Investment Strategy

What is an 'Investment Strategy'

Make to order (MTO) is a business production strategy that typically allows consumers to purchase products that are customized to their specifications. The make to order (MTO) strategy only manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product but allowing for more flexible customization compared to purchasing directly from retailers' shelves.

BREAKING DOWN 'Investment Strategy'

The make to order (MTO) strategy relieves the problems of excessive inventory that is common with the traditional make to stock (MTS) strategy. Dell Computers is an example of a business that uses the MTO production strategy wherein customers can order a fully customized computer online and receive it in a couple of weeks.

Traditional production methodologies produce products and stock them as inventory until a customer buys them. This is known as make to stock or MTS. However, this system was prone to wastage and obsolescence. In order to manage inventory levels and provide an increased level of customization, some companies adopted the make to order production system.

Make to order, also referred to as build to order (BTO) or made to order (MTO), is a manufacturing process in which the production of an item begins only after a confirmed customer order is received. This type of manufacturing strategy is referred to as a pull-type supply chain operation because products are only made when there is a firm customer demand. This pull-type production model is employed by the assembly industry where the quantity needed to be produced per product specification is one or only a few. This includes specialized industries such as construction, aircraft and vessel production, bridges, and so on. MTO is also appropriate for highly configured products such as computer servers, automobiles, bicycles or products that are very expensive to keep inventory.

In the production of automobiles, MTO is a production strategy that is demand driven. That is, a product is planned and built in response to a final customer order. A final customer order is from a known, individual owner and excludes orders by the original equipment manufacturer (OEM), dealers or points of sale or bulk orders.

The main advantage of the MTO system is being able to fulfill an order with the exact product specification required by the customer. Sales discounts and finished good inventory is also reduced and stock obsolescence is managed. However, for an MTO system to succeed, it should be coupled with proactive demand management. It should also be considered that the MTO system is not appropriate for all types of products.

RELATED TERMS
  1. Make To Assemble - MTA

    A manufacturing production strategy where a company stocks the ...
  2. Manufacturing Production

    The creation and assembly of components and finished products ...
  3. Make To Stock - MTS

    A traditional production strategy used by businesses to match ...
  4. Back Order

    A customer order that has not been fulfilled. A back order generally ...
  5. Customer

    An individual or business that purchases the goods or services ...
  6. Productize

    To take a new service, product or product feature - that a company ...
Related Articles
  1. Markets

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  2. Entrepreneurship & Small Business

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
  3. Financial Advisor

    What's Involved in Customer Service?

    Customer service is the part of a business tasked with enhancing customer satisfaction.
  4. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  5. Investing

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
  6. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  7. Markets

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  8. Investing

    Is The Series 24 Exam Hard?

    What makes the series 24 so challenging? The exam focuses very heavily on the supervision of trading and market making and the supervision of investment banking.
  9. Trading

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  10. Investing

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
RELATED FAQS
  1. What are some ways a company can expand its product line?

    Understand what a product line is and why it's important. Learn about specific ways in which a company can expand its product ... Read Answer >>
  2. What are the main problems with a JIT (just in time) production strategy?

    Learn about the just in time (JIT) production strategy and how the precise coordination and timing it requires can end up ... Read Answer >>
  3. Is there any way to reverse the law of diminishing marginal returns?

    Learn more about how consumer spending, supply and demand impact production decisions. Find out more about the law of diminishing ... Read Answer >>
  4. How does a customer base dictate goodwill?

    Find out how a customer base dictates the value of the goodwill by providing a ready market for its products and spreading ... Read Answer >>
  5. What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within ... Read Answer >>
  6. What are the similarities between product differentiation and product positioning?

    Learn how two marketing strategies, product differentiation and product positioning, are similar and work together to effectively ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center