Make-to-stock
(MTS)
In MTS environments, products are created before receipt of
a customer order. Customer orders are then filled from existing stock, and
then those stocks are replenished through production orders. MTS environments
have the advantage of decoupling manufacturing processes from customer orders.
Theoretically, this enables customer orders to be filled immediately from
readily available stock. It also allows the manufacturer to organize
production in ways that minimize costly changeovers and other disruptions.
However, there are risks associated with placing finished
goods into inventory without having a firm customer order or an established
need. These risks tend to limit MTS environments to simple, low-variety, or
commodity products whose demand can be forecasted readily.
Assemble-to-order
(ATO)
In ATO environments, products are assembled from components
after the receipt of a customer order. The key components in the assembly or
finishing process are planned and stocked in anticipation of a customer order.
Receipt of an order initiates assembly of the customized product. This strategy
is useful when a large number of end products based on the selection of options
and accessories can be assembled from common components.
When products are too complex or customer demand is
unpredictable, manufacturers may choose to hold subassemblies or products in a
semifinished state. The final assembly operation is then held until a firm
customer order is received. In this environment, manufacturers theoretically
cannot deliver products to customers as quickly as MTS environments, since some
additional time is required to complete the final assembly.
Make-to-order (MTO)
In MTO environments, products are made entirely after the
receipt of a customer order. The final product usually is a combination of
standardized and custom items to meet the customer's specific needs. MTO
environments are more prevalent when customers are prepared to wait in order to
get a product with unique features—usually customized or highly engineered
products. This is analogous to the difference between a fast-food restaurant
and a full-service chain restaurant. MTO environments are slower to fulfill
demand than MTS and ATO environments, because time is required to make the
products from scratch. There also is less risk involved with building a product
when a firm customer order is in hand.
Engineer-to-order (ETO)
In ETO environments, customer specifications require unique
engineering design, significant customization, or new purchased materials. Each
customer order results in a unique set of part numbers, bills of material, and
routings. ETO environments theoretically are the slowest to fulfill: Time is
required not only to build the product, but to custom design it to meet the
customer's unique requirements.
Assemble to Order (ATO) and Pick to
Order (PTO) are stocking strategies that are used by manufacturers, when
they can produce a variety of finished products from a relatively small number
of subassemblies and components. This stocking strategy is widely known as the
“hourglass” strategy, where you maintain your inventory at the narrowest level
in your bill structure. This maintains inventory in a more flexible state and
helps minimize your inventory investment. An ATO environment is where you wait
until you have an actual sales order before you begin manufacturing the finished
product. PTO implies that you will pick multiple items based on one line item on
a sales order.
Configure To Order Environment
In both ATO and PTO environments you might actually configure
products based on the customer order, or simply manufacture or ship standard
products or predefined configurations. A configure to order environment is where
you allow your customers to configure the finished product that they intend to
buy. Typically you will offer a variety of choices to your customer from which
they can choose the best options that suit them.
Market Orientation versus Stocking Strategies
Whether you offer configurable products depends on your market
orientation; but if you do, you cannot follow a Make to Stock strategy. You will
potentially follow one of the three possible stocking strategies—Make to Order (MTO), ATO, or PTO, depending on the complexity
of your products (how configurable your products are). On the contrary, you can
operate with an MTO/ATO/PTO stocking strategy but still choose not to offer
configurable products. The difference between MTO and ATO is the level at which
you stock your components. So, from here on, when we mention ATO we really mean
both ATO and MTO because the business processes are similar albeit the stocking
levels are different.
ATO/PTO Scenarios
In a configuration scenario, a model bill of material is used
to represent the list of choices; if there’s no need to offer choices, a
standard bill of material is used. The difference between models and items is
essentially the ability to configure an item while creating an order. Beyond
this creation of the configuration item, the manufacturing and distribution
processes are the same for both models and standard items
In an ATO environment, the strategy is to forecast, build, and stock the
subassemblies and parts that are used in the model. Oracle offers two flavors of
ATO—the first one is the ATO model in which the customers can configure the
product to their liking, and the other one is the ATO item that is
preconfigured. Once the customer order is received, the subassemblies and
components are assembled, according to the instructions in the routing, and
shipped.
For configurable models, the subassembly/component list will
vary with respect to each order and so will the manufacturing instructions
(routing). So, a notional item is created for each unique combination of options
using an automatic process. This item can be numbered and named according to
your business needs. For example, when a model called MD45890 is ordered with a
set of chosen options, the system will create a notional item to represent the
chosen options, and numbers the new item as MD45890*99, based on your BOM
parameters. This item is referred to as the configuration item in Oracle
Applications.
The strategy in PTO is similar, although there is no
manufacturing. There are two flavors of PTO as well—PTO models that can be
configured by the customers and PTO kits that are ordered as they are. Because
there is no manufacturing involved, PTO models or PTO kits can be shipped as
soon as they are ordered, depending on the availability of the required items.
When the pick list is generated for these items, the individual items that were
selected (in the case of a PTO model) or that were part of the standard PTO kit
will be printed in the pick list, which can then be picked and shipped.
Oracle allows you to have hybrid items such as an ATO model within a
PTO model. Starting with Release 11i5, Oracle supports multiple levels of
configuration within a model; the applications will generate a unique configured
item for each ATO model within a structure. Prior to Release 11i5, however,
multiple ATO models could be used, but the result was one flat bill of material
for all levels of configuration in the structure.
Below table gives attributes to be enabled in Oracle EBS for different types of items
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