Make-to-Order (MTO) Manufacturing

From customized industrial equipment and bespoke luxury vehicles to cutting-edge medical devices, the demand for complex, highly engineered products tailored to precise specifications is skyrocketing––and make-to-order (MTO) manufacturing is leading the charge in delivering this level of customization.

Make-to-order is a production strategy in which products are manufactured after a confirmed order is received rather than based on forecasted demand. Unlike make-to-stock approaches, it allows companies to cater to each customer's unique specifications, reducing excess inventory while maximizing flexibility.

Make-to-order manufacturing offers several compelling benefits, but it also presents unique challenges, particularly in managing complex product configurations, pricing, and quoting processes. That’s why manufacturers are turning to CPQ (Configura, Prezzo, Preventivo) software, which streamlines the sale of customizable products, enabling them to improve efficiency, reduce errors, and drive business growth.

In this article, we’ll delve into the relevance of CPQ in make-to-order manufacturing, exploring how this technology tackles the specific pain points MTO manufacturers face and empowers them to thrive in an increasingly complex and demanding market.

What Is Make-to-Order?

MTO is a manufacturing approach where production begins only after receiving a customer order.

Each order is treated as a unique project, with products manufactured to meet the specific requirements outlined by the customer. It differs from other mass production manufacturing methods, such as make-to-stock (MTS) or assemble-to-order (ATO), where production is based on forecasted demand or the assembly of pre-manufactured components.

Key characteristics of MTO include:

• Production Begins After Order Confirmation: In an MTO system, the manufacturing process doesn’t start until the customer's order is confirmed. This ensures the product is tailored to the customer's exact specifications and reduces the risk of producing unwanted inventory.
• Products are Customized to Individual Customer Specifications: MTO allows for high product customization. Customers can specify their requirements, such as dimensions, materials, colors, and features, and the manufacturer will produce the product accordingly.
• Smaller Long-Term Inventories: Since products are only manufactured when ordered, businesses with MTO systems often keep smaller inventories. This reduces inventory holding costs and the risk of obsolescence.
• Longer Lead Times Compared to MTS: Due to the customized nature of MTO products, lead times are typically longer than MTS systems. Customers may need to wait for their orders to be designed, manufactured, and delivered.

Trends Pushing Forward Customization

Manufacturing strategies evolve in response to consumer expectations and technological advancements. The next section explores the key trends fueling the rise of MTO.

Consumer Behaviors Driving MTO Demand

Evolving consumer behaviors and preferences have pressured manufacturers to accommodate custom products.

Here are some key trends and stats to demonstrate consumer demands surrounding custom, configurable products:

• Desire for Personalization: 71% of consumersfeel standard products don't meet their expectations and want personalized options, indicating a strong preference for personalized items. This demand spans various age groups, with significant interest in customized clothing, footwear, furniture, and fashion accessories among younger demographics.
• Willingness to Pay a Premium: Deloitte's study reveals that one in five consumers who express interest in personalized products or services are willing to pay a premium of 20%.
• Data Privacy and Personalization: Deloitte's study further revealed that 22% of consumers are happy to share some data in return for more personalized customer service or products. However, businesses must navigate this trend carefully, ensuring transparency and responsible data handling.
• Customization as a Gift Option: 50% of consumers perceive customized products as excellent gifts.
• Guidance in Customization: Deloitte's research indicates that 42% of consumers interested in customized products or services would rather be led by brands and choose from a selection of options. This highlights the importance of making customization accessible to customers.
• Patience for Customization: 48% of consumers are willing to wait longer for customized items, demonstrating the value customers place on personalization. Patience allows businesses to manage the longer production timelines associated with MTO.

Technological Advancements Enabling MTO

In the past, creating custom orders required a highly specialized manufacturing process, as customizability was closely correlated with manufacturing complexity. However, this is no longer the case when made-to-order (MTO) is supported by the following technologies:

• Advanced Manufacturing Technologies: Innovative manufacturing technologies, such as 3D printing (additive manufacturing), robotics, and AI, have revolutionized MTO production. These technologies enable faster prototyping, shorter production runs, and greater flexibility in customization, making MTO more efficient and cost-effective.
• Trasformazione digitale: Digital technologies, such as the Internet of Things (IoT), cloud computing, and data analytics, empower manufacturers to optimize production processes, reduce waste, and improve overall efficiency. These technologies enhance supply chain coordination, enabling businesses to meet the demands of MTO manufacturing.
• eCommerce and Online Customization Platforms: The growth of eCommerce with integrated online customization tools has made it easier for consumers to design and order personalized products. Digital interfaces allow customers to visualize and configure products to their specifications without interacting with a sales representative.
• CPQ: Software CPQ, uniquely designed for product customization, can be inserted onto websites or accessed from mobile devices. It streamlines the complex process of configuring, pricing, and quoting customized products, enabling sales teams and end customers to quickly generate accurate quotes based on predetermined pricing rules and product logic.

