Build to order
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Build to order, often abbreviated as BTO and sometimes referred to as make to order (MTO), is a production approach where once a confirmed order for products is received, products are built. BTO is the oldest style of order fulfillment and is 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 practice build to stock, which is also called build to forecast or BTF) . Given the widespread proliferation of products, there are a number of manufacturers taking a combined 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 discounts and finished good inventory, as well a reduction in stock obsolescence risk.
The main disadvantage of BTO is manufacturers are susceptible to market demand fluctuations leading to a reduced capacity utilization in manufacturing. Hence, to ensure an effective use of production resources, a BTO approach should be coupled with proactive demand management.
Related approaches to BTO include the Engineer-to-Order (ETO) approach, where after an order is received, a part of or the whole design is done, as well as the Assemble-to-Order (ATO). Together with the make-to-stock approach, these strategies form the spectrum of order fulfillment strategies a firm can adopt.
[edit] References
Holweg, M. and Pil, F. (2001), ‘Successful Build-to-Order Strategies start with the Customer’, MIT Sloan Management Review, Fall issue, Vol. 43, No. 1, p. 74-83 [1]
Holweg, M. and Pil, F. (2004), ‘The Second Century: Reconnecting Customer and Value Chain through Build-to-Order’, Cambridge, MA and London, UK: The MIT Press. [2]
