MTO vs MTS

 

In Microsoft Dynamics 365 Business Central, "Make to Order" (MTO) and "Make to Stock" (MTS) represent two distinct manufacturing and inventory management strategies that have specific implications for how the system behaves and manages the production and inventory processes.

 

 Make to Order (MTO)

 

- Definition: Make to Order is a production strategy where items are manufactured specifically in response to a customer order. Production begins only after an order is received, making it highly customized.

 

- System Behavior:

  - Sales Order Triggers Production: When a sales order is created for an MTO item, Business Central can automatically generate a production order linked to the sales order.

  - No Stock Keeping: MTO items are not typically kept in inventory, as they are produced to fulfill specific orders.

  - Planning: The demand planning is driven by the sales order, and material requirements planning (MRP) or production planning tools in Business Central will schedule production based on the sales order due date.

  - Purchase and Production Orders: Business Central might suggest creating purchase orders for raw materials or components specific to the order. It can also delay production until all needed items are available.

 

 Make to Stock (MTS)

 

- Definition: Make to Stock is a production strategy where items are manufactured for stock based on demand forecasts rather than specific customer orders. The goal is to have inventory ready for sale when a customer places an order.

 

- System Behavior:

  - Inventory Levels Trigger Production: Production orders are based on inventory levels reaching a certain threshold or forecasted demand rather than specific sales orders.

  - Stock Keeping: MTS items are typically kept in inventory, and Business Central tracks inventory levels to determine when to replenish.

  - Planning: Business Central uses demand forecasting and historical data to determine production schedules, ensuring that popular items are always available in stock.

  - Efficiency and Economy of Scale: MTS production often benefits from economies of scale, and Business Central can help optimize production runs to achieve cost efficiency.

 

 Key System Differences

 

- Order Linkage: MTO links production orders directly to sales orders, while MTS links production orders to inventory levels and forecasts.

- Inventory Management: MTO does not usually require inventory management for final products, whereas MTS focuses heavily on managing stock levels.

- Production Planning: MTO's production planning is order-driven, while MTS planning is demand-driven.

- Lead Time: MTO can have longer customer lead times as production starts after ordering; MTS aims to minimize customer lead times by having products ready to ship.

- Customization: MTO allows for customization of products, which is less common or absent in MTS.

 

In Dynamics 365 Business Central, these differences will be reflected in how items are set up (for example, whether they have a replenishment system set for 'Production Order' in the case of MTS, or are tied to sales orders for MTO), how inventory is managed, and how the planning systems are used to schedule production. The choice between MTO and MTS affects not only production processes but also sales, inventory, and purchase processes within the system.

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