Assemble-to-order definition
/What is Assemble-to-Order?
Assemble-to-order is a production process where finished goods are assembled only when customer orders are received. This is done by producing the key components of finished goods and then customizing them to customer specifications. Ideally, the remaining assembly steps are quite minor, so that orders can be shipped within a few days.
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Advantages of Assemble-to-Order
The key advantage of the assemble-to-order concept is that a business does not have to invest in a wide array of stock keeping units. Instead, it reduces its working capital needs by investing in a significantly smaller number of components. To make this process work, a business needs to design its products so that they are highly configurable from a common set of component parts, thereby reducing the need for many components. This is one of the better ways to manage inventory, since a business can swap a modest delay in shipping times to customers for a significant decline in its working capital investment.
Disadvantages of Assemble-to-Order
This approach does not work well when customers expect immediate delivery of ordered goods, since some time is required to assemble finished products. Thus, it does not work well for time-sensitive products.