Configure-to-Order (CTO): Definition, Advantages, Disadvantages

Definition

Configure to order is a manufacturing process where products are assembled and configured according to customer requirements. In today’s competitive market, consumers are demanding products that are tailored according to their own unique requirements.

How does Configure to Order Work?

The configure-to-order process is based on the concept of configure to order. This means that the design selection is done after the order has been received. It uses customer requirements, picked from a specified set of product features with predefined values. Based on that a combination of parts and assemblies is made to make a specific, predefined, modification or variant of a product.

Configure to Order and Inventory Management

You can also say the process is a hybrid between make to stock and made to order. It is a set of components that made to stock and the final products are assembled to order.

By maintaining inventory at the component level, inventory is limited only to that much which is needed. Also, delaying the final product assembly until the order arrives provides some flexibility in terms of product variations and also helps to use up current component inventory to its fullest. It helps businesses reduce inventory carrying costs, facilitates better inventory management as products are limited while minimizing the time to market.

Thus, configure-to-order is an excellent business model that provides mass customization and quicker order fulfillment.

Benefits of Configure-to-Order in Supply Chain

The configure-to-order manufacturing model is used by enterprises to create custom-made products according to exact specifications of clients.

It brings some definite advantages to your supply chain. Here are a few of them-

1. Specialization

Specialization is a key benefit of configure-to-order. The customer provides a set of specifications which the manufacturer uses to make products or source its components, in order to fulfill the customer’s requirements.

2. No Extra Inventory

The made-to-order strategy eliminates stocking extra inventory that does not sell. This model only sells inventory which is needed by the customer. Maintaining and sourcing inventory only when an order comes, keeps manufacturers tension-free on account of cash tied up in excess inventory. Instead, they can focus on bringing more customizations to the table.

3. Faster Revenue Generation

Time is equivalent to money in supply chain and inventory management. By providing customizable configure-to-order solutions, companies will have reduced cycle time to revenue and a shorter order to cash cycle as well.

4.  Better Customer Service

Since the configure to order process is fully customizable, it creates products that are tailored exactly to customer requirements. This satisfies customers more as products are delivered faster since the criteria are already known to manufacturers and there are fewer delays.

Finally…

Supply chain management success is every company’s aim.  With a fully customized configure-to-order approach instead of a one-size-fits-all policy, enterprises can save a lot of money and time. And provide the best possible customer service.