# Make-to-Order (MTO) or Made-to-Order: Definition and Example

![Make to Order (MTO)](https://www.investopedia.com/thmb/yeOk9m_vXiVypdx8WzYlrPZOYjs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_Make-to-order---primary-79a68ae1f9c74c83ba6731a5b7b046cb.jpg)

*— Investopedia / Mira Norian*

> **Definition**
>
> Make-to-order refers to a manufacturing approach where items are produced exclusively in response to confirmed customer orders.

## What Is Make-to-Order (MTO)?

In make-to-order manufacturing, no inventory is built in advance. Products are only made after they’ve been ordered. MTO is part of the pull-through production process, which occurs when companies produce goods based on actual consumer [demand](https://www.investopedia.com/terms/d/demand.asp). It is common in certain industries, such as the aircraft and automotive industries.

### Key Takeaways

*   Make-to-order is a production strategy that allows manufacturers to wait to construction something until a customer has directly ordered that product or customization.
*   The manufacturing process of an MTO item begins only after an order has been placed.
*   Advantages of MTO include customization for customers, reduction in stock obsolescence and finished goods inventory, and overall waste.
*   Disadvantages include increased costs and increased wait times for a finished product.
*   MTO can be contrasted with make-to-stock manufacturing, whereby inventories are produced in advance of consumers buying them off the shelf.

## Understanding Make-to-Order (MTO)

As noted above, make-to-order is a business strategy used by manufacturers to meet consumer demand. It means that a [company](https://www.investopedia.com/terms/c/company.asp) only manufactures the end product once the customer places the order. While this creates additional wait time for the consumer to receive the product, it does allow for more flexible customization when compared to purchasing directly from retailers' shelves.

This strategy is a [pull-through production](https://www.investopedia.com/terms/p/pull-through-production.asp) or pull-type [supply chain](https://www.investopedia.com/terms/s/supplychain.asp) operation because products are only made when strong customer demand exists. This production model is commonly in the assembly industry where the quantity needed to be produced per product specification is one or only a few. This includes specialized industries, such as aircraft and vessel production, automotive, and construction among others. MTO is also appropriate for highly configured products such as computer servers, automobiles, bicycles, or products that are very expensive to keep [inventory](https://www.investopedia.com/terms/i/inventory.asp).

Here's how the MTO process works:

*   The customer makes an order and a bill of sale is produced
*   Once the order is confirmed, the company produces a work order
*   The product is manufactured
*   [Delivery](https://www.investopedia.com/terms/d/delivery.asp) is made and the customer receives the order

Some companies adopt the MTO production system to manage inventory levels and provide their customers with increased customization. The MTO strategy relieves the problems of excess inventory that are common with other types of production strategies. [Dell](https://www.investopedia.com/ask/answers/052015/who-are-dells-main-competitors.asp) is an example of a business that uses the MTO production strategy, wherein customers can order a fully customized computer online and receive it in a couple of weeks.  

> **Fast Fact**
>
> Make-to-order is also known as made-to-order or mass customization.

## Advantages and Disadvantages of MTO

### Advantages

The main advantage of the MTO system is the ability to fulfill an order with the exact product specification required by the customer. If the company can deliver the product just as the customer wants, they are more likely to remain loyal to the brand.

Sales discounts and finished goods inventory are also reduced, and stock obsolescence is managed. As such, it ensures that companies can get full price for their goods. It also reduces waste and helps promote [efficiency](https://www.investopedia.com/terms/e/efficiency.asp).

### Disadvantages

One of the main drawbacks of make-to-order management is the timeliness of the customization process. If products are already on the shelf (as with MTS), then a customer doesn't have to wait until the product is made, assembled, and delivered to spec.

Cost is also a factor. Pre-made and available products are all alike and so manufacturing costs are lowered due to [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp). MTO, on the other hand, tends to be more expensive for the consumer since it involves customizable parts and finishes.

Pros

*   Meets specific needs of customers
    
*   Reduces waste and promotes efficiency
    

Cons

*   Longer production process
    
*   Customization is expensive
    

## Make-to-Order (MTO) vs. Make-to-Stock (MTS) vs. Assemble-to-Order (ATO)

### Make-to-Stock (MTS)

Traditional strategies produce products and stock them as inventory until a customer buys them. This is known as [make-to-stock (MTS)](https://www.investopedia.com/terms/m/make-to-stock.asp). Unlike MTO, which is meant to reduce waste and be more efficient, MTS may be prone to wastage and obsolescence as inventory sits on shelves waiting to be purchased. This problem is particularly acute in an industry like technology, where advancement is quick and the problem of obsolete inventory could quickly arise.

The MTS method is a theoretically great way for companies to prepare for increases and decreases in demand. However, inventory numbers and production are derived by creating future demand [forecasts](https://www.investopedia.com/terms/f/forecasting.asp) based on past data.

But, there is a high likelihood that the forecasts will be off—even if just slightly. This means that a company may be stuck with too much inventory and too little [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). This is the main drawback of the MTS method of production. Inaccurate forecasts will lead to losses, stemming from excess inventory or stockouts. Excess inventory can quickly become obsolete in fast-paced sectors like electronics or computer tech.

