What Is Make-to-Order (MTO)?
Also known as: MTO, build to order, BTO, make to order vs make to stock
Definition
Make-to-order (MTO) is a production strategy where a product is manufactured only after a confirmed customer order, using existing designs and routings. It avoids finished goods inventory but gives the customer a lead time equal to procurement plus production time.
Make-to-Order (MTO) Explained
In MTO, demand is real rather than forecast. The sales order triggers production or purchasing for that order, so finished goods stock is near zero while component stock may still be held. Delivery lead time is the sum of material wait, production time and shipping, which is why MTO suits products with high variety, high value or short shelf life.
Make-to-stock (MTS) is the opposite: build to forecast, ship from shelf, quick delivery, risk of obsolete inventory. Many plants use both, or an in-between such as assemble-to-order, where common subassemblies are stocked and final assembly waits for the order.
ERPs support MTO through order-to-job linkage. In Infor SyteLine, a customer order line can be linked to a job order so the job is tied to that demand. In SAP, make-to-order strategy 20 with sales order stock keeps supply segregated per order, and Business Central uses order-to-order planning with a Reserve Always setting. Infor LN uses sales order pegging for the same purpose.
The weakness of MTO is lead time, since the customer waits for the whole build. Reducing it means holding strategic component stock, shortening routings and improving supplier reliability. Capable-to-promise logic helps by checking capacity and materials rather than just stock when committing a date.
Why It Matters
- It reduces finished goods inventory and the obsolescence risk of building to forecast.
- Customer lead time becomes a competitive variable that planning must control.
- Order-to-job linkage ensures materials and capacity are reserved for the right customer.
- Choosing MTO versus MTS per item affects working capital, service level and planning complexity.
In Practice
A cabinet maker offers 300 finish and size combinations. Holding stock of all is impractical, so it keeps raw panels and hardware and builds on order. A new sales order creates a job linked to the order, panels are cut in two days, assembly takes three, and shipping adds two. The promised date of 7 working days is only reliable if panel stock and assembly capacity are checked at order entry.
Frequently Asked Questions
What is the difference between make-to-order and make-to-stock?
Make-to-stock builds against a forecast and ships from inventory. Make-to-order builds only after a customer order, trading longer lead time for lower finished goods stock.
What is assemble-to-order?
A hybrid where components or subassemblies are stocked and final assembly starts when the order arrives, shortening lead time compared with full make-to-order.
Which industries use MTO?
Furniture, industrial equipment, electronics with high variety, custom packaging and many job shop operations.
How does the ERP link an order to production?
Through order-to-job or order-to-order links, such as SyteLine job-to-order linking or SAP sales order stock, which reserve supply for that specific demand.
Related Terms
Engineer-to-Order (ETO)
Engineer-to-order (ETO) is a manufacturing strategy where each product is designed and engineered to a specific customer's requirements after the order is received. Design, BOM and routing are created per project rather than reused from a catalog.
CTP (Capable to Promise)
CTP (capable to promise) is an order promising method that goes beyond available inventory by simulating whether required material and work center capacity can be obtained in time, returning a delivery date the plant can actually achieve.
Sales Order
A sales order is the ERP document recording a customer's commitment to buy specific items at agreed prices and dates. It reserves or creates demand for supply, triggers picking and shipping, and later drives invoicing and revenue recognition.
Lead Time
Lead time is the elapsed time between initiating an order and having the material available for use. In ERP it is the offset MRP applies when back-scheduling a planned order from its due date to its release date.
Work Order
A work order is the ERP document that authorizes production of a defined quantity of an item by a due date. It snapshots the bill of materials and routing, drives material issues and labor reporting, and collects actual cost for the job.
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