What Does "Make to Order" Mean?

The term make to order describes the manufacture of goods upon customer demand. It contrasts with make to stock, in which goods are fully manufactured and stocked in inventory, awaiting a customer order. The make to order production strategy offers a number of benefits, including reduced inventory space and the ability to offer product customization. There may also be tax-related reasons why a business would choose this strategy. On the downside, products take longer to complete and ship.

In a make to order strategy, the components of each product are kept in stock. Once the facility receives a customer order, the product is assembled, packed, and shipped. Such orders might be for single units or large batches, depending on the company's policy, the type of item, and the customer's needs.

One main benefit of this production strategy is the ability to offer customers a custom or semicustom product. This might include the option to choose colors, materials, and even size. It might also include the ability to add upgraded features, particularly in the case of a technology product.

A common illustration, known to most, of make to order versus make to stock involves fast-food or quick-service restaurants. In many cases, the various sandwiches, sides, and other menu items are prepared in advance, wrapped, and kept in food warmers until a customer places an order. Other restaurants use the make to order concept as a marketing tool, stating that their items are prepared with the toppings customers prefer when they make their orders. A similar situation exists with other types of companies as customization can be a strong brand component.

In some cases, make to order may offer economic advantages to the manufacturer as well. Assembled goods often require more warehouse space than do their individual pieces and parts. Delaying assembly until order also reduces the labor cost incurred prior to payment. In addition, finished good inventory may be taxed differently than component inventory.

The main disadvantage of make to order production is lead time. Products are not simply waiting on the shelf, so the customer's order is delayed while the product is assembled. If many orders for the same product come in at once, or the assembly lines are already engaged in another order, this wait can be significant. In some cases, price or customization advantages are enough to offset this inconvenience to the customer. Other customers may choose to order from a company that offers quicker delivery, perhaps due to a make to stock production model.