Build to order

Build to Order (BTO: sometimes referred to as Make to Order or

Made to Order (MTO)) is a production approach where products
are not built until a confirmed order for products is received. Thus,
the end consumer determines the time and number of produced
products.[1] The ordered product is customized, meeting the design
requirements of an individual, organization or business.[2] Such
production orders can be generated manually, or through
inventory/production management programs.[1] BTO is the oldest
style of order fulfillment and is the most appropriate approach used Computer shop in Paris. Advertised
for highly customized or low volume products. Industries with configurations are customizable and
expensive inventory use this production approach.[1] Moreover, assembled upon order
"Made to order" products are common in the food service industry,
such as at restaurants.

BTO can be considered a Just in Time (JIT) production system, as components or products are only
delivered just in time when demanded, in order to reduce wasted time and increase efficiency.[1]

Contents
Implementation
BTO in the automotive industry
Advantages of Build to Order
Disadvantages of Build to Order
Related approaches
Engineer to Order (ETO) approach
Assemble to Order (ATO) approach
See also
Notes
References

Implementation
This approach is considered good for highly configured products, e.g. automobiles,[3][4] bicycles, computer
servers, or for products where holding inventories is very expensive, e.g. aircraft. In general, the BTO
approach has become more popular in the last few years ever since high-tech companies such as Dell,
BMW, Compaq and Gateway successfully implemented the system into their business operations.[5]

BTO in the automotive industry

In an automotive context, BTO is a demand driven production approach where a product is scheduled and
built in response to a confirmed order received for it from a final customer.[6] The final customer refers to a
known individual owner and excludes all orders by the original equipment manufacturer (OEM), national
sales companies (NSC), dealers or point of sales, bulk orders or other intermediaries in the supply chain.
BTO excludes the order amendment function, whereby forecast orders in the pipeline are amended to
customer requirements, as this is seen as another level of sophistication for a build to stock (BTS) system
(also known as build to forecast (BTF)).

BTS is the dominant approach used today across many industries and refers to products that are built before
a final purchaser has been identified, with production volume driven by historical demand information.[4]
This high stock level, endemic across the auto industry allows some dealers to find an exact or very close
match to the customer's desired vehicle within the dealer networks and supplier parks. The vehicle can then
be delivered as soon as transport can be arranged. This has been used to justify stock levels. Whilst
providing a rapid response to customer demand, the approach is expensive, mainly in terms of stock, but
also transportation as finished goods are rarely where they are required. Holding stock of such a high cash
value as finished goods is a key driver of the current crisis in the automotive industry - a crisis that could be
eased by implementation of a BTO system.[6]

A BTO system does not mean that all suppliers in the supplier chain should be producing only when a
customer order has been confirmed. Clearly, it would not make economic sense for a manufacturer of low
value high volume parts to employ BTO. It is appropriate that these should be identified and built to a
supplier order, effectively BTS. Part of the challenge in a BTO supplier network is in the identification of
which suppliers should be BTO and which BTS. The point in the supply chain when this change occurs is
called the ‘decoupling point’. Currently, the majority of automotive supply chains lack a decoupling point
and the dominant BTS approach has resulted in billions of dollars of capital being tied up in stock in the
supply chain.[4]

Some firms build all their products to order while others practice (BTS). Given the widespread proliferation
of products, there are a number of manufacturers taking a combined approach, where some items are BTS
and others are BTO, which is commonly referred to as "hybrid BTO".[7]

Advantages of Build to Order

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 in sales discounts and finished
good inventory, as well a reduction in stock obsolescence risk. Additionally, flexibility and customer lead
time are improved to a match changes in consumer demand. Moreover, a business’ cash flow can be
increased with BTO.[1]

Disadvantages of Build to Order

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. Finding the correct and appropriate
balance of BTO and BTS to maintain stock levels appropriate to both the market requirement and
operational stability is a current area of academic research. In Retail, an occurring problem may be
customers choosing an alternative product that is available at that time and place, as they are not willing to
wait for the BTO product to arrive. Moreover, compared to mass production, customization of products
implies higher costs. Thus, price-conscious customers may be turned away, as they do not feel a strong need
for customized products and would therefore choose a more standardized product instead.[5]
Related approaches
Related approaches to BTO include the following:

Engineer to Order (ETO) approach

In ETO, after an order is received, a part of or the whole design starts to be developed. Construction by
general contractors and plant construction by engineering companies are categorized as ETO.[8]

Assemble to Order (ATO) approach

This strategy requires that basic parts of the product are already manufactured, however not yet assembled.
Once a customer's order has been received, the parts of the product are quickly being assembled and sent
out.[8][9]

Together with the BTS approach, these strategies form the spectrum of order fulfillment strategies a firm can
adopt.

See also
Bespoke
Configurator
Print on demand
Mass customization
Sales Order
Assemble-to-order system

Notes
1. Leanmanufacture (2019), “Build to order - Inventory Management Model” (http://www.leanman
ufacture.net/operations/buildtoorder.aspx), Retrieved June 08, 2019.
2. Techopedia (2019), “Build to Order (BTO)” (https://www.techopedia.com/definition/4239/build-t
o-order-bto), Retrieved June 08, 2019.
3. Holweg, M. and Pil, F. (2004), ‘The Second Century: Reconnecting Customer and Value Chain
through Build-to-Order’ (https://web.archive.org/web/20071225140248/http://mitpress.mit.edu/c
atalog/item/default.asp?ttype=2&tid=10750), Cambridge, MA and London, UK: The MIT Press.
4. Parry, G. and Graves, A., Eds. (2008), 'Build to Order: The Road to the 5-Day Car' (https://ww
w.springer.com/engineering/mechanical+eng/book/978-1-84800-224-1), London: Springer
Verlag.
5. Gunasekaran, A. and Ngai, E. (2009), "Modeling and analysis of build-to-order supply chains"
(https://www.sciencedirect.com/science/article/abs/pii/S0377221708003366), European
Journal of Operational Research, Volume 195, Issue 2, 1 June 2009, Pages 319–334.
6. Roehrich, J.K.; Parry, G. and Graves, A. (2011), Implementing build-to-order strategies:
enablers and barriers in the European automotive industry (http://www.inderscience.com/searc
h/index.php?action=record&rec_id=40869.), International Journal of Automotive Technology
and Management. 11(3): 221-235
7. Holweg, M. and Pil, F. (2001), ‘Successful Build-to-Order Strategies start with the Customer’ (h
ttps://web.archive.org/web/20070216112100/http://sloanreview.mit.edu/smr/issue/2001/fall/7/),
 MIT Sloan Management Review, Fall issue, Vol. 43, No. 1, p. 74–83.
8. Leanmanufacture Japan (2019), “Make to Order (MTO)” (http://www.lean-manufacturing-japan.
com/scm-terminology/mto-make-to-order.html), Retrieved June 08, 2019.
9. Investopedia (2019), “Assemble to Order (ATO)” (https://www.investopedia.com/terms/a/assem
ble-to-order.asp), Retrieved June 08, 2019.

References
Kabaivanova, S. (2015), "Made To Order - the new fashion formula in men's suit market" (http
s://made-to-measure-suits.bgfashion.net/article/10282/44/Made-To-Order-the-new-fashion-for
mula-in-mens-suit-market). Be Global Fashion Network. 15 January 2015.
Continelli, A. (2017), “Build-to-Stock or Build-to-Order?” (https://advancedmanufacturing.org/bt
o-or-bts/), AdvancedManufacuturing.org, Retrieved June 8, 2019.

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