### Assemble-to-Order (ATO)

MTO is similar to [assemble-to-order (ATO)](https://www.investopedia.com/terms/a/assemble-to-order.asp). ATO is a business production strategy where products ordered by customers are customizable to a certain extent and produced quickly.

The ATO strategy requires that the basic parts of the product are not assembled. Instead, they are already manufactured and ready for use. Once an order is received, the parts are assembled quickly and sent to the customer. Costs vary in the ATO strategy where assembly costs are negligible while the cost of the components can be substantial.

This manufacturing process is common in the [electronics industry](https://www.investopedia.com/ask/answers/042915/what-electronics-sector.asp), which involves computer production. Consumers and computer companies may design specific devices using customized components like monitors and keyboards.

> **Important**
>
> For an MTO system to succeed, it should be coupled with proactive demand management. Companies should also understand that the MTO system is not appropriate for all types of products, such as goods for everyday use.

## Industries and MTO Strategies

The MTO strategy is not suitable for every product or industry. Everyday goods and services, which are meant for mass consumption, are not manufactured in an MTO process. Because of the intricacies and costs involved, MTO tends to be used in certain specialized industries, including:

*   Aircraft
*   Automotive
*   Construction
*   Computers
*   Fashion
*   Furniture

MTO is very common in property development. Many [real estate](https://www.investopedia.com/terms/r/realestate.asp) developers buy large plots of land and sell them to consumers. Builders allow home buyers to make customizations in the design and construction of their homes. This includes floor plans, architectural designs, and the use of fixtures. For instance, companies like Pulte Homes offer customized homes in many states across the U.S.

## Example of MTO Process

A good example is the production of custom electric bicycles. When a customer orders a bike, they choose from a range of options—such as a step-through or mountain frame, a 500W or 750W motor, battery size (e.g., 48V 14Ah or 52V 20Ah), frame color, and add-ons like a rear cargo rack, hydraulic brakes, or integrated turn signals. No physical product exists until this configuration is submitted and [payment](https://www.investopedia.com/terms/p/payment.asp) is received, triggering the manufacturing process.

Once the order is confirmed, the production team reviews the specifications and begins sourcing the necessary components. If the customer selected a 750W motor with a long-range 52V battery and matte black frame, those parts are either pulled from on-hand stock or ordered from suppliers. When all components are ready, assembly begins in a step-by-step process. The frame is prepped and painted, the motor is mounted to the rear hub, the battery housing is installed on the downtube, and electrical wiring is routed through the frame. The bike is then fitted with the selected features, such as an LCD display, throttle control, and accessories.

After assembly, the custom e-bike is tested for electrical performance, battery charging, motor responsiveness, and braking. Note that this testing has happened after the order as been incurred as opposed to testing happening before the order (which would then allow the bike to be distributed to a [retail](https://www.investopedia.com/news/4-retail-stocks-shattering-records-despite-amazon-threat/) company, for example). Once it passes all quality control tests, the bike is packed securely and shipped directly to the customer. Another key takeaway here is that the product usually doesn't rest at an intermediary location; it goes directly to the customer as opposed to sitting on a shelf.

## What Steps Should Companies Take to Implement a Make-to-Order Strategy?

A make-to-order strategy is a business strategy that companies use to customize products according to customer demand to meet their needs. To put this strategy in place, companies must

1.  Market themselves and their product(s), which highlights their ability to customize their products. It helps to show consumers what the end product looks like.
2.  Take customer orders. This should be a smooth and quick process
3.  Manufacture the products. It's always a good idea to keep the customer in the loop during this process to give them an idea of when the product may be delivered.
4.  Deliver the product to the consumer.  
    

## What Industries Commonly Use Make-to-Order Strategies?

Make-to-order business strategies allow customers to order products from companies that are manufactured to their needs. This strategy is common in various industries, including aircraft, automotive, construction, computer hardware, and furniture. For instance, an automotive manufacturer may allow consumers to customize the design of their vehicles.

## What Are the Pros and Cons of Make-to-Order Products?

Companies can generate interest and brand loyalty by offering consumers make-to-order products. This means they can meet the needs of customers who are willing to pay more money for a product they want. It also helps reduce waste and promotes efficiency by using only those materials that are needed in the production process.  
But there are drawbacks. The most notable being the time it takes to produce customized goods and the high cost involved in the production process.  

## The Bottom Line

Most of the goods and services we use each day are meant for mass consumption. But, if you have the money, you can procure products that are manufactured in the make-to-order process. This involves customizing goods according to a consumer's needs. Things like airplanes, homes, high-end fashion, cars, and computers may be made to the unique specifications of consumers. While it can help companies make more money and reduce waste, it often costs more. And consumers must wait longer to have their orders fulfilled.

> **Article Sources**
>
> 1.  Pulte Homes. "[Personalize Your Home](https://www.pulte.com/build/custom-home-designs)."