What is configure-to-order?
Configure-to-order, or CTO, is a way of making things where buyers use standard parts to make goods that are exactly what they need. The first thing they do is make an order with specific details and requirements. Then, the product company builds it based on what the customer wants.
CTO differs from the old make-to-stock (MTS) approach because it focuses on customization instead of mass production. Instead of making many of the same goods and storing them until they sell, CTO lets customers place custom orders that meet their needs.
Still, CTO is not the same as MTO. Customers choose how they want the product to be made and then place an order. This is called MTO. Examples of MTO methods are job shops and contract manufacturing. In CTO, the parts needed to make the product already exist; they are just being put together in different ways.
In this way, configure-to-order is a mix of make-to-stock and make-to-order. It’s meant to have some good things about both without the wrong things. For instance, CTO is faster than MTO because it doesn’t have to build every product from scratch, but MTS doesn’t let you change anything about the products, while CTO does.
Synonyms
- CTO
- Configure-to-order manufacturing
How Configure-to-Order Works
The manufacturer gets an order before making the product using the CTO method. In other words, the product won’t be made until the customer designs and orders it. The maker will then change the parts before putting the whole thing together and sending it to the customer.
Below is a detailed explanation of the CTO production process:
- The customer picks the product’s specifications, such as size, color, and any extra features they want.
- The business gets orders through a website, internal sales, and point-of-sale (POS) systems, among other places.
- The software immediately makes a bill of materials (BOM) for the product.
- The seller makes a production plan that shows how many units it can make each hour or day and when it needs to get parts from suppliers.
- If some parts aren’t available when the product is put together, the seller buys or makes more of them.
- When parts are ready, they are put into the product based on the customer’s wants. The workers are told how to assemble the product and what each part goes with.
- Users do quality assurance checks before the product is sent.
- The team that handles orders packs and sends the item to the customer.
- The buyer pays it on the last statement if anything is left over.
Why configure-to-order manufacturing is a good idea
Vendors who use a CTO process usually use their current relationships with suppliers and manufacturing skills to add more products to their catalog. By adding new product features and setups in this way, businesses can meet customer needs without dealing with the extra work of custom manufacturing or the risk of running out of stock for MTS systems. When done right, meeting the wants of more customers leads to more money coming in from sales.
Some more benefits of configure-to-order production are:
Simple changes to products
Regarding product design, the CTO method is better than basic make-to-stock because it lets customers find a solution that fits their needs better. It works excellently in fields that need customization but where all buyers expect the user interface to be the same or very close to the same.
One example is a laptop company that only makes one model say a 13-inch, 512 GB laptop. This would be enough for most of its users. What about the customer who needs more space to store things?
It’s not too hard for the company to make a bigger laptop with a 1 TB HDD or a smaller one with 256 GB. They would only need to change the HDD and RAM, not how the machine looks. By doing this, they’re using extra ways to make money that were pretty much built into the system from the start.
Production That Works Well
When companies use configure-to-order, they know what they can and cannot make. Many different systems are linked together to track how many of each part they have in stock. They also connect it to their website to show real-time availability and configurations.
The company doesn’t have to talk to engineers or designers before moving forward with orders from users. They already know what parts can be put together to make something.
The process is much more efficient when it is standardized, which has several perks, including:
- Faster delivery times
- Accurate order tracking and real-time notifications for customers
- Lower costs due to production optimization
- Improved profitability comes from higher margins and lower overhead expenses.
Companies find that setting up setups beforehand has another significant benefit: it makes it easier for departments to work together. When engineering and production agree on the layouts ahead of time, sales reps can only offer goods that can be built. The company can make 3D models and bills of materials right away after getting an order.
Lower the cost of inventory.
Like other make-to-order models, the CTO cuts down on the need to keep stock and buy more of it. They don’t have to make the whole thing at once; they can wait until someone places an order. After that, they can make the parts based on what customers want.
Finding goods as needed means fewer items that don’t sell and lower costs. That directly leads to lower costs for goods and better cash flow.
Better Service for Customers
Customers like configurable goods because they let them get exactly what they want or are close to it.
They also find it easier because they don’t have to talk to the maker directly or wait long for a custom order. With a streamlined supply chain and a standard way of making things, customers don’t have to wait as long to get what they bought.
Needs for Technology for Configure-to-Order
Because configure-to-order needs precise order processing and inventory control, businesses need the right technology to help with the process.
Businesses need these six tools for configure-to-order to work:
Planning for business resources (ERP)
Enterprise resource planning (ERP) software helps businesses in the manufacturing industry with their purchasing, manufacturing, supply chain, and financial tasks. An ERP system helps businesses plan and keep track of their resources, such as materials, cash flow, demand forecasts, manufacturing methods, and employee skills.
