Make to Order (MTO) is a production and inventory strategy that addresses the market’s demand for product customization and reduced manufacturing waste. This approach shifts production away from speculative forecasting and toward confirmed consumer demand. By focusing manufacturing efforts only on products that have already been sold, MTO helps companies streamline their supply chain operations. This strategy is relevant in high-value or highly specialized sectors where efficient inventory management is paramount.
Defining Make to Order (MTO)
Make to Order (MTO) is a manufacturing strategy where production begins only after a confirmed customer order has been received. This is fundamentally a “pull” system, meaning customer demand triggers the entire production process, rather than a forecast of future sales.
The company does not hold finished goods inventory, which eliminates the risk of unsold stock and obsolescence. Instead, the company maintains an inventory of raw materials and components. These materials are pulled into the manufacturing pipeline only when a specific order is placed, allowing for a high degree of product personalization.
The Make to Order Production Process
The MTO workflow begins when a customer places an order, often including unique specifications. This order is subject to validation and engineering review to ensure the requested customization is feasible.
Once confirmed, the system triggers a material requirements planning (MRP) run to check for necessary raw materials. Any required materials not in stock are procured, ensuring all inputs are available for the build. The product is then manufactured according to the customer specifications, followed by quality control checks before packaging and shipment.
Key Advantages of Using MTO
A significant benefit of MTO is the substantial reduction in inventory holding costs. Since finished products are not manufactured in anticipation of demand, companies avoid expenses related to warehousing, handling, insurance, and tied-up capital.
This strategy minimizes the risk of product obsolescence, especially in industries with rapidly changing technology. By only producing goods that are already sold, manufacturers eliminate the need for costly markdowns or disposal of outdated inventory. MTO also enables a high level of product customization, allowing manufacturers to tailor items precisely to a customer’s needs, which enhances customer satisfaction.
Potential Challenges of MTO
The primary challenge of the Make to Order model is the extended lead time for the customer. Since the entire production cycle begins only after the order is confirmed, customers wait longer to receive their product than they would with off-the-shelf items.
Production scheduling is significantly more complex due to the variability introduced by constant product customization. Manufacturers must efficiently manage fluctuating workloads and ensure specialized resources are available for each unique build. The success of MTO relies heavily on the accurate and timely procurement of raw materials, as delays in sourcing a single component can halt the entire custom order production.
How MTO Compares to Other Production Models
MTO operates distinctly from other common production models, primarily Make to Stock (MTS) and Assemble to Order (ATO). MTS is a “push” system based on sales forecasts, resulting in high finished goods inventory and very low lead times. This model offers minimal product customization, as its goal is to mass-produce standardized items.
Assemble to Order (ATO) is a hybrid strategy between MTO and MTS. Under ATO, the company stocks standardized sub-assemblies, and final assembly occurs only after a customer order is received. This results in medium lead times and allows for a moderate level of customization.
Industries and Products That Rely on MTO
MTO is the preferred strategy in sectors where the cost of holding finished inventory is prohibitive or products are inherently high-value and highly variable. This includes manufacturers of specialized industrial equipment and complex machinery, such as aircraft components or custom-designed factory automation systems. The high cost and unique specifications of these items make speculative production economically unviable.
The model is also widely used in industries catering to individual client specifications, such as bespoke furniture, high-end server configurations, and customized vehicles. In these cases, the product’s value proposition is tied directly to the customer’s ability to choose dimensions, materials, or features. MTO ensures that the final product perfectly matches the requirements of the end-user.