Make to order definition
/What is Make to Order?
Make to order is a production method that permits customers to buy customized goods. This is done by only starting production after receipt of a customer order. This approach minimizes finished goods inventory levels for the producer and results in precisely-targeted output, but at the cost of a longer wait time for the customer, and usually a somewhat higher price than mass-produced products. This approach also minimizes inventory obsolescence issues, since all finished goods are sold at once. It is only useful for highly configurable products, or for goods that are very expensive to keep in inventory. It is not used for mass consumer products, where it is less expensive to produce standard products in very large quantities.
Make to order is classified as a pull-type process flow, because no production order is triggered until a customer order has been received. Production is not based on a sales forecast, where manufacturing is conducted in large batches of units. Instead, the quantity produced is only what is needed for each specific customer order.
Related AccountingTools Course
The Assemble to Order Concept
A variation on the concept is assemble to order, where sub-assemblies are produced to stock, and then customized somewhat to meet customer specifications, usually requiring only a short delay prior to shipment. This approach requires some on-hand inventory, and allows for only a modest level of customization. However, it can be quite effective at attracting the business of customers that only require a modest level of customization.