Make-to-order

Definition

Make-to-order is a production strategy where items are manufactured only after a confirmed order is received from a customer. This approach minimizes inventory costs and reduces waste, as products are tailored specifically to customer specifications. It emphasizes responsiveness to customer demand and allows companies to offer a high degree of customization, which can be particularly valuable in industries with diverse customer needs.

5 Must Know Facts For Your Next Test

1. Make-to-order systems help businesses reduce excess inventory since products are only created after orders are placed.
2. This strategy often leads to longer lead times compared to make-to-stock systems, as production begins only after an order is received.
3. Make-to-order is commonly used in industries such as aerospace, custom furniture, and high-end fashion, where customization is essential.
4. Companies using make-to-order can better align production with actual demand, which helps improve customer satisfaction.
5. This approach requires effective communication and coordination between sales, production, and supply chain management to ensure timely delivery.

Review Questions

• How does the make-to-order strategy impact inventory management practices?
  • The make-to-order strategy significantly changes inventory management practices by reducing the need for large stockpiles of finished goods. Since products are only produced after an order is confirmed, businesses can minimize holding costs associated with unsold inventory. This approach also encourages companies to be more agile in their operations, as they need to manage raw materials and production processes closely to respond promptly to customer orders.
• What challenges might a company face when implementing a make-to-order production system?
  • Implementing a make-to-order production system can present several challenges, including longer lead times due to the need for production after order confirmation. This may frustrate customers who expect immediate fulfillment. Additionally, companies must ensure they have efficient workflows and robust supply chain management in place to avoid delays. Balancing customization demands with production capabilities can also be complex, requiring effective planning and resource allocation.
• Evaluate how make-to-order strategies can affect customer satisfaction compared to make-to-stock approaches.
  • Make-to-order strategies can enhance customer satisfaction by allowing for greater product customization tailored to individual preferences. Customers receive products that meet their specific needs, which can foster brand loyalty and repeat business. However, this approach may lead to dissatisfaction if lead times are too long or if communication about delivery timelines is not clear. In contrast, make-to-stock methods provide quicker access to ready-made products but may lack the personal touch that customers increasingly seek in today's market.

Related terms

Customization: The process of modifying a product or service to meet the specific needs or preferences of individual customers.

Lead Time:

The total time taken from the initiation of a process until its completion, particularly in the context of manufacturing or service delivery.

Just-in-time (JIT): An inventory management strategy that aims to reduce waste by receiving goods only as they are needed in the production process.