There are many production modes available and often the products or the market
(customer demand) will determine which mode is required for a manufacturer.
• Make to Stock (MTS)
• Make to Order (MTO)
• Assemble to Order (ATO)
Make to Stock (MTO) is used for high volume goods, commodified products,
consumables and other product types where consumers purchase the same version
of a product as a single unit or in bulk. It is a “push” production method used to
provide a steady supply and stock for retailers.
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Produce finished goods; customer buys from inventory
Advantage: Smooth production
Disadvantage: Inventory
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Service level (orders filled when requested)
Inventory turnover (sales/avg. inventory)
Back order fill rate
Inventory accuracy
Time to replenish
• Make to Order (MTO) is a manufacturing mode where production begins once an
order is received. It is a “pull” type production mode where demand in the form of
an order triggers production. MTO is used on goods where the order is a quantity
of one or a few and in situations where all or part of the order may be custom made
or carry a high unit cost. Many of the components and raw materials may require
sub processing or rendering before they find their way into the final product.
• Start production when customer orders.
• Advantage: No finished goods inventory
• Disadvantage: Intermittent production
Key performance measures
– Lead time
– Orders completed on time (or late)
– Quality measures
• Assemble to Order (ATO) may follow many of the same steps as Make to
Order. However, in ATO, few, if any, sub-processes are required, and units
are assembled from completed components to make a whole unit.
• Make parts and subassemblies; finish when customer places order:
• Advantages: Less inventory, faster service
• Disadvantage: Some WIP inventory
Key performance measures
– Speed of service
– Inventory levels
– Quality of product and service
• Advantages of MTO and ATO include:
• Cost – Because there is little to no safety stock set aside to produce
volume targets, and because the production environment does not require
a large amount of WIP, cost of MTO and ATO is lower than some MTO
modes. MTO and ATO environments require less cost in the form of raw
materials warehousing space and staff.
• Specialization – In MTO and ATO environments, orders can be made
specific to customer requirements.
• Finished Goods Inventory – In an MTO or ATO operation, orders
produced are already sold. This prevents the manufacturer from having to
carry slow or no-selling units. This impacts cost in the form of warehouse
space and staffing for finished goods. It also impacts cash flow and tax
liability as no unsold units are left to tie up valuable cash over time.
• Low Supply – Since orders are produced as they are received, MTO and
ATO does not have a ready supply of units for purchase. In strong
seasonal demand or if a model or product becomes widely popular, the
lack of current availability may result in lost sales.
• Lead Time – As MTO and ATO are built on demand, lead times are
longer for products than in an MTS.
• To maximize the effectiveness of an MTO or ATO production mode, small to
medium manufacturers should adopt best practices to realize benefits. These
practices include things such as:
• Robust ERP/MRP System – Since MTO and ATO modes are triggered and
driven directly by sales orders, a robust ERP(Enterprise Resource Planning) or
MRP (Manufacturing Resource Planning) system is required. The platform
should have a strong linkage between its sales order and production planning
functionality.
• Materials Planning – MTO and ATO production modes are excellent for
perishables, custom production, production with high unit cost, and production
where materials are segregated and only used for the orders for one customer.
However, this doesn’t mean that all components are segregated.
• Cost – Modern ERP/MRP systems can roll up costs accurately for custom
orders. This accuracy allows managers to focus on process improvements in
measured labor, waste reduction, maintenance programs and others that will
help lower variable cost for the products.
• Scheduling and Planning – A strong scheduling and planning system
available through ERP and MRP systems will help plan production
schedules at optimum levels. For one, relying on common parts and
materials as mentioned in Materials Planning above will allow
consolidating or combining production orders within the production
workflow.