Build to order
Encyclopedia
Build to order 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 customized or low volume products.
products, e.g. automobiles
, computer servers
, or for products where holding inventories is very expensive, e.g. aircraft
.
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. 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. 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.
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.
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".
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. 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.
Mass production
Mass production is the production of large amounts of standardized products, including and especially on assembly lines...
approach where once a confirmed order for products is received, products are built. BTO is the oldest style of order fulfillment
Order fulfillment
Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer...
and is the most appropriate approach used for highly customized or low volume products.
Overview
This approach is considered good for highly configuredMass customization
Mass customization, in marketing, manufacturing, call centres and management, is the use of flexible computer-aided manufacturing systems to produce custom output...
products, e.g. automobiles
Automobile
An automobile, autocar, motor car or car is a wheeled motor vehicle used for transporting passengers, which also carries its own engine or motor...
, computer servers
Server (computing)
In the context of client-server architecture, a server is a computer program running to serve the requests of other programs, the "clients". Thus, the "server" performs some computational task on behalf of "clients"...
, or for products where holding inventories is very expensive, e.g. aircraft
Aircraft
An aircraft is a vehicle that is able to fly by gaining support from the air, or, in general, the atmosphere of a planet. An aircraft counters the force of gravity by using either static lift or by using the dynamic lift of an airfoil, or in a few cases the downward thrust from jet engines.Although...
.
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. The final customer refers to a known individual owner and excludes all orders by the original equipment manufacturer
Original Equipment Manufacturer
An original equipment manufacturer, or OEM, manufactures products or components that are purchased by a company and retailed under that purchasing company's brand name. OEM refers to the company that originally manufactured the product. When referring to automotive parts, OEM designates a...
(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
Build to stock
Build to stock, or make to stock, often abbreviated as BTS or MTS, is a build-ahead production approach in which production plans may be based upon sales forecasts and/or historical demand...
(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. 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.
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.
Some firms build all their products to order while others practice (BTS). Given the widespread proliferation of products, there are a number of manufacturers
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
taking a combined approach, where some items are BTS and others are BTO, which is commonly referred to as "hybrid BTO".
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. 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
Order fulfillment
Order fulfillment is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer...
strategies a firm can adopt.