The Woes of MTO

While MTO strategies offer numerous benefits, such as increased customization and reduced inventory costs, it also presents several unique challenges.

There are often difficulties in collecting custom orders, passing them to manufacturing, reducing lead times, and adjusting inventory management processes in the supply chain. Let's explore these in detail:

Complexity in Production Planning and Management

One of the major obstacles to effective MTO manufacturing is the complexity of production planning and management.

Unlike make-to-stock (MTS) manufacturing, where production is based on forecasted demand, MTO requires a more dynamic and flexible approach to planning and scheduling. This involves:

• Variability in Order Specifications: In MTO, each customer order is unique, with specific requirements for design, materials, and functionality. This makes standardizing production processes impossible and requires a high degree of flexibility in manufacturing operations.
• Capacity Planning: MTO manufacturers must accurately forecast fluctuating customer demand and dynamically adjust production capacity to match. This involves predicting order volumes, lead times, and resource availability while rapidly scaling operations up or down as needed. Failure to do so can result in late order fulfillment, impacting profitability and customer satisfaction.
• Balancing Efficiency and Customization: MTO manufacturers must balance efficiency and customizability. While customization is a key selling point for MTO products, it can also increase production times and costs. Manufacturers must find ways to streamline processes and leverage technology to optimize production without sacrificing the ability to meet customer needs.

Pressure to Shorten Lead Times

With an increasing number of companies providing customized products, customers now expect these personalized orders to be delivered just as swiftly as standard items. (This expectation for rapid delivery of goods partly stems from the conveniences established by popular B2C services like Amazon Prime.)

While B2B sales cycles for custom products are generally longer than in B2C, aligning expectations and production schedules remains vital. Related challenges include:

• Streamlining Design and Engineering Processes: MTO manufacturers must find ways to streamline design and engineering processes to reduce the time required to develop custom products. This may involve computer-aided design (CAD) software, modular product architectures, and standardized components.
• Optimizing Production Schedules: Efficient production scheduling is critical to reducing lead times in MTO manufacturing. Manufacturers must carefully sequence orders, minimize changeover times, and maximize resource utilization to ensure that products are manufactured and delivered as quickly as possible.
• Leveraging Technology: MTO manufacturers can leverage advanced technologies, such as 3D printing, robotics, and automation, to reduce production times and improve efficiency. These technologies can help manufacturers quickly prototype and manufacture custom products, reducing lead times and improving responsiveness to customer demands.

Difficulty in Manually Quoting Complex Products

MTO manufacturers often face challenges in accurately quoting and offering complex products to customers. This is particularly important in B2B sectors like high-tech, aerospace, heavy machinery, construction, and biotechnology.

Accurately quoting and pricing MTO products requires a deep understanding of product specifications, production processes, and costs. This is knowledge many salespeople and self-serve customers struggle to grasp. Crucial challenges here include:

• Accurate Cost Estimation: MTO manufacturers must be able to accurately estimate the costs associated with producing custom products, including materials, labor, and overhead. This requires engineering and production knowhow and the ability to account for significant variability.
• Managing Product Complexity: MTO products are often highly complex, with numerous options and configurations. Manufacturers must manage this complexity effectively, ensuring customers can easily specify their requirements and that production processes are optimized for each unique order.
• Balancing Customization and Profitability: MTO manufacturers face a delicate balancing act––offering a comprehensive range of customization options while maintaining profitability. Software that automates pricing can put guardrails in place, preventing the selection of unprofitable configurations and thus safeguarding healthy margins.

How CPQ Overcomes MTO Challenges

CPQ software is an all-in-one tool designed to streamline the selling, engineering, and manufacturing of customizable products.

CPQ guides users through the configuration process, ensuring that all selections are compatible and feasible to manufacture. The software then automatically generates accurate pricing based on the selected options.

Finally, CPQ creates professional quotes that include all relevant information, such as product specifications, pricing, and lead times. It can also generate CAD files, BOMs, and other documents as needed to begin production.

Let’s explore how CPQ supports MTO in more detail.

Managing Complex Product Configurations

MTO products often involve a wide range of options, features, and customizations, which can be difficult to manage manually.

