Demand management process in assemble to order (ATO) environment

A company’s manufacturing can be characterized as make-to-stock (MTS), make-to-order (MTO) and assemble-to-order (ATO). This article discusses the third strategy assemble to order (ATO), adopted by manufacturing companies. The three different types of manufacturing are classified based on the degree of interaction between the technological core and the market. MTS has the least amount of interaction and MTO, on the other hand, has the highest degree of contact with the suppliers and customers.

Assemble to order (ATO) manufacturing process and characteristics

ATO represents a hybrid manufacturing strategy. Here, a part of subassemblies is done according to the forecast. Subassemblies refer to assembling of small components which are further used for assembly of the finished product (Saha, 2017). The final assembly of the product is done when the customer order is received. Thus, it combines MTS manufacturing, where products are sold off the shelf, with MTO manufacturing, where products are customized and delivered. Thus, MTS and MTO represent the pure manufacturing strategy while ATO is known as a hybrid strategy (Wemmerlöv, 1984). A company starting from MTO strategy can shift to ATO. This is because the production process in both strategies is triggered by the sales order. Both systems offer flexibility in product variants, i.e. customization as per consumer demand. Moreover, both systems require sufficient planning and coordination between the vendors and manufacturing units (Plonka & Olling, 1997).

Under the ATO system, a hierarchical management approach is used to model the decision. The first step in the management is to decide on accepting orders and quoting due dates. The next level deals with process planning and operation scheduling. The basic management philosophy behind the ATO manufacturing is to defer if possible thus increasing the flexibility of combing the component and sub-assemblies to meet customer order specification (Decroix, Song, & Zipkin, 2009).

Difference between MTS, MTO and ATO

The table below represents the key differences between MTS, MTO and ATO production strategies.

ParameterMTS MTOATO
Communication between producer and consumerLowHighMedium
Delivery timeShortLongMedium
Production volumeHighLowMedium
Basis for production planningForecastSales orderForecast and backlog
Handling of demand volatilityHigh inventoriesLittle uncertaintyIncorrect estimation of components needed for subassemblies

Table 1: Differences in MTS, MTO and ATO (Wemmerlov, 1984).

Firms generally choose ATO manufacturing due to the ability to expand production easily when needed. Dell Computers had shifted its production strategy from MTS to ATO. In the case of Dell, the company decided to focus more on customization and reduce finished goods inventory. It was a highly successful strategy for a period, as compared to failures of competitors like Compaq (Wilson, Hill, & Glazer, 2013).

The ATO system allows businesses to attain short response times. However, for the businesses to fully attain the benefits of this system they need to keep a check on the inventory for a large assortment of components. This is because the availability of the components when required is important. The performance of ATO depends on two main dimensions:

  1. responsiveness and,
  2. economies of scale.

Responsiveness refers to the capability of fulfilling consumer demand, whereas economies of scale indicates the degree of operation efficiency (Wemmerlöv, 1984).

This technique is useful when a large number of customers are demanding customized products. Therefore it is also known as “pull-type” production method (Mukherjee, 2017). ATO strategy is commonly applied in a number of industries such as bicycle manufacturing, automobiles, speciality chemicals, clothing and computer servers. One of the most notable examples of companies using ATO is General Electric. The company’s production facilities allow customization and ATO in many of its products such as locomotives and oil extraction (Venkataraman & Pinto, 2019).

The CISCO case study

CISCO is a global information and communication technology provider. The company uses the ATO approach to fulfil its orders. This has enabled the company to meet the specific technology needs of its customers and control inventory levels. CISCO has been using three core manufacturing process which includes demand planning, scheduling and production. In an ATO environment, demand planning has provided CISCO with a pace in the manufacturing process. Demand planning for CISCO means that the company must purchase an appropriate quantity of raw material or components required in a specific business uni.

In order to calculate the demand under the business units, forecasting is used. Once this stage is complete then the company proceeds to the scheduling stage. Scheduling refers to applying the scheduled ship dates to the order lines. Once the order is booked by CISCO the scheduling process starts. CISCO jumped to ATO system in order to optimize its supply chain and increase its business scale and agility (Miklovic & Witty, 2010).

Burger King case study

Another notable example of the ATO production strategy is Burger King, the global fast-food chain. Burger King allows customers to customize their orders with a slightly longer waiting time than other fast-food chains such as McDonald’s’, that follows the MTS strategy. Burger King stores the pre-cooked inventory such as burger patties in a container to keep them warm for a longer time. After the customer places an order, they perform the final assembly of the sub-components. Highly customizable fast food chains such as Wendy’s follow MTO strategy. They do not store any product in a semi-finished state.

References

  • Decroix, G. A., Song, J. S., & Zipkin, P. H. (2009). Managing an assemble-to-order system with returns. Manufacturing and Service Operations Management, 11(1), 144–159. https://doi.org/10.1287/msom.1070.0209
  • Miklovic, D., & Witty, R. J. (2010). Case Study : Cisco Addresses Supply Chain Risk Management. Gartner Industry Research, (September), 1–12.
  • Mukherjee, K. (2017). Supplier Selection: An MCDA-Based Approach. New Delhi: Springer.
  • Plonka, F., & Olling, G. (1997). Computer Applications in Production and Engineering. London: Springer.
  • Saha, P. K. (2017). Aerospace Manufacturing Processes. Boca Raton: CRC Press.
  • Venkataraman, R. R., & Pinto, J. K. (2019). Operations Management: Managing Global Supply Chains. Thousand Oaks: Sage.
  • Wemmerlov, U. (1984). Assemble-to-order manufacturing: Implications for materials management. Journal of Operations Management, 4(4), 347–368.
  • Wemmerlöv, U. (1984). Assemble-to-order manufacturing: Implications for materials management. Journal of Operations Management, 4(4), 347–368. https://doi.org/10.1016/0272-6963(84)90021-4
  • Wilson, R., Hill, A., & Glazer, H. (2013). Tools and Tactics for Operations Managers (Collection). New York: Pearson.
Ashni Walia
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