ETO, MTO, ATO, MTS – Different Manufacturing Strategies

The choice between ETO, MTO, ATO and MTS depends on the nature of the product and the demand. For example, beverage manufacturers will need a different strategy than car manufacturers. Each strategy has its own advantages and disadvantages, so choosing the right strategy will help optimize the process and increase production efficiency.

Push and Pull Manufacturing – The Foundation of ETO, MTO, ATO, MTS

• Before delving into each strategy, it is necessary to understand Push and Pull manufacturing, which are the two fundamental methods:

• Push Manufacturing: Based on demand forecasts, the company produces in advance to store inventory and supply when needed, often suitable for products with stable demand such as food, pharmaceuticals, and household goods.

• Pull Manufacturing: Linked directly to actual customer demand, manufacturing when orders are placed. For example, Just-In-Time (JIT) manufacturing systems are a typical example.

Understanding each manufacturing strategy

• ETO (Engineer to Order): Products are designed and manufactured based on specific customer requirements, suitable for highly customized products.

• MTO (Make to Order): Manufacturing after receiving orders, minimizing inventory but requiring fast production times to meet demand.

• ATO (Assemble to Order): Manufacturing components in advance and assembling when orders are placed, meeting flexible needs while maintaining short delivery times.

• MTS (Make to Stock): Manufacturing in advance and storing, ensuring products are always available for quick response but requiring accurate demand forecasting to avoid excess.

• Enterprises can flexibly choose one or a combination of strategies to manage production optimally, depending on the needs and characteristics of the product.

What are ETO, MTO, ATO, MTS?

What is ETO (Engineer-To-Order)?

ETO (Engineer-To-Order), or Design-to-Order, is a manufacturing strategy in which products are designed and manufactured after receiving orders, meeting the exact technical requirements given by customers. This strategy is often suitable for highly customized products and requires close cooperation between the manufacturer and the customer throughout the design and manufacturing process.

The ETO strategy applies the principle of pull production because production only takes place when there is a specific order. Therefore, this model requires more time than other methods, because not only does it require production time but also time for custom design to ensure that it fully meets the special requirements of customers. This requires manufacturers to be highly flexible and adaptable to handle complex requirements.

Characteristics of ETO strategy

Characteristics of ETO strategy
* Engineer-To-Order (ETO) strategy has many outstanding features, suitable for products and projects with high technical requirements. Below are the important characteristics of this strategy:

* Main customers: ETO orders often come from large organizations such as governments or corporations, especially popular in B2B fields.

* Applicable industries: ETO is often applied in industries requiring complex engineering such as aerospace, defense, energy, civil engineering, large infrastructure construction and shipbuilding.

* Product characteristics: ETO products are often scarce or not available in the market, have high complexity and expensive costs.

What is MTO (Make-To-Order)?

MTO (Make-To-Order) – Manufacturing to order – is a manufacturing strategy in which the production process only begins after receiving an order from a customer. Although MTO and ETO are both pull manufacturing strategies, there are important differences between the two methods.

While ETO allows customers to fully customize products on demand, MTO operates on a standard product that customers can customize in certain aspects, such as size, material, or auxiliary components. When an order is received, the MTO manufacturing process can be deployed immediately according to the company's existing design.

MTO is a suitable strategy for companies that produce products with many options, or high-cost products that need to be tested before production. Typical industries that apply MTO include the aircraft, automotive, and bridge construction industries.

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What is MTS (Make-To-Stock)?

MTS (Make-To-Stock) – Make-To-Stock – is a popular production and inventory strategy in which a business produces goods based on demand forecasts rather than specific orders. The products are then stored in inventory to be ready for immediate delivery to customers when they are needed.

In essence, MTS is a push production method. Instead of producing to each customer order, the business will plan production and inventory in advance, then sell according to the quantity produced. This helps the business to fulfill orders immediately upon receipt, providing an advantage in serving market demand quickly if the forecast is accurate.

Applications of MTS in the manufacturing sector:

Effective inventory management is an important factor in applying the Make-to-Stock (MTS) production method. Here are some ways to manage inventory effectively when using MTS:

• Accurate supply and demand forecasting: To avoid shortages or excess inventory, an accurate supply and demand forecasting process is needed. Use historical sales data and forecasting methods to estimate the demand for goods effectively.
• Cycle-based inventory management: Establish a strict inventory management schedule, including checking, updating and adjusting inventory at certain cycles. This helps maintain adequate inventory levels, avoid waste and increase efficiency.

• Applying inventory management methods: Use methods such as Just-in-Time (JIT) and Kanban to reduce inventory, optimize production processes and reduce storage costs. These methods help businesses be more flexible in inventory management.

• Optimize storage locations: Determine effective storage locations based on the frequency of goods in and out, product size and other factors. Optimizing storage space not only saves costs but also increases work efficiency.

• Linking with production process: Ensure close linkage between inventory management and production processes. This helps products to be produced in the right quantity and at the right time to meet customer needs quickly and efficiently.

Advantages of ETO, MTO, ATO, MTS applications

Advantages of ETO:

Suitable for customized projects: This strategy is ideal for manufacturers who specialize in providing highly customized products or projects, especially on a large scale.

Advantages of MTO:

- Product customization: Better meet customer needs thanks to the ability to customize products.

- Minimize waste: Limit overproduction or shortage.

- Reduce inventory costs: Helps businesses minimize inventory costs and update raw material status regularly.

Advantages of ATO:

- Flexible customization: Customers can customize products according to their needs, although not as flexible as MTO.

- Minimize inventory costs: Only need to store sub-finished product assemblies, helping to reduce costs and easily control goods and raw materials.

Advantages of MTS:

- Fast order response: Reduce waiting time, improve customer satisfaction.

- Shorter production time: No need to customize according to orders, saving production time.

Disadvantages of ETO, MTO, ATO, MTS applications

Disadvantages of ETO:

- Complex planning process: ETO production requires a detailed, complex planning process.

- Customer participation required: The design and production process requires close coordination with customers, requiring good organization and communication between parties.

- Time and quality risks: Modification requests can cause delays and affect product quality.

- Unstable costs: Production costs are difficult to predict, depending on each specific project.

Disadvantages of MTO:

- High cost: The cost of production per unit is higher and the production time is longer due to the customization of the product.

- Irregular orders: The order volume is often unstable.

Disadvantages of ATO:

- High initial investment required: Due to the need to produce and store assemblies in advance, businesses need to invest heavily in sub-components.

- Supply risk: If demand suddenly increases, it may be difficult to meet the order quantity.

Thanks to the ability to flexibly combine push and pull methods, ATO is often applied in industries such as automobiles, aerospace, medical devices, fashion and consumer goods, suitable for business models that need to optimize production costs and time

Disadvantages of MTS:

- High investment capital: Large investments in production facilities and warehousing are required before profits can be made.

- Inventory risk: Risk of overdue, obsolete, damaged products and arising inventory costs.

- Forecast deviation: Risk of overproduction or shortage if demand forecast is inaccurate.

- Despite the risks, MTS is still a useful strategy for businesses that mass produce products with low variability, helping them to be more flexible in supplying products to many different customer groups.

In the constant competition in the market, speed becomes a decisive factor for the success of each business. Learn what MTS is and optimize the method of manufacturing and supplying goods according to Make-to-Stock to help businesses quickly meet customer needs. Thereby, increase the speed of development and affirm their position in the market.

Reference: What is inventory turnover