What is MTO?

What is MTO?

Make to order (MTO) is exactly that. It is a manufacturing process that allows customers to order customised products. Rather than making a product and waiting for it to sell, the customer orders exactly what they want. The MTO process only starts after receiving a specific order for a product.

No longer does the old Henry Ford adage ‘any colour so long as it is black’ apply. Modern manufacturing offers any colour, size, shape, specifications or tolerances the customer requires. The customer can also specify a timeframe for delivery. For example, a customer buying a vehicle can customise it to their own specifications. But they will have to wait extra time for delivery depending the extent of the customisation.

Business production strategy

MTO also is a pull type business production strategy based on customer demand. This production model is useful when the customer only orders one or a few products. Actual sales orders drive the whole process. So you need a strong link between your sales order software (eg. MYOB EXO) and the enterprise resource planning (ERP) software (eg. MORE-MX) to translate sales into production orders. A flexible ERP system translates the order using the bill of materials to identify what is in stock and what needs ordering. Then a production schedule is set up and integrated with other orders on the production floor.

For on time delivery, capacity requirements planning and material requisitions planning are vital. You may need to buy materials quickly and your ERP should be able to identify this. The ERP needs to have supplier information available with alternatives if needed. 

Using MTO as a production strategy can give you a competitive edge over your rivals in tight marketplaces.

MTO costs

Costs for MTO are higher as you quote a specific price for every individual product as the variations are limitless. But this level of customer service increases the value and potential profit margins for both the customer and manufacturer. It is important to avoid materials waste and inefficiencies in MTO to increase profit margins.  

MTO advantages and disadvantages

As with all types of manufacturing, there are advantages and disadvantages to MTO. The advantages include:

  • Running a lean business. MTO allows you to run a lean business by reducing materials held in stock as you are not producing products you need to sell. Instead you ship finished products straight to the customer. There is no need to store them ready for customer to order.

  • Personalised products. When you offer the ability to personalise and customise products, you will attract customers. They will come to you to make their unique products rather than a made to stock company.

  • Reduces inefficiency. Because products are manufactured on demand, MTO reduces inefficiencies in the production process.

The downsides of MTO include:

  • Not holding enough materials in stock. Manufacturing MTO means you have to be ready at any time to start manufacturing quickly. If you do not have enough materials in stock, you could run out and deliver orders late.

  • Customers have to wait. Customisation means it takes longer to get products to the customer. And, let’s face it, today’s society wants instant gratification. The quicker you deliver the better. You do not want to make customers wait longer because of holdups in the manufacturing process.

  • Intermittent sales orders. With MTO there can be intermittent sales orders with peaks and troughs in demand which can put pressure on your business.

MTO ERP software

With the range of manufacturing variations, quality control and capacity constraints may become more complex than making a single repetitive product. So software to support MTO manufacturing is more complex. A rigid structure with predefined fields is not going to accommodate growth and a continuous improvement cycle for long. MTO software needs a capable, flexible quoting module with accurate costing. It also needs the ability to manage variable operations and capacity resources with ease.

Operating in an MTO environment is demand driven. How you link information from the sales order through production for on time delivery is crucial. You need to manage costs while making a profit. The success of MTO can depend on the ERP system you use. Software like MX supports every stage of the process. From interpreting the sales order for production and returning it to financial software for billing when ready for delivery. MX ERP software can handle the MTO environment including:

  • Streamlining every step of the process from interpreting the sales order to delivery and invoicing.

  • Material requisitions and planning to ensure the right inventory is in stock to reduce costs.

  • Scheduling orders into the production process to speed up delivery and warn of possible delays.

  • Managing the manufacturing process to get more jobs ready for delivery in time.

  • Integrating with most accounting software packages.

Implementing the right software simplifies your operations for successful MTO manufacturing. Talk to us about MX and its capabilities to help you meet your MTO goals.