized pieces of furniture, such as sofas or dining tables, only after customers have placed orders specifying their desired materials, dimensions, and designs.

ETO (Engineer to Order)

ETO is a manufacturing method where products are highly customized and designed from the ground up to meet unique customer requirements. These products often involve complex engineering and design processes.

Advantages:

• Tailored solutions: ETO allows for the creation of highly specialized and unique products that precisely meet customer needs.
• Competitive advantage: Businesses can leverage their engineering and design expertise to offer solutions that competitors cannot easily replicate.
• Premium pricing: Highly customized products can command higher prices, potentially leading to greater profit margins.

Disadvantages:

• Extended lead times: ETO projects involve intricate design and engineering phases, leading to longer production cycles.
• High resource requirements: Complex customization can strain resources, both in terms of time and expertise.
• Risk of scope changes: As projects progress, customer requirements might change, leading to scope creep and potential delays.

Example: An architectural firm designs and constructs custom-built luxury homes according to the unique preferences and needs of each homeowner.

In summary, in Make-to-Order Vs Make-to-Stock process, each manufacturing method serves different business objectives and customer needs. MTS prioritizes efficiency and quick fulfillment, MTO focuses on customization and order-driven production, while ETO specializes in complex, engineered-to-order solutions.