build to order

Build to order is a methodology and manufacturing practice where a product is created once a confirmed order is received. The build to order process is critical to avoid creating expensive products that may not sell and to avoid tying up capital in inventory. The methodology is primarily used by manufacturing companies when products are highly specialized having minimal alternative uses, are costly to produce and the costs may not be recovered if a product is not sold or is expensive to maintain in inventory tying up capital.

Examples of build to order products include made to order automobiles, and costly to maintain in inventory such as airplanes. In many cases, a build to order product is highly customized with unique customer specifications.

In a build to order scenario, the entire product may be made from scratch when the order is received. In some cases, finishing touches can be added to complete the final product if partial inventory is already completed.

A proper amount of risk management should be performed to avid the loss of potential customers. A risk involved with the build to order model is that if a similar product becomes available, a customer may not be willing to wait until the product being built to order is created and available for them.

This was last updated in March 2019

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