assemble-to-order

Assemble-To-Order In A Nutshell

Business / By / December 29, 2021

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).

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 and weaknesses 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. 

Conversely, some of the weaknesses include:

  • 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.

Connected Frameworks To Assemble-To-Order

Toyota Production System

toyota-production-system
The Toyota Production System (TPS) is an early form of lean manufacturing created by auto-manufacturer Toyota. Created by the Toyota Motor Corporation in the 1940s and 50s, the Toyota Production System seeks to manufacture vehicles ordered by customers most quickly and efficiently possible.

Lean Methodology

lean-methodology
The lean methodology is a continuous process of product development to meet customers’ needs. It was in part borrowed by the auto industry and its roots are found in the Toyota Production System, which was heavily influenced by Henry Ford’s assembly line system. The lean methodology is, therefore, an evolution from lean manufacturing, based on continuous improvement.

Gemba Walk

gemba-walk
A Gemba Walk is a fundamental component of lean management. It describes the personal observation of work to learn more about it. Gemba is a Japanese word that loosely translates as “the real place”, or in business, “the place where value is created”. The Gemba Walk as a concept was created by Taiichi Ohno, the father of the Toyota Production System of lean manufacturing. Ohno wanted to encourage management executives to leave their offices and see where the real work happened. This, he hoped, would build relationships between employees with vastly different skillsets and build trust.

Kaizen Approach

kaizen-approach
Kaizen is a process developed by the auto industry. Its roots are found in the Toyota Production System, which was heavily influenced by Henry Ford’s assembly line system. The word Kaizen is a hybridization of two Japanese words, “kai” meaning “change” and “zen” meaning “good.” Two of the basic tenets of Kaizen involve making small incremental changes – or 1% improvement every day – and the full participation of everyone. 

Poka-yoke

poka-yoke
Poka-yoke is a Japanese quality control technique developed by former Toyota engineer Shigeo Shingo. Translated as “mistake-proofing”, poka-yoke aims to prevent defects in the manufacturing process that are the result of human error. Poka-yoke is a lean manufacturing technique that ensures that the right conditions exist before a step in the process is executed. This makes it a preventative form of quality control since errors are detected and then rectified before they occur.

Value Stream Mapping

value-stream-mapping
Value stream mapping uses flowcharts to analyze and then improve on the delivery of products and services. Value stream mapping (VSM) is based on the concept of value streams – which are a series of sequential steps that explain how a product or service is delivered to consumers.

Kanban Framework

kanban
Kanban is a lean manufacturing framework first developed by Toyota in the late 1940s. The Kanban framework is a means of visualizing work as it moves through identifying potential bottlenecks. It does that through a process called just-in-time (JIT) manufacturing to optimize engineering processes, speed up manufacturing products, and improve the go-to-market strategy.

Scrum

what-is-scrum
Scrum is a methodology co-created by Ken Schwaber and Jeff Sutherland for effective team collaboration on complex products. Scrum was primarily thought for software development projects to deliver new software capability every 2-4 weeks. It is a sub-group of agile also used in project management to improve startups’ productivity.

SMART Goals

smart-goals
A SMART goal is any goal with a carefully planned, concise, and trackable objective. To be such a goal needs to be specific, measurable, achievable, relevant, and time-based. Bringing structure and trackability to goal setting increases the chances goals will be achieved, and it helps align the organization around those goals.

TQM Framework

total-quality-management
The Total Quality Management (TQM) framework is a technique based on the premise that employees continuously work on their ability to provide value to customers. Importantly, the word “total” means that all employees are involved in the process – regardless of whether they work in development, production, or fulfillment.

What companies use assemble-to-order?

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).

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