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Assemble To Order: How To Manage Inventory With This Production Strategy

assemble-to-order:-how-to-manage-inventory-with-this-production-strategy

Is your stockroom cluttered with stock that’s already been manufactured? Having too much inventory has the same negative effect as having too little stock. Both cost your business money.

There are a number of approaches to producing a final product for sale. Your production strategy has an impact on inventory management—and therefore, customer experience. One strategy is assemble-to-order (ATO), in which components of a product are collected in advance, and the final item is assembled when a customer places an order.

Before adopting the ATO production model, it’s important to weigh up its pros and cons. This guide shares them, along with tips on implementing ATO production successfully.

What is assemble to order (ATO)?

Assemble to order is a production scheduling strategy in which a retailer collects the raw materials needed to make a product in advance. The product is assembled and completed only when a customer orders it. This is different from traditional manufacturing, where a finished product is built in advance of sale.

How assemble-to-order works

Assemble to order is the middle ground between two business strategies. Let’s look at the difference between the two. 

Make-to-order (MTO)

The make-to-order strategy is similar to ATO in the sense that production starts after you’ve received a customer or manufacturing order. 

With MTO, however, products are made from scratch each time (unlike ATO orders, which are quickly assembled using premade parts). This can result in long lead times and delays, causing poor customer experiences.

Make-to-stock (MTS)

This business model uses a slightly different manufacturing strategy. Instead of waiting for a customer to order a new product before starting assembly, production starts when stock levels run low. 

The downside of MTS is the possibility of overstocking. By combining the assemble-to-order model with accurate demand planning, however, you can make certain that your stockroom is never overrun with dead stock.


Manage inventory from one back office

Shopify POS comes with tools to help you manage warehouse and store inventory in one place. Forecast demand, set low stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.


Benefits of the assemble-to-order system

Of course the assemble-to-order system has pros and cons. Let’s look at some of the benefits of ATO first.

Customizable products

Assembling a product when a customer orders gives you greater flexibility. You can take each individual customer’s specifications into account and build customized products they’d pay up to 20% extra for.

Dan Lee, head of marketing at Sealions, says, “If manufacturers can reduce the amount of time it takes for the final assembly process, they will be able to ship customized goods to customers more quickly than if they used the make-to-order technique. 

“Manufacturers frequently confront a rising need for customized items from clients. These needs cannot be addressed if manufacturers store up on finished goods, thus this method is the best option.”

Gift wrapping supplies

Lower carrying costs

Inventory storage is costing your business. A pile of unsold inventory that shows no sign of being sold anytime soon means you have cash tied up. 

Carrying surplus inventory also takes up space that could house your best-selling stock. This space is already precious; the cost of inventory storage is increasing rapidly each year.

By assembling to order, more time can be focused on marketing and growing the business rather than on building a large stock holding. This method also prevents money from being tied up in stock that could be spent elsewhere, such as on advertising and new product development.

Avoid dead stock

The assemble-to-order method helps manage supply chain operations to prevent dead stock since you only assemble products when they’ve been ordered. It’s easier to store and organize these raw materials (which could be repurposed, at a push, if demand isn’t there) than final products.

It’s very environmentally advantageous to produce clothing on demand because it keeps us from overproducing styles, colors, and sizes. Unsold clothing accounts for a massive amount of waste in the fashion industry./p>

Plus, if you’re selling perishable goods, the ATO strategy means you don’t run the risk of inventory spoiling or passing its expiry date. It makes more sense to stock unpeeled fruits and assemble a smoothie when a customer orders than to keep it refrigerated for an unspecified amount of time. 

💡 PRO TIP: Want to know which products account for the majority of profits? View the ABC inventory analysis report in Shopify admin to see your best and worst-performing inventory, optimize your purchasing, and increase profitability.

Disadvantages of assemble to order

On the flip side, let’s examine some of the disadvantages of ATO.

Higher risk of stockouts

Stockouts happen when stock levels don’t meet customer demand. It’s one of the worst experiences you can give a customer. We’re conditioned to see, buy, and receive products from a retail store all within the same day. 

Poor ATO management can lead to inventory management issues. Stockouts, already a $1 trillion problem for retailers, are exacerbated by poor demand forecasting. If you experience a surge in demand and you’re unable to assemble fast enough, it can result in low (or no) supply of inventory. 

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💡 PRO TIP: Shopify POS comes with tools to help you control and manage your inventory across multiple store locations, your online store, and warehouse. Forecast demand, set low-stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.

Longer lead times

Speed is of the essence for many retail customers. They want products in their hands in as little time as possible. But by the time they’ve completed an in-store purchase, an ATO product still hasn’t been assembled, making it impossible for them to take it home instantly. 

Granted, you can speed up these lead times with strong supply chain management. But even the smallest of delays still deter shoppers from making a purchase.

Potential for lower quality products

If you’re using the ATO method and still trying to meet speedy customer expectations, the assembly or manufacturing process can be rushed, resulting in a lower-quality final product. This can wreak havoc with customer retention and risk your store’s reputation. 

Examples of assemble to order products

Now let’s look at some real-world examples of businesses leveraging the ATO system to great success.

Dell Technologies

Dell is one of the best-known computer companies in the world, processing $101 billion in sales each year. 

Unlike its competitors, Dell uses the partial ATO method. Computer components—such as screens, mice, and keyboards—are assembled in advance. Only when a customer makes an order are the components assembled to make the final product.

Dell’s biggest advantage of using ATO instead of pre-assembly is that customers can customize their purchases. Shoppers can choose their computer’s processor, display size, and memory storage to create a truly custom PC. Those options are rarely available from competitors. 

