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
- Examples of assemble-to-order companies
- Strengths and weaknesses of the assemble-to-order approach
- Key takeaways:
- Connected Frameworks To Assemble-To-Order
- What companies use assemble-to-order?
- What is the advantage of assemble-to-order?
Assemble-to-order is a hybrid of two related strategies:
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.
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:
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.
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.
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.
- 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
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.