Discrete Manufacturing: Make To Order (MTO)

What is Make To Order?

 

Make to Order is when an assembly project has to be done of parts and sub-assemblies according to the specific requirements of a specific customer/sales order. Such an assembly may or may not be used again for sales orders from other customers. It is possible that many sales orders might by placed by the same customer to achieve that project.

For instance a vendor of commercial light fixtures may be asked by a general contractor to set up a specific set up of light fixtures in the lobby of a large office building. This set up will be specific for this large office building. Components may be common across many sales orders, but the final assembly will be specific to this specific large office building.

The components and sub-assemblies are already engineered. They may need some configuration.

Example:

A discrete manufacturer which manufactures products such as office lighting set ups, custom kitchen tops, and custom furniture will use the make to stock manufacturing method to manufacture those products based on the specs in the sales order

MTO.jpg
  • Each sales order has its own specific Bill Of Material (BOM) and production order.

  • The Materials Requirement Planning (MRP) is not used. This means that current stock of product and of components is not looked at. You will have to manually check the stock of product and components, and of component receipts and product shipments in transit. This could be problematic. Therefore a hybrid model of MTS and MTO makes a lot of sense.

What does that mean for the manufacturing management and the inventory management?

 

 

For each sales order which requires a specific production order having specific assembly and for each sub-assembly, a specific BIll Of Material (BOM) will be created, and a production order will be planned. A sub-assembly may have to be manufactured. You can see in the video ( 11 mins, May 2020, at min 6.42) below that there is a specific production order number and BOM number for a specific sales order.

Materials Requirements Planning (MRP) that determines which components are short and need to be ordered, and when to order them to be on time with the final assembly, will be needed.

 

Regarding inventory management, the determination of the ReOrder Point (ROP) and the Order Quantity can not be done based on the history of sales orders and plain forecasts since exact same sales orders don't exist. Neither do forecasts exist . The determination will be done based on insights of new sales orders that use some common components, current stock and purchase orders in transit. The inventory is just-in-time inventory. Components and maybe sub-assemblies will be made just-in-time.

References: http://www.softwareshortlist.com/erp/articles/erp-applications/make-to-order-vs-make-to-stock-implications-for-your-erp-system/

The Challenges with Make To Order

The two main drawbacks of make-to-order management are timeliness and cost of customization. If products are already on the shelf as with Make To Stock (MTS), then a customer need not wait until the product is made, assembled, and delivered to spec.

What solution does Acumatica have to manage Make To Order?

The Acumatica Manufacturing Edition handles the Bill of Material, planned production orders, master production scheduling, MRP and management of the actual production run.

More specifically for Make To Order, Acumatica enables your company to go from quote to cash in the following steps:

 

  1. CRM - Opportunity/Estimate

    1. Create in CRM an opportunity with an estimate. To create an estimate that has all the details of the needed materials, a labor, machines, tools and overhead (quantities and costs),  the estimator of the Acumatica Advanced Manufacturing Management application is used. This estimator creates a new Bill of Material (BOM). This estimate is emailed to your customer for approval via an electronic signature.

  2. Sales Order

    1. Once your customer approves it, the opportunity/estimate is converted into a Sales Order. 

    2. Your company will check whether all the required material and labor is available via a feature called Process Capable to Promise. If no problems, and accepted, a production order is automatically planned.

  3. Production

    1. Release production order

    2. If materials and labor are backflushed, your company has just to activate the move of produced product into inventory. This will automatically release all material and labor , and calculate all production costs.

  4. Ship the product

    1. From the Sales Order, create a shipment

    2. Once the best carrier is selected, the packaging is automatically determined, and a shipping label is created.

  5. Invoice

    1. From the shipment form, create and email an invoice

  6. Payment

    1. Process the payment of the invoice via credit card or ACH over the phone or the customer portal using EBizCharge

The video (14 mins, 3/2021) below illustrates the quote to cash steps when you need to manufacture to order.

Details of the Acumatica Manufacturing Management Application for Make To Order

The video (15 mins., 2020) focuses on just the Acumatica Manufacturing Management Application starting with a production order from a sales order. Note that MRP is not covered since there is no forecast and demand planning. However MRP could be used.