Dell options for a PC

Oliver Charles

Oliver Charles is an apparel brand that sells sweaters designed for repeat wear. Co-founder Slater McLean says, “We use a made-to-order method because it’s impossible to get forecasts 100% correct. Even if we can get them to 99% accurate, made-to-order is still better than made-to-stock.”

“Additionally, it allows us to offer a wider range of products and sizes because we don’t have to make an upfront investment in inventory that we aren’t sure will sell. For example, we can offer seven sizes instead of three without any additional risk or investment.”

However, the retailer does need to set expectations with customers as a result of its ATO production. Slater adds, “The main downside to this production method is that it takes longer for the customer to receive the product.

“It takes us two to five days to knit, then another two to five days to ship, meaning in some cases, customers don’t receive the product for 10 days. Generally, this isn’t a problem as long as you’re upfront about the time to deliver.”

Fringe & Free

Fringe and Free sells handcrafted home products that are assembled to order. Founder Nathalie Lee says, “We do this because it’s beneficial to buy bulk raw materials and then let customers decide how we use them based on what they order. 

“We stock huge spools of cotton, and that cotton can be turned into anything from a unique rope plant hanger to a large USA macrame flag. It’s best for our small business to only make what is ordered.”

However, Lee says the downside to the assemble-to-order strategy is, “We haven’t found a way to make our materials an inventory item rather than the product itself. For example, it would be great if on the backend we could put how many spools we have, and how many of each product it could make, so that way we don’t risk selling something we can’t make.

Featured products from Fringe & Free

“Right now we have to say we have X number of an item in stock when we haven’t actually made it yet. Thankfully we haven’t run into very many problems, and our customer base appreciates the made-to-order method since it reduces waste.”

Again, Lee thinks the key to success with ATO production is clear, upfront expectations: “Our best tip for someone trying this model out is to communicate it to the buyer, even directly in the product listing. One of our products even has a three-week lead time; we share that right above the buy button, and it still does well for us.”

Tips to get started with ATO production

  • Select products for ATO
  • Break down products into subassemblies
  • Purchase necessary equipment
  • Train staff on production processes
  • Closely monitor demand

Let’s take a closer look at each of these tips individually.

Select products for ATO 

Not every product lends itself to the ATO production model. That includes units which:

  • Take a long time to assemble
  • Take up too much space in your stockroom when fully assembled 
  • Customers are accustomed to take home instantly 

If you’re considering ATO for the first time, handpick a selection of small, quick-to-assemble products to begin with. Expand once your team perfects the process, customers respond well to receiving products later than expected, and demand planning gets more accurate. 

Break down products into subassemblies

There are various stages of production, and some take much longer than others. Get the best of both worlds by breaking down the production process. Assemble the time-consuming parts in advance, while finishing the quick-to-assemble items once an order has been placed.

Richard O’Connor, marketing manager at Paper Crate, says, “The biggest downside of assembling to order is that you can be a victim of your own success. Keeping up with demand when the orders roll in can add unnecessary stress to the process of fulfilling orders promptly. 

“One of the best ways to manage this is by assembling your products in advance,” O’Connor adds. “For example, at Paper Crate, the lined pages of the handmade notebooks are made in bulk and stored ready for use. Then, when an order comes in, it’s just a case of printing the cover and attaching it to the printed inner pages.”

Purchase necessary equipment

The faster you can assemble made-to-order products, the quicker each customer receives their order. Equipment can speed up this process. 

One example could be barcode scanners that automatically update your inventory management system to provide accurate stock levels when items have been assembled. Or POS technology to notify customers who’ve ordered in-store that their product is ready for collection.

Equipment is classed as a business expense, meaning you can use section 179 to reduce your store’s tax liability. But if you’re tight on cash and can’t buy expensive production equipment outright, consider leasing it from third-party renters. 

Train staff on production processes

If you’re employing a team of retail associates to help run your store, bring them up to speed with production processes. They’ll help you optimize the stockroom and manufacture high-quality products quickly. 

Production aside, retail staff need extra training on dealing with customers who are unfamiliar with assemble-to-order products. Role-play the following scenarios to deliver excellent in-store experiences with customers who want their products yesterday: 

  • Collecting email addresses for products they can’t take home instantly 
  • Setting customer expectations on order fulfillment times 
  • Handling “where’s my order?” queries 

💡 PRO TIP: Want to control which staff can count, receive, and adjust inventory quantities? Set roles and permissions to set boundaries on what staff can and can’t do when logged in to your POS system, like accessing its inventory management tools.

Closely monitor demand

Regardless of which assembly method you’re using to build products, the last thing you want is to let a customer down—either through stockouts or poorly manufactured products. 

Assembling to order might not be the best strategy to use year-round. Use demand forecasting to identify busy seasons (like Black Friday Cyber Monday). Consider blending ATO with made-to-stock production to deliver seamless customer experiences at scale during that time. 

💡 PRO TIP: Only Shopify POS unifies your online and retail store data into one back office–customer data, inventory, sales, and more. View easy to understand reports to spot trends faster, capitalize on opportunities, and jumpstart your brand’s growth.

Is an assemble-to-order production strategy right for you?

The assemble-to-order production model lends itself to retailers with limited inventory storage and patient customers. Not only does it allow you extra flexibility to customize products that shoppers pay a premium for, it avoids dead stock that costs retailers thousands of dollars each year.

Start by selecting products that best lend themselves to assemble-to-order manufacturing. Train your employees on how to handle ATO-related questions, and closely monitor demand to prevent stockouts from turning shoppers away.

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This originally appeared on the Shopify Retail Blog and is made available here to cast a wider net of discovery.

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