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 will talk about CTO. We will look at its flexible, customer-focused production process. We will also explore why it can be a good 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 is a manufacturing strategy where products are customized to meet specific customer requirements after an order is placed. This approach allows for a high degree of flexibility and personalization, which aligns well with rising customer demands in today’s technologically driven market.

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 decide which parts will be used. You also choose the features, options, or values, like size, color, and accessories, before production starts. 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 checks if the customer’s design can be made. It also figures out the manufacturing costs. It calculates the customer price using markups and pricing rules. Additionally, it creates a bill of materials. This bill lists the parts and raw materials needed 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.

Download CFO Product Sheet

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.

Disadvantages of Configure-to-Order

1. Limited Bulk Purchasing and Production Planning

Every order has the potential to be custom, or one-off. This limits bulk purchasing and complicates production planning.

2. Longer Lead Times

Lead times are longer due to the unique product configuration making it difficult to procure special items and optimize production and resource utilization.

3. High-Demand Technical Resources

High-demand technical resources, like manufacturing engineers, may need to set up and maintain configuration rules. This helps ensure products are made with accurate costs, clear component definitions, and correct pricing.

Advantages of  Configure-to-Order

On the other hand, CTO has many advantages, especially in industries with similar products that have slight variants:

1. Increased Customer Satisfaction and Loyalty

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.

2. Streamlined Product Configuration

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.

3. Competitive Advantage

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 personalized products that fit customers’ 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 manufacturing ERP software is flexible and easy to use. It supports different types of manufacturing. This includes CTO, make-to-stock, make-to-order, and engineer-to-order. It also works for repetitive, batch process, and project-driven manufacturing.

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.