Assemble-to-order (ATO) is a manufacturing workflow where products are produced from scratch when an order is made by a customer. Assemble-to-order, therefore, is a production strategy where a product is assembled only after a consumer had ordered it. The strategy necessitates that the individual components of the product have already been assembled based on Make-to-stock (finished products manufactured in advance, stored, and supplied on demand). Or Make-to-order (goods are manufactured once the order has been received).
Aspect
Explanation
Concept Overview
– Assemble-To-Order (ATO) is a manufacturing and inventory management strategy used by companies to balance the benefits of customization with the efficiencies of mass production. Under ATO, a company manufactures and stocks standard components or modules, but it doesn’t assemble the final product until a customer order is received. This approach allows for a level of product customization while minimizing the risks and costs associated with producing fully customized products.
Key Characteristics
– ATO is characterized by the following key features: 1. Standardized Components: The core components or modules of the product are manufactured in advance and held in inventory. 2. Configurability: Customers can select from predefined options or configurations to suit their needs. 3. Rapid Assembly: Once an order is received, the final product is assembled quickly from the stocked components. 4. Reduced Lead Times: ATO reduces the lead time for delivering customized products compared to a build-to-order approach.
Advantages
– Implementing Assemble-To-Order offers several advantages: 1. Cost Efficiency: Companies can benefit from economies of scale when manufacturing standard components. 2. Customization: Customers can configure products to meet their specific requirements. 3. Reduced Inventory Risk: Inventory levels are lower because components are stocked, reducing the risk of overproduction. 4. Faster Delivery: ATO allows for quicker order fulfillment since assembly occurs closer to the customer’s order date. 5. Simplified Forecasting: Forecasting is easier as it primarily focuses on component production rather than fully assembled products.
Challenges and Risks
– Challenges associated with ATO include managing component inventory, maintaining configurability, and ensuring efficient assembly processes. Companies must also carefully balance the degree of customization offered to avoid complexity.
Applications
– ATO is commonly used in industries where product customization is important, such as electronics, automotive, furniture, and computer hardware. For example, a computer manufacturer may stock standard components like CPUs, memory, and storage devices and assemble computers based on customer specifications.
Best Practices
– Effective implementation of ATO involves rigorous inventory management, streamlined assembly processes, user-friendly configurators, and responsive order fulfillment systems. It’s essential to maintain a balance between offering customization and keeping operational efficiency.
Table of Contents
Understanding assemble-to-order
Assemble-to-order is a hybrid of two related strategies:
Make-to-stock (MTS)
Where finished products are manufactured in advance of a customer order and then stored to match supply with demand.
MTS is most commonly seen in high-volume goods and consumables.
Make-to-order (MTO)
Where products are manufactured once the order has been received.
With production driven by demand, the supply chain does not begin until there is sufficient interest from consumers.
The MTO approach is associated with luxury goods made in very small batches.
Assemble-to-order combines the benefits of the MTS and MTO strategies into one framework.
The general idea is for a business to deliver goods quickly, reduce storage costs, and retain some degree of product customization during mass production.
To do this, it must be able to assemble product components efficiently.
Maintaining appropriate component inventories must also be forecasted using historical order volume, macroeconomic trends, and prevailing market conditions.
Examples of assemble-to-order companies
There are many successful examples of assemble-to-order companies. We have listed a few of these below:
Dell
The computer manufacturer keeps a physical inventory of processors, monitors, software, hardware, and other accessories.
These are only assembled into a computer once a customer has ordered a highly customizable device.
Boost Juice
An Australian franchise beverage company that sells smoothies, juices, and protein shakes.
The company purchases various fruits, vegetables, and other bases and only assembles them once the customer places an order.
Ferrari
Every Ferrari that rolls off the production line is unique, with the customer able to create their own paint color and select from a range of upholstery materials and wheel designs.
To cope with increased demand for its bespoke vehicles, Ferrari upgraded its logistics software to increase production line efficiency without sacrificing the quality for which it is known.
Strengths of the assemble-to-order approach
Some of the advantages of incorporating the assemble-to-order approach include:
Lower carrying costs
Without the need to store finished products, carrying costs are reduced.
For one, the business can invest in a smaller warehouse to save money on rent, lighting, and security.
The business also saves money on transportation costs and the number of man-hours required to move inventory from one place to another.
Product customization
Companies such as Dell can thrive in competitive markets because they offer a high degree of product customization.
Customers receive a bespoke product tailored to their individual needs, which increases brand loyalty and can drive repeated purchases.
Weaknesses of the assemble-to-order approach
Low supply
Storing individual components instead of finished products means there is more scope for inventory to run low.
Seasonal demand or unexpected surges of interest in a product could result in the company running out of specific components.
Longer lead times
By its very nature, assemble-to-order is associated with longer lead times because the product needs to be manufactured from scratch.
Lead times can be lengthened further if the company is subject to the above inventory shortages.
Key takeaways
Assemble-to-order (ATO) is a manufacturing workflow where products are produced from scratch when an order is made by a customer. Assemble-to-order is a hybrid of the make-to-stock and make-to-order strategies.
Examples of assemble-to-order companies include Dell, Boost Juice, and Ferrari.
Assemble-to-order results in lower carrying costs and can provide market differentiation through product customization. However, the approach can leave a business vulnerable to component shortages and longer lead times.
Key Highlights of Assemble-to-Order (ATO) Manufacturing:
Definition and Purpose: Assemble-to-order (ATO) is a manufacturing strategy where products are assembled only after a customer places an order. It combines elements of both make-to-stock (MTS) and make-to-order (MTO) approaches to streamline production while offering customization.
Make-to-Stock (MTS): Products are manufactured in advance and stored until customer orders are received. Common in high-volume goods and consumables.
Make-to-Order (MTO): Products are manufactured once an order is placed, catering to demand. Common in luxury goods and customized items.
Assemble-to-Order (ATO): A hybrid strategy that assembles products using pre-made components based on MTS or MTO approaches, aiming to offer customization and reduce storage costs.
Examples of ATO Companies:
Dell: Customizes computers with components upon customer order.
Boost Juice: Assembles beverages using fresh ingredients after an order is placed.
Ferrari: Creates unique vehicles tailored to customer preferences.
Strengths of ATO:
Lower Carrying Costs: Reduced storage requirements lead to cost savings in warehousing and transportation.
Product Customization: Allows for highly customized products, enhancing brand loyalty and customer satisfaction.
Weaknesses of ATO:
Low Supply Risk: Relying on component inventories increases the risk of shortages during periods of high demand.
Longer Lead Times: Manufacturing products upon order can result in longer delivery times.
Key Takeaways:
Assemble-to-order involves producing products only after an order is received.
ATO combines features of both MTS and MTO strategies.
Companies like Dell, Boost Juice, and Ferrari utilize ATO for customization and efficiency.
Benefits include reduced carrying costs and personalized products.
Challenges include potential supply shortages and longer lead times.
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One example is Ferrari where customers can create their own paint color and select from a range of upholstery materials and wheel designs, by leveraging on an assemble-to-order manufacturing process. Another example is Dell, which keeps a physical inventory of processors, monitors, software, hardware, and other accessories, while it assembles them once the customers place the orders.
What is the advantage of assemble-to-order?
Some advantages of the assemble-to-order manufacturing process are lower carrying costs (without the need to store finished products, carrying costs are reduced) and product customization (companies can improve product differentiation by enabling customers to add custom featured to the product).
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
