Definition
Make-to-Order (MTO) is a manufacturing strategy where production of finished goods only begins after receiving a confirmed customer order, allowing companies to manufacture products customized to buyer specifications while minimizing finished goods inventory and eliminating obsolescence risk. MTO contrasts with make-to-stock approaches by initiating manufacturing in response to actual demand rather than forecasts, making it ideal for expensive, highly customizable, or low-volume products where holding finished inventory would be financially prohibitive.
Understanding Make-to-Order
Make-to-order manufacturing fundamentally alters the production trigger from forecast-based speculation to demand-driven certainty. Rather than predicting what customers might want and producing inventory in advance, MTO manufacturers wait for confirmed orders specifying exact requirements before purchasing materials and beginning production. This approach eliminates finished goods carrying costs, obsolescence from unsold inventory, and risk of producing unwanted configurations—but requires longer customer lead times and significantly closer supplier coordination since raw materials and components must be procured specifically for each order.
MTO proves particularly valuable for products with high per-unit costs, extensive customization requirements, or unpredictable demand patterns. Aircraft manufacturers like Boeing build planes only after confirmed airline orders with specific seat configurations and avionics packages. Industrial equipment producers manufacture specialized machinery customized for particular production lines. Custom furniture makers build pieces only after customers select wood types, dimensions, and finishes. These products are too expensive to manufacture speculatively, and customization options are too numerous to maintain inventory of all possible configurations.
The trade-offs inherent in MTO strategies require careful management. Customers must accept longer delivery times since production hasn't started when orders arrive. Per-unit costs typically run higher than mass production due to lower volumes and lack of economies of scale. Supply chains require tighter coordination since material procurement must align precisely with production schedules. However, for appropriate products, MTO delivers superior capital efficiency by eliminating finished goods inventory investment and manufacturing flexibility by producing exactly what customers want rather than forcing choices from limited stock.
Key MTO Characteristics and Requirements
- Order-Triggered Production Initiation: Manufacturing commences only after customer places confirmed order with complete specifications and payment commitment
- High Product Customization Capability: Products tailored to individual customer requirements including dimensions, materials, features, and configurations unique to each order
- Minimal Finished Goods Inventory: Eliminates warehousing costs, obsolescence risk, and working capital tied up in unsold finished products
- Extended Customer Lead Times: Buyers wait weeks or months for production completion requiring careful expectation management and delivery commitment reliability
- Close Supplier Coordination: Procurement must synchronize tightly with production schedules ensuring materials arrive just-in-time without delays or excess inventory
MTO in Practice
A commercial kitchen equipment manufacturer produces industrial ovens, ranges, and refrigeration units for restaurants and institutional kitchens using MTO strategy. Each order specifies custom configurations—oven cavity sizes, burner arrangements, ventilation requirements, electrical specifications, and stainless steel finishes matching customer facilities. Previously attempting make-to-stock with standard configurations, the company maintained $2.4 million in finished goods inventory yet still couldn't fulfill 40% of orders because customers needed non-standard specifications. Unsold inventory accumulated as restaurants specified different requirements, eventually requiring clearance sales at 30 percent discounts. After shifting to pure MTO, the company eliminates finished goods inventory entirely. When a restaurant chain orders 50 custom ranges with specific BTU outputs and dimensions, procurement orders exactly the required components—burners, control valves, chassis materials, and electrical parts. Manufacturing schedules production based on confirmed delivery date working backward from installation requirements. Lead times extend from 2 weeks (for stock items) to 6 weeks (for custom builds), but the company fulfills 100% of orders exactly to specifications while eliminating $2.4 million in working capital previously locked in unsold inventory. Customer satisfaction increases because equipment matches facility requirements perfectly rather than forcing compromises with standard configurations.
Related Concepts
- Make-to-Stock (MTS): Contrasting strategy producing goods based on forecasts for inventory sales, prioritizing speed over customization
- Assemble-to-Order (ATO) : Hybrid approach pre-manufacturing components for rapid assembly after orders, balancing MTO customization with MTS speed
- Pull Production: Manufacturing philosophy producing only in response to actual demand signals rather than forecasted requirements
- Lead Time Management: Critical discipline in MTO operations managing customer expectations and coordinating materials for on-time delivery
- Mass Customization: Strategy enabling customization at near-mass-production costs through modular design and efficient processes
