Create efficient production: Decode the benefits and strategies of make-to-order vs. make-to-stock

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In modern manufacturing and supply chain management, "make-to-order" (MTO) and "make-to-stock" (MTS) constitute two basic but fundamentally different production strategies. For production management professionals, understanding the differences between these two production methods and their respective advantages is key to optimizing production processes, improving operational efficiency, and meeting market demands. With the ever-changing market environment and the increasing diversity of consumer needs, choosing the right production model is critical to the success of a business.

The purpose of this article is to take a deep dive into both make-to-order and make-to-stock strategies. We will start with their definitions, explain their fundamental differences in terms of the timing of the start of production activities, and the corresponding business models. We'll then discuss the unique benefits and use cases of each model in detail to help you make an informed choice based on the characteristics of your business.

Through the in-depth analysis of this article, we hope to provide valuable reference and guidance for professionals who are committed to optimizing production management and improving operational efficiency.

01 One

What is make-to-order

Made-to-order is a production method that starts producing a product after receiving an order. We don't produce until we receive an order, so we don't have to keep stock. For products that are produced only in small batches or tailored to each customer, for industries such as furniture, bedding, shipbuilding, etc.

Make-to-order, or MTO, is a method in which a customer places an order before starting to produce a product. This mode of production can be further divided into two subcategories: individual order production and recurring order production. Below we will explore each one in detail.

Individual order production: It is a production method that tailors products to each order. This method is particularly suitable for products that need to be tailored to the specific needs of the customer, such as specific machinery and equipment and its parts. In this model, each time a new order is received, the manufacturer needs to adapt to changing specifications, starting with the design development, which is a complex process to manage.

Repetitive order production: In contrast to individual order production, repetitive order production is the production of products with the same or similar specifications for each order. While product specifications may change slightly depending on customer needs, basic design and development work does not require starting from scratch every time. This method is commonly used in industries such as automobiles and home appliances, and can improve production efficiency and responsiveness to a certain extent.

The biggest advantage of made-to-order production is that it can meet the individual needs of customers to the greatest extent and reduce the risk of overstocking. In today's era of individualization and customization, made-to-order production can provide customers with unique products, thereby enhancing the company's market competitiveness. In addition, since products are produced to order, businesses can reduce the need for storage space, which can reduce warehousing costs.

02 Two

What is Make-to-Stock?

In another mode of production in the manufacturing industry, we have encountered a very different concept from make-to-stock (MTS) - make-to-stock (MTS). In contrast to the MTO model, which starts the production process based on customer orders, the MTS strategy focuses on production first and then storing the products in the warehouse for future orders.

The implementation of make-to-stock relies on forecasting market demand as well as detailed sales planning. Based on these forecasts and plans, companies will produce and reserve a certain amount of products in advance. This method is particularly suitable for those products with a high degree of standardization, short production cycles, large market demand and relatively stable products.

Common products that use the make-to-stock model include consumer goods and processed foods, which are often exposed to large-scale, sustained market demand. For example, packaged drinking water and cleaning products in supermarkets are in high demand and are relatively accurate, so they are suitable for MTS production.

03 Three

Advantages of make-to-order and make-to-stock

When we delve into Make-to-Order (MTO) and Make-to-Stock (MTS), it's clear that each model has its own unique advantages in providing customized solutions for different business environments and needs. The following is a concise explanation of the advantages of both production methods.

1. Advantages of made-to-order: high customization and inventory management efficiency

1.1 Highly customized: The made-to-order model enables companies to produce products according to the specific needs of customers, thus providing highly personalized services. Whether it's specifications, design or functionality, this production method ensures that customers receive a product that exactly meets their requirements.

1.2 Inventory management efficiency: Since the product is produced after receiving the order, this greatly reduces the risk of excess inventory. In this model, businesses do not need to produce and store large quantities of products in advance to meet possible future orders, saving storage space and reducing inventory-related costs. While there may be some overstock due to order cancellations or specification changes, this is less common than make-to-stock.

