Assemble-to-order (ATO) is a business production strategy where products that are ordered by customers are produced quickly and are customizable to a certain extent. It typically requires that the basic parts of the product are already manufactured but not yet assembled.
What is assemble to order strategy?
ATO can also be used by companies that source their raw materials externally to their own company instead of producing them internally. ATO is also used by traditional manufacturing company that still see some unique benefits by having their new models manufactured separately.
Assemble to order businesses usually do not have inventory of the product to be sold since they produce only the ordered products. ATO also requires that the business have the capacity to mass-produce the product by following the particular specifications of the buyer. By having a capacity to do so, the business is also able to increase their competition and to serve the client in a faster and more efficient manner.
ATO is typically used in industries that offer to customize their products a lot, such as in furniture industry, textile, and clothing industry. These industries are usually client-specific, which means that these products are only needed for the specific client who has ordered them.
The style of the product that is ordered is also usually a custom requirement, thus, ATO offers a better way to produce it. However, the businesses still need to have the capacity to produce the whole product and not just parts of it.
Assemble to order strategy benefits
Companies that value this production strategy benefit from it for various reasons.
One of the main benefits for ATO is that the cost-per-product is decreased because the business has the capacity to produce at a mass-scale. Thus, the unit price of the product is also decreased. However, since the business eliminates the cost of keeping inventory, the total cost of owning the business is also decreased.
Assemble to order strategy also allows the business to operate a lower risk because the business produces only the ordered products. If the client has not ordered the product, the business is not at risk because they have no inventory of the product to be sold. Thus, the business can focus on other products that are not being ordered by the client and do not have to worry about decreasing the business value.
The business also does not need a lot of assets and can significantly reduce its assets since it does not have to store a lot of inventory.
Some of the challenges for ATO include increase in the cost-per-product because the business may need to hire extra employees or have other suppliers to help it produce the ordered products. The business also cannot hold more than one mass-produced custom product and needs to decrease its production line if the client orders to stop production of that product. Finally, the business may also need to build capacity to mass-produce a product that it was not able to produce previously.
ATO can also be used by non-traditional manufacturing company, or by companies that usually have the inventory of the product to be sold. While traditional manufacturing company may have the capacity to produce the product through mass-production, they can actually use ATO if they find benefits in it.
When to use ATO strategy
ATO is very useful in serving a client that is willing to invest in a custom product. The product is also then customized to his or her specifications, which can be a great advantage to the client. The client can also order a certain amount of product that he or she needs, which can be very low risk for the business.
Since the business does not need to have much inventory that they can be at risk for, they can focus on other products that are not being ordered as much and decrease the risk of their business. The business still has a capacity to produce the product, so they also do not have to worry about their business decreasing.
Some of the industries that can benefit a lot from ATO strategy are those that offer products that are customized instead of mass-produced. An example is clothing industry, furniture and textile industry, and service industry. The companies that usually offer these products include OEM (original equipment manufacturer), ODM (original design manufacturer), OBM (original brand manufacturer), and OEM.
How to use ATO strategy
To create an ATO strategy, first, you will need to create and maintain a relationship with your client. You need to know what products they usually buy, how much are they willing to buy, and how much time do they need for ordering and receiving the product.
After determining your business plan based on the relationship with the client, you need to create a production line that will make your ATO capacity efficient. You also need to create a sales strategy and cover the cost of running the business that will make sure that the cost-per-product is maximized. You also need to maintain customer relations so that you do not lose any new customers.
If you are running a non-traditional manufacturing company, you can still use ATO if you can maximize the production capacity. By maximizing the capacity of the production, the client will also receive the product faster while still saving the cost of keeping inventory.
The cost of running the business decreases because you are maintaining the same production process while only producing on the order. You can also decrease the cost of maintaining the business equipment that is usually used for products that are not produced anymore. You can fix that equipment so that it is still functional and can be used for the new products.
If you are operating in an industry that requires mass-production, you can also use ATO if you can properly align it with your market. If you can properly satisfy the customers’ need and figure out how to produce the product at as low as possible cost, then you can really benefit from using this strategy.
If you are running your business for a very long time and have determined certain standards for the business, then you can also use ATO if you can determine certain criteria for the consumer. You can realise the customers’ needs, how much they buy, and how frequently they buy it. You can also determine what causes the customers to reorder. It is all these things that can be used to implement ATO.
You can also use ATO if you already have a capacity to produce the product and can effectively align it with the market. It can be your business’ capacity or your client’ capacity. If you can find the capacity while determining the market need, then you can actually save a lot of time and resource in producing the product.
Why abandon ATO strategy?
It may seem like you are doing very great with your business based on ATO strategy, but you may actually find that it is not the right strategy for your business. You may think that it is the most perfect strategy, but the business still needs to be in mass-production, or so it is thought. No matter how good ATO strategy is, it should be abandoned if it does not work for your company.
ATO does not allow the business to keep inventory. This means that the business is not at risk if the client does not call the business. When the client is not calling your business anymore, you can just stop producing the product for your client. However, the business can still focus on other products that they can produce better than ATO for.
ATO strategy also does not allow the business to have the available inventory of the product. The business should have the right amount of inventory to be able to handle pressure from the clients. ATO strategy allows the business to produce the product just on the order and not have a lot of inventory. Thus, the business is not able to minimise the risk of not meeting the demand of the clients.
The main problem for the business is the capacity. The business is not really prepared and confident enough that it can produce the amount of products that the client needs to fulfill his or her need. Thus, the business is not able to give the best service to its clients with ATO.
There is also a risk factor when you are using ATO strategy. When the business loses clients, they cannot focus on other products for their products. If the business does not have emphasis on services or another product, they can be at risk of losing other clients. The business cannot hold the same level of service and loyalty with their clients if they do not focus on other products.
If the business does not have a capacity to deliver the product that the client wants, then the client can also be at risk when using ATO. While you contractually promised to deliver the product, the business is not really able to deliver the product as they had promised. The client can be at risk in being late in receiving the product or not being able to get the product at all.
While you are using ATO, you are also at risk in taking a long time in delivering the product to the client or not being able to deliver the product at all. If the client does not get the product as he has promised, this can also lead to losing the client. While you are using ATO strategy, you might be able to focus on other products, but your client will always stay with the larger corporation that offers ATO as a service.
Your business is also at risk of not being able to compete with the other businesses. If the business does not have a lot of clients or a good relationship with their clients, then you are actually a lot slower and less responsive in actually getting the product to the client.
If you and your customers are not educated in ATO strategy, then the business is also at a great risk. It is important to know as much as possible about ATO, and you should also bring your clients along to the learning process. You should become efficient in this strategy before attempting to apply it on your business.
ATO strategy is a great strategy to save or make money for your business. It is important to know the benefits and risks that can be associated with the business strategy before actually implementing it. Educate yourself and your clients with the strategy so that you both will know what to expect and how to help the business gain from implementing ATO.