mail-box-lead-generation

written by | September 19, 2022

Make to Order Meaning, Definition, Advantages and Examples

×

Table of Content


Ever wondered why there’s often a waiting period while buying new cars? The answer lies in different variants and options they come in. The showroom may have just one or two variants in most cases for the test drive. Only when you book the car based on the variant and options you need, does the order for a new car go to the manufacturer, as they are making it to your customized order. 

Make to order is a production strategy used by businesses wherein the manufacturing of the product starts after receiving the specifications and confirmation from the customer. Unlike the general practice where businesses maintain an inventory of ready-to-sell products to be delivered to customers, the make-to-order concept is based on receiving customers' demand and then producing the product. This strategy is helpful for businesses that deal with highly customisable products such as cars, jewellery, aircraft, etc. MTO is helpful for manufacturers who deal with items that are costly to produce and store. MTO strategy saves storage and insurance costs for such businesses. 

What is Make to Order?

Make to order or MTO manufacturing is a strategy used by manufacturers or producers wherein the product is manufactured as per the unique requirements of the customer. The MTO process begins with receiving the customer's order and specifications and then producing the product. The final output is unique and is only meant to be delivered to the particular customer from whom the order was received. There is a time lag between the placing of an order by the customer and its final delivery. This time lag varies from product to product and depends on the time required to manufacture the product as per the specifications and unique requirements of the customer.

Also Read: 15 Best Online Business Ideas to Start With Less Money in 2022

The Advantages of MTO

1. Minimum Wastage and No Over-Stocking

 In the conventional practice of estimating the demand for the product and stocking it in advance, there are chances that real demand falls short of the expected demand. In such a case, it results in a wastage of resources. Overstocking of products can also lead to obsolete and outdated inventory. The make to order concept helps in reducing the wastage of resources and over-stocking.

2. Savings in Storage and Insurance Costs

The businesses have to incur a higher storage cost in maintaining the stock of high-cost and low-volume products. Insurance expenses are also to be incurred to mitigate the risk of loss or damage by fire, theft, natural calamity, etc. MTO manufacturing strategy helps in saving the high storage and insurance cost.

3. Unique and Customised Products

The make to order concept enables the manufacturers to produce unique and highly customised products as per the specifications and requirements of a particular customer. This is not possible in the make to stock practice as it involves mass production of identical products meant for general consumer demand.

4. Maximum Consumer Satisfaction

When the customers are allowed to get the product designed and customised as per their unique requirements it gives them maximum satisfaction. The personalised products also stand out in the crowd and enhance the reputation of the business in the market.

5. Provides a Competitive Advantage to the Business

The make to order strategy gives a competitive advantage to the business. The manufacturers can utilise their best skills, resources and production techniques to produce the best quality product as per the order of the customer. This gives a competitive edge to the business and a chance to gain maximum market share by defeating the rivals in the market.

Also Read: 10 Tips for Successful Money Management for A Profitable Business

Is the Make to Order Process Good for All Manufacturers?

Many points are to be considered before implementing MTO. This strategy is not suitable for all types of manufacturers. It is not beneficial for manufacturers that produce a similar type of product in large quantities for general consumers. It is good for seasonal products that have peak demand during a particular month or season. But you also have to ensure adequate and regular availability of resources during the peak season. This strategy can be very advantageous for businesses that deal in highly customisable products like jewellery, cars, eatables, etc.

Make to Order Process

  • Receiving specifications for a customised product from the customer.
  • Confirmation of the desired designs and manufacturing order.
  • Manufacturing or processing of the product as per demand.
  • Delivery of the final product to the customer.

Make to Order Example

  •  Customised Cars

The leading car manufacturer BMW uses the make to order strategy to attract more customers. BMW allows its customers to customise their cars as per their unique choices, for example, its interiors and wheels. The company also provides a video link to their customers to show the customisation of their cars before the final delivery.

  •  Customised Computers

Dell is a leading computer manufacturer that offered its customer a choice to order customised computers as per their requirements. The customers can provide their specifications to the company and order a customised computer from Dell. Dell used this strategy to increase its consumer base by providing them with high-quality, customised and affordable PCs.

