Financial Definition of MTO
What It Is
Made to Order (MTO) is a production and inventory strategy in which companies manufacture products or provide services according to each customer's specifications rather than according to a homogenous specification.
How It Works
Let's say Company XYZ produces widgets. It could make widgets in red, blue or white. Or, it could make them to order, which means customers could send color samples to Company XYZ, which then manufactures the widgets in that color.
Why It Matters
Companies that provide made to order (MTO) create competitive advantages by providing what other companies cannot -- custom-made products. However, the made-to-order approach costs much more because companies must retool, redesign or restart production processes for each order. This in turn often means that customers pay much more. This creates a competitive disadvantage, though this is easily overcome if the companies in the sector are competing on features rather than price.
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