Build to order (BTO) (MTO) and sometimes referred to as make to order or made to order , is a production approach where products are not built until a confirmed order for products is received. BTO is the oldest style of order fulfillment and is the most appropriate approach used for highly customized or low volume products.
This approach is considered good for highly configured products,case goods, custom kitchen cabinets, or for products where holding inventories is very expensive.
In a woodworking project driven company, 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. 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.
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 (Build to Sell). 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’. In the woodworking arena an example would be the suppliers of hardware are BTS and users of hardware for projects typically are BTO or ETO.
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". An example in the woodworking industry would be a company that specializes in school library fixtures. The high seasonal demands forces a hybrid of building part for assembly in preparation for seasonal demands.
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. 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.
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 BTS approach, these strategies form the spectrum of order fulfillment strategies a firm can adopt.