When it comes to production strategies, businesses often find it challenging to choose the best approach to meet customer demand efficiently.
Two popular strategies are Assemble to Order (ATO) and Make to Order (MTO).
Let’s understand what these strategies entail and how they differ, with a spotlight on the made-to-stock approach.
What is Assemble to Order (ATO)?
Assemble to Order is a production strategy where components and parts are manufactured in advance based on forecasted demand, but the final product is assembled only after a customer place an order.
This approach combines the efficiency of made-to-stock with the customization of make to order.
It allows for quicker response times and reduced inventory costs while still offering a degree of customization.
What is Make to Order (MTO)?
Make to Order, on the other hand, is a strategy where products are manufactured only after an order is received.
This means no finished goods inventory is held, and products are fully customized to meet specific customer requirements.
While this approach minimizes the risk of overproduction and excess inventory, it can lead to longer lead times as production starts only after the order is confirmed.
Made-to-Stock (MTS)
Made-to-stock is a different approach where products are manufactured based on forecasted demand and stocked in inventory until sold.
This strategy aims to have products readily available for immediate delivery, reducing lead times.
However, it requires accurate demand forecasting to avoid overproduction or stockouts.
A made-to-stock example is the production of standard household items like paper towels or canned goods, which are produced in large quantities and kept in inventory to meet ongoing demand.
Choosing the Right Strategy
Choosing between ATO and MTO depends on several factors, including the nature of your product, customer demand patterns, and your ability to forecast accurately.
A hybrid approach, integrating elements of made-to-stock, can also be effective, allowing businesses to balance efficiency and customization.
Frequently Asked Questions
1. What is a made-to-stock example?
A made-to-stock example is the production of items like paper towels or canned goods, which are manufactured in large quantities and kept in inventory to meet continuous demand.
2. How do production strategies make to stock and make to order differ?
Make-to-stock focuses on manufacturing products based on forecasted demand and storing them in inventory, while make-to-order produces goods only after receiving a customer order, allowing for customization but with longer lead times.