When you set an order, “material requirements planning” (MRP) is one of the most essential ERP modules. MRP helps with production by tracking how much inventory is on hand based on what customers want and when suppliers can deliver.
Product Configurator
A product configurator is a software that lets customers pick a product from different ways to set up, such as by size, color, and extras. The main job of CPQ software is to create products. It also handles the quoting, sale, and BOM generation tasks with configure-to-order manufacturing.
On the back end, the user types in specific product settings, which lets the software know precisely what it can do. The company’s ERP and inventory management tools, which keep track of stock, availability, and prices, can talk to CPQ.
Customers or sales reps can see what’s offered and get an accurate estimate of the total cost right away, thanks to up-to-date product information and set configuration rules.
Modeling in 3D
Companies that sell complicated or customizable goods, like cars, need a product configurator to make 3D models of the unique goods. So customers can see what different setups look like before they buy.
The design and engineering stages are also where 3D models are used to test goods before they are built. In this way, they lower the chance of making a setup that can’t be used and having to give the customer a refund.
Taking care of materials
To meet customer standards, you must have the suitable materials on hand. Manufacturing companies use materials management software to ensure they have enough of the right parts to make configurable goods.
Many materials management systems have features for restocking that send out purchase orders when a certain level of stock is met or surpassed. Companies can keep making things and sending orders on time if they stay ahead of demand.
Management of Inventory
Materials and inventory management software sometimes refer to the same thing. More attention is paid to keeping track of inventory as it moves through the supply chain, which is the crucial difference.
Companies can see how many items they have in stock, where, and when they will be delivered or shipped out using inventory control tools. If they could see their inventory levels in real-time, they could avoid delays and keep production and delivery running smoothly.
Taking care of orders
Order processing tools are made up of rules and automated steps that make sure orders are finished correctly. This includes checking the product configuration, inventory levels, process progress in ERP systems, making invoices, and sending automatic notifications to customers.
Tools for processing orders also have features like searching for past orders and creating reports. These features help businesses better handle their sales cycles and let customers know the status of their orders.
What CPQ Software Does for the CTO Process
Configure, price, quote (CPQ) software handles the setup process, which is part of the configure-to-order process. It’s the link between the buyer and the seller; it gives buyers information about products, figures out prices, and makes bills for materials.
Let’s look at what role CPQ plays in the CTO process:
- Customers use the website’s product setup to set up a product.
- The configurator sends information about the product to CPQ. CPQ checks that all the choices are valid and determines how much the whole thing will cost.
- They make a purchase.
- CPQ then makes a bill of materials (BOM) with all the parts needed for production.
- The BOM is sent to the manufacturer’s ERP system, which uses it to keep track of supplies and production.
- The maker makes the configured product based on the BOM, sends it out, and lets the customer know when it will arrive.
- A salesperson takes an order over the phone or gets a PO, “request to order.”
- The sales rep puts the product configuration into CPQ to ensure all the choices are valid and determine how much it will cost.
- They give the customer the price.
- The customer agrees to the price, which turns it into a purchase order (PO) or invoice.
- The BOM is then made by CPQ and sent to the manufacturer’s ERP system.
- The maker makes the configured product based on the BOM, sends it out, and lets the customer know when it will arrive.
You can use a self-service portal or a sales rep to send orders to producers. CPQ is the link between the two.
CTO Examples of Making Things
You can’t get completely custom-made items with configure-to-order. It is used for goods that can be customized so that they can be put together in different ways, depending on what the customer wants.
Computers and laptops are examples of companies that use CTO manufacturing. Customers can choose the color, size, working power, amount of memory, hard drive size, screen resolution, and extras like photo/video editing software and loaded software.
- Computers and laptops: Customers can choose the color, size, processing capacity, amount of memory, hard drive size, screen resolution, and add-ons like photo/video editing packages and loaded software.
- Smartphones: Smartphone companies sell different colors, storage capacities, and models based on customer preferences.
- Automobile manufacturers: Automakers have hundreds of configurations based on dozens of factors, including make, model, color, engine type, and aftermarket configurations like wheels and tires.
- Furniture companies: where customers select materials (e.g., wood type), features (e.g., drawers and doors), and finishing touches (e.g., paint and sealant).
- Screenprinting and custom clothing vendors: Many t-shirt and apparel companies allow customers to add a custom design and choose the print location, size, font, color, and other add-ons while limiting the options to just a few designs or colors.
- Sports gear: Customers can customize sporting goods like golf clubs, tennis rackets, hockey sticks, skis, and snowboards with different shafts, grips, casings, colors, etc.