2. Advantages of production by stock: fast delivery and meeting immediate demand

2.1 Fast delivery: In the production-to-stock mode, since the products have been produced and stored in advance, the enterprise can ship the goods immediately after receiving the order, which greatly shortens the time from order receipt to product delivery. This ability to respond quickly to the market is a major advantage of the make-to-stock model, which helps to increase customer satisfaction and loyalty.

2.2 Meet immediate demand: For products with large and stable market demand, production by inventory can ensure that there is enough product inventory to meet the immediate purchase needs of consumers. This means less waiting time for consumers and more effective sales opportunities for businesses to gain market share.

04 Four

The difference and connection between make-to-order and make-to-stock production

When discussing make-to-order (MTO) versus make-to-stock (MTS), it is critical to understand whether production activities are initiated before or after receiving customer orders. Although these two models operate in opposite directions, they are often intertwined and closely linked to the two core concepts of production management: pull and push systems.

1. Pull system and push system

1.1 Pull System: This is a demand-driven production system in which production activities are triggered by the demand of downstream processes. In short, the upstream process only starts production when the product needs to be consumed or move on to the next stage of production. Such systems excel at reducing inventory and responding to actual demand.

1.2 Push System: Opposite to the pull system, the push system is driven by the upstream process according to the forecast or planning instructions. This means that production activities are initiated based on forecasts of future demand, sometimes leading to excess or insufficient inventory issues.

2. Misunderstandings and practical applications of the two

Often, pull systems are simplified to equate make-to-order and push systems to stock. Although this division has its logical basis to some extent, production activities in reality are much more complex. In fact, a company may also use elements of a push-to-order system in the process of production to order, such as preparing some commonly used parts in advance in order to speed up the production process. Similarly, even in the make-to-stock model, inventory management can be optimized with a pull system, e.g. by replenishing raw materials or semi-finished products only when exactly they are needed.

3. Distinction and connection

Essentially, the main difference between make-to-order vs. make-to-stock is when production starts – whether it's based on customer orders or forecasting and planning. It has nothing to do with the choice of production system (i.e. pull or push). The connection between these two production methods and two systems is more about how they can be flexibly used by enterprises to meet different business needs and market conditions.

05 Five

How to optimize make-to-order and make-to-inventory operations

In the operation and management of modern enterprises, whether it is a make-to-order (MTO) or make-to-stock (MTS) model, finding ways to improve efficiency, reduce costs, and meet customer needs is always the core goal. The use of advanced production management systems has become one of the key means to achieve these goals.

1. The role of the production management system

The production management system, as an integrated IT solution, provides a range of functions, from inventory management to demand forecasting to supply chain management, and more, which together support the smooth operation of the enterprise. Through these systems, companies can achieve higher production efficiency, better cost control, and more accurate market responsiveness.

2. Optimization of made-to-order production

In the make-to-order model, the production process and the raw materials required for each order may be different because the products are customized on a specific order, which requires companies to be able to flexibly adjust production schedules. In this case, the process control and costing functions in the production management system are particularly important, which can help enterprises manage the production details of each order more efficiently, ensuring that the production process is both efficient and economical.

3. Optimization of production to stock

For the make-to-inventory model, demand forecasting and inventory management functions are key to improving efficiency. With accurate demand forecasting, companies can schedule production more accurately and avoid overproduction or low inventory. At the same time, effective inventory management can help businesses reduce inventory costs and ensure timely response to market demand.

4. Advantages of system integration

It's worth mentioning that modern production management systems are often able to support both make-to-order and make-to-inventory models, which means that even if a company adopts a hybrid strategy of both models, it can be efficiently managed through an integrated system. This integrated approach not only improves operational efficiency, but also helps businesses better adapt to market changes and optimize overall business operations.

Whether an enterprise adopts a made-to-order or inventory-based production model, the introduction and optimization of the production management system is an effective means to improve production efficiency and reduce operating costs. By taking advantage of the advanced capabilities in these systems, businesses can stay competitive in a rapidly changing market environment and better meet customer needs.