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As a manufacturer in today’s competitive market, you have differing manufacturing strategies from which to choose. Examples include engineer-to-order (ETO), make-to-stock (MTS), and configure-to-order (CTO).
In this guide, we’ll be discussing CTO, covering its flexible, customer-centric production process, and exploring why it may be an effective strategy for your manufacturing business.
What is Configure-to-Order (CTO)?
Traditional manufacturing transforms raw materials into finished, identical products. Its superpower is its ability to mass-produce quality products using predefined production standards, materials, tools, machines, and operations. In addition to reducing operational costs, traditional manufacturing allows manufacturers to scale their output.
In comparison, CTO extends some of the benefits of traditional manufacturing to customers—empowering them to customize products to their specific needs or desires. Its flexibility and customization capabilities are attractive to today’s customers, whose expectations and demands continue to rise in tandem with ongoing technological advancements.
What is CTO in Production and in the Supply Chain?
With CTO, you and your customer design a product based on the customer’s unique preferences. Together, you determine which components will be utilized and what features, options, or values (e.g., size, color, accessories, etc.) will be included before production begins. Once the product is customer-approved and the order has been placed, you’ll begin the production process.
CTO in Production
CTO relies on rules-based product configurators to validate which options and values are available. For example, you may sell tee-shirts in multiple colors and sizes, but may not offer all combinations. This is common in electronics, automotive and transportation, industrial equipment and machinery, home goods and furnishings, fashion and apparel, and many other industries.
The product configurator not only validates that the customer configuration can be manufactured – it also calculates manufacturing costs, customer price based on markups and customer pricing parameters, and the manufacturing bill of materials which defines which components and raw materials are required for production. Approved orders follow traditional manufacturing workflows with advanced planning and scheduling (APS) to schedule operations against work centers and material requirements planning (MRP) for inventory and material planning.
CTO in the Supply Chain
In the supply chain—which is the network of people and organizations that participate in the production of a product, from raw materials’ producers to transportation companies—CTO enables participants to effectively serve their customers. The increased customer satisfaction, along with improved inventory management and faster response times, boosts productivity and profitability. While a function of manufacturing, requirements from configured orders flow through the supply chain to contract manufacturers and suppliers.
Advantages and Disadvantages of CTO
As with any business process, there are advantages and disadvantages to choosing CTO as your manufacturing strategy. Let’s start with the disadvantages.
- Every order has the potential to be custom, or one-off. This limits bulk purchasing and complicates production planning.
- Lead times are longer due to the unique product configuration making it difficult to procure special items and optimize production and resource utilization.
- High-demand technical resources, such as manufacturing engineers may be required to setup and maintain configuration rules to ensure products can be manufactured with accurate costs, component definitions, and calculated pricing.
On the other hand, CTO has many advantages, especially in industries with similar products that have slight variants:
- Customers are happy to craft products that meet their unique needs and wants. This leads to improved customer loyalty. Further, research shows that customers are willing to pay more for custom products.
- Rules-based product configuration alleviates wasted time for engineers to design custom products. This shortens the sales cycle considerably with accurate production standards, predictable costs, and strategic pricing.
- The ability to offer custom products is required in many industry segments. Failure to offer CTO to customers will limit your ability to grow. Conversely, CTO may be a major differentiator and competitive advantage for other businesses providing access to new markets.
Examples of Configure-to-Order Products
To know if CTO manufacturing is right for you, it’s helpful to know what types of products work well with this process. One of the most popular examples is computers and laptops. In addition to external features, such as color and size, customers can choose processing capacity, memory, hard-drive options and more. Computer and laptop manufacturers plan for these options, sourcing the varying components they’ll need for the different products that are ordered.
Appliances are another great example. Consumers are very particular about their refrigerators, ovens, and washing machines when it comes to style, size, color, and features, and in today’s customer-driven market, they can afford to be particular.
The same can be said for customers shopping for furniture, clothing, and smartphones. Product configuration is most common where there are many different items required to make a finished good, where there are multiple levels in the bill of material, or where products are available in different sizes. In fact, product dimensions are a great indicator for companies who may benefit from CTO strategies. For example, a canopy and tent manufacturer may offer tents in varied lengths, widths, and heights with other options. Likewise, manufacturers of industrial equipment and machinery often require product configuration for different components such as feeders, power supplies, guards, and other options.
Conclusion
Implementing CTO manufacturing offers business customers and consumers personalized products that fit their unique requirements. They welcome the opportunity to work with manufacturers who are willing and able to help them bring their distinctive visions to life. But CTO manufacturing can harbor some challenges.
For example, customizing products is a complex process, which means it’s time consuming to define and maintain configuration settings. It also extends manufacturing lead times and may limit bulk purchasing and complicate long-term demand planning.
To overcome these challenges, you should consider investing in a modern, cloud-based ERP solution, like Acumatica. Acumatica’s Manufacturing Management Software is designed to help you manage every aspect of your manufacturing business in one place. Our flexible, integrated, and extensible manufacturing ERP software supports CTO manufacturing as well as make-to-stock, make-to-order, engineer-to-order, repetitive, batch process, and project-driven manufacturing environments.
Acumatica’s comprehensive manufacturing suite includes Bill of Materials and Routings, Production Management, MRP, APS, Estimating, and a rules-based Product Configurator. Manufacturing applications and workflows connect seamlessly with Inventory Management, Sales Orders, Purchase Orders, Accounting, Reporting, and other applications, providing customers with a holistic business platform to manage every part of their organization more effectively.
Find out how our industry-specific solution can empower small and midsized businesses—like yours—with the tools, resources, and support you need to succeed. Contact our team to learn more today.
