MTO is an abbreviation of “Make To Order”, which is a business model of manufacturing after receiving an order from a customer . A typical example is a supplier company that develops and manufactures parts for products sold by manufacturers of automobiles and electronic devices. In the case of Toyota Motor Corporation, there are 219 supplier companies in Japan alone, including Aisin Seiki and Denso. (As of 2020)
The supplier company receives an order from the manufacturer and undertakes the process from development to manufacturing of the parts, so it has the advantage of no inventory risk .
The difference from mass customization is not so much a competitive advantage in terms of cost due to the large-scale order scale, but a unique mechanism that shortens the delivery time even though it is a custom-made product, and provides high design at a low price. It is a point that makes making a value .
There is a BTO (Build To Order) represented by the computer maker Dell as a business model that passes products after receiving an order, but in this article, MTO (Make To) that not only assembles but also processes the product in-house I will explain Order).
The features of MTO are as follows.
- Since manufacturing starts after receiving an order, it is easy to predict the cost outlook
- The location of factories and the development of distribution networks are important for improving the efficiency of custom-made product manufacturing.
- Profit depends on the manufacturing range agreement between the company and the supplier company
- 1 Advantages of MTO
- 2 Disadvantages of MTO
- 3 MTO success conditions
- 4 MTO examples
- 5 Industry suitable for MTO (make-to-order)
Advantages of MTO
No extra inventory is created
In build-to-order manufacturing, there is basically no need to hold inventory because the product is started to be produced after receiving an order, so there is little cost required for inventory storage and management and the risk of unsold goods, and sales are generated only for the amount produced. There is a merit that you can do it. It also has the advantage of reducing the burden on the environment because resources are conserved if there is no wasteful production or disposal.
You can make products with originality
One of the merits of build-to-order manufacturing is the ability to add originality to products in response to customer requests. In addition, by carefully producing each product, we can further improve the quality of the product and improve customer satisfaction.
No need for extra production
Since MTO basically starts producing products after receiving an order, there is no need to produce extra products or parts. Therefore, as mentioned above, it is easy to forecast the costs related to inventory storage and management, and it is easy to manage and understand the finances of your company’s inventories.
Disadvantages of MTO
Susceptible to changes in business performance of business partners
At MTO, the scale of production is greatly affected by changes in the business performance of our business partners. Therefore, it is necessary to select a strategic partner to maintain the sustainability of profits. In addition, since it is possible for latecomers to enter the build-to-order manufacturing system at low cost, it is important to acquire their own competitive advantage, such as obtaining patents.
Lead time will be long
In make-to-order production, since production is prepared after receiving an order, there is a disadvantage that the time from the start of production to delivery, that is, the “lead time”, becomes long. Therefore, it is not possible to respond to market demand immediately, and there is a risk of missing the timing of sales. In addition, if the delivery date desired by the customer is short, production may not be in time, and there is a risk that customer satisfaction will decline.
Furthermore, in the production process, it is expected that various requests will be received from customers, so there is a disadvantage that additional costs will be required if changes such as design and raw materials are required.
MTO success conditions
Your company has the ability to develop and manufacture products
Successful make-to-order requires that the company has the ability to develop and manufacture products that meet the needs of its business partners. Even if you don’t own all the facilities and equipment, it’s important to have a manufacturing partner with whom you can partner. On top of that, the key to success is how to build a system that responds to the needs of individual business partners with low-cost production.
Sufficient cooperation between sales, manufacturing, and logistics departments
The difficulty of build-to-order manufacturing is the balance between cost and selling price . When producing some of the products that will be released in the future, the order amount may fluctuate due to changes in the business performance of our business partners, and specifications may change during development and manufacturing. If you accept all the requests of your business partners, your profits will be squeezed. In order to avoid such risks, it is necessary to build an organizational structure that facilitates collaboration between sales, development, and manufacturing departments.
Having an overwhelming competitive advantage
“Selection and concentration” and “economy of scale” to have barriers to the entry of latecomers are the conditions for sustainable growth of the company. For example, Foxconn of China has invested capital in the purchase of mold making machines by Japanese companies since the latter half of the 1970s to lay the foundation for its own resources, and has grown rapidly in the 1990s as the computer market expanded. The key is to be able to prepare for large-scale production by deciding which business the company should concentrate on and improving its operational capabilities.
Misumi is a Japanese company that manufactures FA (Factory Automation) related parts such as parts for factory machinery and parts for molds for automobiles and electronic equipment parts. With the rise of parts manufacturers in Taiwan and China, the reason why Misumi continues to maintain a high competitive advantage is “ overwhelming short delivery time “. Make-to-order production of mold parts usually takes a week after receiving an order. Misumi has built a unique mechanism called “ build-to-order manufacturing from semi-finished products ” to shorten the delivery time. The average delivery time is within two days of receiving an order, which is unprecedented in the industry. Semi-finished products are mass-produced parts that are only half completed at overseas factories. We send it to our own base where our business partners are located, process it according to the order, and finish it as a finished product. Orders can be sized in microns, and this high accuracy is one of Misumi’s competitiveness. By making finished products from semi-finished products, inventory is minimized, both cost cutting and shortening of delivery time are realized.
Another competitive advantage is sales / manufacturing / logistics collaboration . Misumi has 23 production bases in Japan, Vietnam, Czech Republic, etc., 64 sales bases in Asia, Europe, and North America, and 17 distribution centers around the world. I am.
Oliver is a manufacturer that delivers custom-made furniture to public facilities such as airports, medical facilities, and hotels. Oliver specializes in commercial field make-to-order style called “ contract “, which designs and produces after listening to the requests of business partners. Furniture installed in public facilities such as airports and museums is required to have an original design that is unique to that facility, as well as functions such as durability and usability. Also, there are few ready-made products that fit the scale of a building. Furniture is a product that is suitable for make-to-order because it also requires a design that enhances the goodness of the building.
After repeated preliminary meetings, Oliver creates designs and samples that reflect the shapes, colors, and designs required by business partners, confirms the quality, and then manufactures large lots. In addition, we also propose and construct interiors.
Industry suitable for MTO (make-to-order)
MTO is a business model that is compatible with products with low production volume, products that are difficult to keep in stock due to high manufacturing costs, and products that require a lot of customization.
For example, the shipping industry and the construction industry, which accepts custom-built housing, can basically produce products only by the build-to-order manufacturing method. In addition, the interior industry, machine tool makers, mold makers, etc. that can be made to order, such as furniture and bedding, can be said to be very compatible with the build-to-order manufacturing by MTO.