Build to Order
From Wikipedia, the free encyclopedia
Build-to-Order, often abbreviated as BTO and sometimes referred to as Make-to-Order (MTO), is a production approach products are built after a confirmed order is received for it. BTO is the oldest style of order fulfillment and is still the most appropriate approach used for highly customised or low-volume products.
[edit] Overview
This approach is considered good for highly configured products, e.g. computer Servers, or for products where holding inventories is very expensive, e.g. aircraft.
Some firms build all their products to order while others build them to stock. Given the widespread proliferation of products, there are a number of manufacturers that take a hybrid approach, where some items are built to stock and others are built to order, which is commonly referred to as "hybrid BTO" (Holweg and Pil, 2001).
The main advantages of the BTO approach in environments of high product variety is the ability to supply the customer with the exact product specification required, the reduction costly sales discuounts and finished good inventory, as well a reduction in stock obsolescence risk.
The main disadavantage of the approach is that manufacturers are susceptible to demand fluctuations in the marketplace that can lead to a reduced capacity utilisation in manufacturing. Hence, a BTO approach should be coupled with proactive demand management to ensure an effictive use of production resources.
For a detailed discussion of the approach, as well its sub-categeoris of Locate-to-Order, Amend-to-Order and hyrbid-BTO see Holweg and Pil (2001), for a detailed discussion of the application of BTO in the autmotive industry see Holweg and Pil (2004).
Related appraoches to BTO include the Engineer-to-Order (ETO) appraoch, where a part of or the whole design is done after the order is received, as well as the Assemble-to-Order (ATO). Together with the Make-to-Stock (or Build-to-Forecast, BTF) approach, these strategies form the spectrum of order fulfillment strategies a firm can adopt.
[edit] Literature
Holweg, M. and Pil, F.K. (2001) "Successful build-to-order strategies start with the customer." MIT Sloan Management Review, 43(1): 74-83 [1]
Holweg, M. and Pil, F.K. (2004) The second century: reconnecting customer and value chain through build-to-order: moving beyond mass and lean production in the auto industry. Cambridge, Mass.: The MIT Press. [2]