  •  Cakes and Bakery Business

These businesses are a perfect example of make to order. The wedding and birthday cakes are prepared by bakers as per the specifications given by consumers that depend on the occasion. The orders and specifications are taken and then the unique cakes are produced to be finally delivered to the specific customer.

  •  Footwear Business

The Shoe Factory is a shoe-making company that manufactures shoes only on order. Many other startups have also entered the customised shoe-making business.

  •  Clothes and Accessories

 The tailoring industry is also an example of make to order wherein the customers get the desired designer clothes stitched by the tailor as per their unique choices. There are many tailoring startups that provide perfect-fit clothes as per the choice and preferences of the customer.

  •  Jewellery Making

This is the oldest industry that uses the MTO strategy. The customers can order custom-made jewellery as per their specifications and designs. The jewellers make the jewellery after receiving the confirmation order and details of customisation from the customer. The desired product is delivered to the customer after a short time lag.

Also Read: Top 10 Cities for doing business in India

Make to Order vs Make to Stock

Make to stock is a strategy wherein the products are manufactured as per the estimated demand. The production process is completed and the stock is ready for sale when they are offered to the customer. The difference between make to order and make to stock is summarised below:

Points of Difference

Make to Order

Make to Stock

1. Meaning

It means making a product after receiving a confirmation order and specifications from the customer.

It means producing the products and stocking them based on an estimated demand to deliver on receiving a customer's order. 

2. Time lag 

There is a time lag between order and final delivery.

There is no time lag and the goods are delivered in a short time when demanded by the customer.

3. Customisation

The products are customised as per the requirements of the customer.

The products are not customisable after they are produced.

4. Industry type

MTO is used by businesses that deal with products like jewellery, aircraft, automobiles, computers, clothes, footwear, accessories, eatables, etc. 

MTS is most commonly used by businesses that deal with Fast Moving Consumer Goods (FMCG).

5. Volume of production

Small

Mass production

6. Storage cost

Less

High

7. Chances of wastage

There are less chances of wastage or spoilage as the product is produced and delivered and there is no requirement to store it for a long time.

The chances of spoilage and wastage due to damage or the products getting outdated are high because of stocking of products until it is demanded by the customer.
 

Conclusion:

The make to order strategy has many advantages but there are many important points that are to be considered before implementing it. To ensure the production as per the desired demand of the customer, the manufacturer should ensure an adequate and timely supply of resources. 

Accurate planning and production schedules are needed for the successful implementation of this strategy. Jewellery, tailored clothes, customised cakes, customised photo frames, etc. are some of the MTO examples that we find in our daily life.  Aircraft, automobiles, and vessels are some of the exclusive make to order product examples that need high-level of customisation and cost.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Name some companies that use MTO approach?

Ans:

Dell, BMW and The Shoe Factory are some of the companies that use the MTO approach to attract more customers.

Q: What are the benefits of make to order?

Ans:

This approach offers many benefits to the manufacturers such as savings in storage and insurance costs, reduction in wastage, efficient utilisation of resources, maximum consumer satisfaction, and exclusive and unique products.

Q: Which production strategy is used by the Fast Moving Consumer Goods (FMCG) manufacturers?

Ans:

FMCG manufacturers mainly use the make to stock manufacturing strategy.

Q: What are some make to order product examples?

Ans:

Aircraft, jewellery, cars, cakes, clothes and accessories, and computers are some examples of make to order products.

Q: What is the basic difference between make to order and make to stock?

Ans:

In make to order the product manufacturing commences after the customer's order confirmation whereas in make to stock the product is manufactured before hand and sold as it is when demanded by the customer.

Q: What is make to order?

Ans:

Make to order is a manufacturing strategy used by businesses wherein the product is manufactured as per the demand and customisation preferences provided by the customer.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
×
mail-box-lead-generation
Get Started
Access Tally data on Your Mobile
Error: Invalid Phone Number

Are you a licensed Tally user?

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.