Assemble-to-order (ATO)

What is assemble-to-order?

Assemble-to-order, or ATO, is a manufacturing strategy of producing the final product by waiting to assemble pre-manufactured subparts exclusively after receiving an order. Businesses using ATO usually keep a stock of standardized parts in their inventory to quickly build and deliver the entire package to customers upon request. This business strategy presents opportunities for customization, as production starts only after a sale. 

Manufacturers often use manufacturing execution systems (MES) and enterprise resource planning (ERP) systems to simplify production. 

In an assemble-to-order setting, MES and ERP maximize efficiency by managing subcomponent inventory, scheduling production, monitoring production status, and aiding in order processing.

Job shop management software is the next best thing for businesses that can’t afford MES or ERP platforms since it has several ERP-like features.

How does assemble-to-order work?

A basic workflow of an assemble-to-order strategy has the following steps:

1. Order forecasting
2. Producing/ordering subparts
3. Stocking subparts
4. Assembling subparts
5. Delivering customer orders

Order forecasting considers current market conditions, macroeconomic trends, and historical sales. This forecast is then used as a ground for subassembly production and purchase, so accurate forecasting is crucial for optimizing inventory levels.

The stocked subparts are kept in a warehouse until needed for product finalization. To minimize waste, businesses may opt for inventory management techniques like first-in, first-out (FIFO).

Assembly of sub-components is often done in a semi-automated production line, where the parts are combined together according to the customer's preference.

As compared to ATO, traditional manufacturing makes the final product based on the consumer demand forecast prior to sales. A disadvantage of the conventional approach is that a slight miscalculation could result in dead stock, excess inventory, or product shortage.

Assemble-to-order examples

The examples below will help better understand the nitty-gritty of an assemble-to-order business model.

• Let's assume a lemonade stand represents a small-scale manufacturer. The vendor prepares the subassemblies or raw materials (lemon, sugar, ice, water, and other flavorings) in advance. However, only when a customer orders a specific type of lemonade does the seller combine all the ingredients to make the final product. The process saves time and inventory storage costs, reduces waste, and provides the customer with greater flexibility.
• Dell Technologies is a well-known multinational tech company that uses the ATO strategy in its supply chain management. The company offers its customers ample customization by letting them choose from various subparts for building a PC, including the central processing unit, monitor, graphic cards, and keyboard.

Advantages of assemble-to-order

The assemble-to-order system offers multiple advantages in a production or manufacturing environment. Along with saving money and improving customer satisfaction, a few other benefits are discussed below.

• Cost savings. Not only do the manufacturers save on the production process and resources, but also on the costs associated with storing and managing excess inventory. 
• Greater flexibility. Customers have the flexibility to freely select from a range of options to fulfill their specific requirements.
• Shorter lead time. ATO strategy makes it easier for companies to respond quickly to customer inquiries and reduce delivery time by assembling pre-manufactured components.
• Enhanced customer satisfaction. Quicker customer service and flexibility in product development boost customer satisfaction and loyalty.
• Reduced dead stock levels. Since demand directly influences production, businesses lower the chances of accumulating unsold inventory. The manufacturers also have the option to repurpose unsold elements.

Disadvantages of assemble-to-order

Even though ATO provides certain benefits over traditional manufacturing methods, issues with subassembly management and dependency can prove to be a roadblock.

• Higher chances of stockouts. If a sudden surge in demand causes inventory and supply chain issues, ATO companies end up with unfulfilled orders and unhappy customers.
• Poor quality issues. To avoid any quality-related concerns, businesses must ensure that the subcomponents are of the highest quality and that the final assembly is performed carefully and carefully.
• Inventory management. Manufacturers must maintain a significant inventory of essential components and frequently monitor their status to guarantee timely delivery. Poor management leads to lower efficiency, higher operational costs, and inefficient use of manufacturing resources. 
• Time to market. ATO isn’t suitable for time-sensitive products. Manufacturing and assembling subcomponents mean longer lead times. Businesses that want to launch their products quickly should opt for other manufacturing strategies.

Assemble-to-order best practices

Implementing certain best practices makes the ATO strategy more effective in delivering high-quality products, reducing costs, and increasing customer satisfaction.

• Do the research. The ATO production model doesn’t work for every product. Do the research and try out an easy-to-assemble, small-batch item to figure out if ATO is the right choice.
• Automate. Software like ERP supports manufacturers by simplifying inventory management, supply chain management, order processing, and production scheduling.
• Prioritize quality control. Employ robust quality checks to ensure high-grade subelements and precise assembly processes. These check-ins minimize the risk of defects, returns, and a tarnished reputation.
• Invest in machinery. An early investment in necessary equipment cuts down on any huge financial loss down the road.
• Train the staff. Training makes certain that each employee understands the responsibilities and methods for executing the production plan effectively.
• Learn from mistakes. Set key performance indicators (KPIs) such as lead time and product quality and monitor the performance against them. Analyze data to identify trends, the scope of improvement, and opportunities for improving the system.

Assemble-to-order vs. make-to-order vs. make-to-stock

In essence, ATO is a hybrid of make-to-order (MTO) and make-to-stock (MTS), two other business production strategies.

The make-to-order production strategy deals with high-end goods or items made in small batches. Via the MTO strategy, order confirmations trigger the production of goods from scratch. This method offers high customization per customer requirements, limits inventory, and reduces wastage. However, it often results in longer delivery timelines. 

The make-to-stock manufacturing strategy is best for high-volume products, bulk-order products, and consumables. This production method focuses on preparing all finished goods in advance without waiting for an order. Based on anticipated consumer demand, items are produced and kept in stock. MTS assures faster delivery than the MTO strategy. However, the chances of overstocking are high, which may lead to inflated carrying costs.

The assemble-to-order system combines these two methods by taking the benefits of each. Due to readily available subparts, manufacturers are able to assemble the final product quickly and deliver it as soon as possible upon request. And, by making the end product when an order is received, manufacturers save time and money and avoid the risk of dead stock. Thus, by combining MTO and MTS, assemble to order lets manufacturers expedite order fulfillment while offering room for customer specifications. 

After finalizing a manufacturing strategy, the next step is optimizing and organizing production. Take a look at how operations management improves the overall manufacturing process.