Advanced CPQ software provides a user-friendly visual configuration interface that guides customers and sales reps through the configuration process. It ensures that all selections are compatible and feasible to manufacture, reducing errors and improving efficiency.

Some CPQ platforms, like Epicor CPQ, offer augmented reality (AR) and virtual reality (VR) capabilities, enabling customers to interact with their configured products in a virtual environment.

Generating Accurate Pricing

Pricing MTO products can be challenging, as numerous variables and options must be considered alongside the usual complexities of advanced pricing strategies.

CPQ software automates the pricing process by dynamically calculating prices based on the selected configuration, ensuring quotes are accurate and optimized for profitability.

Sophisticated solutions like Epicor CPQ can integrate external data sources, such as fluctuating raw material costs and real-time competitor pricing, empowering sellers to maximize margins on every deal while maintaining a competitive edge.

Streamlining the Quoting Process

Manually creating detailed, professional quotes for MTO products can be time-consuming and error-prone. However, with CPQ software, users can generate comprehensive, on-brand quotes with a single click.

Instead of wasting time crunching numbers and formatting columns, salespeople can focus on active selling. Moreover, they can take the time to ensure customers get the best experience possible, marking your company out against less responsive competitors.

Integrating Sales and Production

One of the most significant benefits of CPQ software for MTO manufacturers is its ability to connect the sales process with the production floor.

Advanced Soluzioni CPQ like Epicor CPQ can automatically generate manufacturing documents, such as CAD files, Bills of Materials (BOMs), and cut sheets, all generated from the configured product.

Integration with other enterprise software like Enterprise Resource Planning (ERP) eliminates manual data entry and ensures that the production team has access to accurate, up-to-date information.

Simplifying Complex Product Logic

MTO manufacturers often struggle with the complexity of their product offerings. Too many options and add-ons and customers risk getting confused. But too few, and you’re not taking full advantage of MTO.

Advanced CPQ solutions address this challenge with intuitive rules engines that simplify the process of creating and managing complex product configurations.

For example, Epicor CPQ's Snap rules engine empowers non-technical users to create and maintain configuration rules. This reduces reliance on IT resources and enables teams to rapidly add and edit new product options.

It’s smooth and easy for almost anyone—even for the most demanding products.

Insomma

Unlike the traditional make-to-stock approach, where products are manufactured based on forecasted demand, make-to-order (MTO) goods are not produced until an actual customer order is received.

MTO offers a range of benefits for both manufacturers and customers. Manufacturers can reduce inventory costs, become more efficient and agile, and optimize resources. On the other hand, customers get unprecedented freedom to purchase products that cater to their unique and often exacting needs.

Of course, MTO is not without its challenges. Longer lead times, supply chain complexity, and scalability issues can all be problematic without the right technology to support and orchestrate the MTO workflow.

CPQ software streamlines the MTO process. It automates configuration, pricing, and quoting. It also auto-generates many of the documents engineering and production teams need to fulfill orders.

With the visual product configuration, dynamic pricing, CAD automation, and intuitive product and pricing rules engine of more advanced CPQ solutions, manufacturers can tap into the skyrocketing demand for custom products and watch their bottom lines swell.

MTO FAQ

What are the benefits of implementing a make-to-order manufacturing strategy?

Adopting an MTO manufacturing strategy offers several advantages, including reduced finished goods inventory, better stock control, increased flexibility to meet customer demands, and improved customer satisfaction.

By producing goods after receiving a confirmed sales order, manufacturers can minimize waste, optimize resource utilization, control stock, and deliver customized products to their customers.

How does Epicor CPQ help streamline the order management process?

Epicor CPQ simplifies the order management process by providing a centralized platform for configuring products, generating accurate quotes, and creating professional proposals.

By integrating with ERP systems, CPQ ensures a seamless flow of information from the initial customer inquiry to the creation of production orders, reducing errors and improving overall efficiency.

What factors should be considered when developing a production strategy for make-to-order manufacturing?

Several factors should be considered when developing a production strategy for make-to-order manufacturing, including raw material and stock availability, production capacity, lead times, and supply chain reliability.

Manufacturers should also invest in advanced planning tools to optimize resource allocation, minimize bottlenecks, reduce stockouts or overstocking, and ensure on-time delivery of finished products to customers.

How can manufacturers ensure timely procurement of raw materials for make-to-order production?

Manufacturers can leverage CPQ and ERP systems with integrated purchase order management functionality to ensure timely procurement of raw materials for MTO production.

By establishing strong, durable relationships with suppliers, implementing just-in-time inventory practices, and closely monitoring supply chain performance, manufacturers can minimize delays and ensure a smooth flow of raw materials to meet production demands.