The Market to Order process in SAP (also known as Make to Order or MTO), is a business process that involves the creation and fulfillment of customer or sales orders for products that are not stocked in inventory or warehouses, but instead are manufactured or procured specifically to fulfill these current orders, based on consumer demand. This process is commonly used for products that have unique specifications, characteristics, configurations, or customization requested by customers. The MTO process is designed to ensure that products are produced or procured only when there is a confirmed customer order, thus minimizing excess inventory and associated carrying or storage costs.
MTO in SAP helps businesses to manage their production and inventory at optimum levels. It enables companies to avoid overproduction and wastage, reduce excess inventory costs, and respond effectively to real customer demand, thus better aligning their manufacturing operations with actual market demand.
SAP’s modules, such as Sales and Distribution (SD), Production Planning (PP), and Materials Management (MM), are closely integrated to facilitate a seamless MTO process. Through proper and transparent production planning, resource allocation, and real-time tracking, the MTO process in SAP allows organizations to efficiently fulfill customer orders while minimizing the risk of overstocking or obsolete inventory.
How does the Market to Order process in SAP work?
Here’s a step-by-step overview of how the market to order cycle in SAP operates:
1)Sales Order Creation: A customer places an order for a product with specific customization or configuration requirements. A sales order is then created in SAP’s Sales and Distribution (SD) module, which captures details like the customer’s information, product specifications, quantity, delivery date, pricing, and any other special requests or requirements.
2)Material Requirement Planning (MRP): If the product is not available in stock, the system triggers the Material Requirement Planning (MRP) process. MRP calculates the material requirements based on the sales order’s demand, taking into account lead times, current inventory levels, and production capacities.
3)Production Planning: If the product is manufactured in-house, SAP’s Production Planning (PP) module generates a production order. The production order includes details such as the product to be produced, quantity, manufacturing instructions, required resources (materials, labour, machines), and production schedule.
4)Procurement: If the product is externally sourced, SAP generates a purchase requisition (PR). The purchase requisition initiates the procurement process, which involves selecting a supplier, creating a purchase order, and receiving goods from the supplier.
5)Manufacturing or Production: For in-house manufacturing, the production process is executed based on the production order’s instructions. This involves assembling components, applying customization, and conducting quality checks. For externally procured items, the goods are received from the supplier and checked for quality and accuracy.
6)Goods Issue: Once the product is manufactured or procured, a goods issue is performed. The goods are issued from inventory and reserved for the specific sales order, ensuring that the ordered quantity is allocated.
7)Product delivery: A delivery document is created in SAP to manage the shipment process. The product is packed, and shipping information (carrier, tracking number, etc.) is recorded in the delivery document.
8)Shipping: In this stage, the product is physically shipped to the customer’s specified delivery address.
9)Billing & Invoicing: After the product is delivered, the billing process is initiated. An invoice is generated based on the pricing and terms specified in the sales order.
10)Payment and Financials: The customer makes a payment for the invoice amount. Financial records are updated to reflect the payment and transaction details.
Throughout the entire SAP Market to Order process, SAP’s various modules (SD, PP, MM, etc.) are aligned together to ensure accurate order processing, material availability, production execution, procurement, and delivery. MTO in SAP thus allows businesses to efficiently meet customer demand for customized products while minimizing excess inventory and associated costs.
Given below is a process flow of a typical market to order cycle in SAP:
BPX at a glance
Located in the metro city of Pune India, Business Process Experts (BPX) is a market leader in the SAP MTO solutions space, a specialist providing unique, customized SAP market to order implementation blueprints. With offices in UAE and other prominent cities, the company was established more than a decade back in 2012. Since then, it has not looked back and has grown steadily to become a key enabler in the SAP process solutions landscape.
Led by a seasoned team of engineers, management and finance experts, and SAP consultants, BPX and its well-known sister concern YRC are strategic, transformation partners for prominent clients worldwide. BPX clientele belongs to key industrial sectors like engineering, automobiles, banks, chemicals, garments and apparel, retail & hospitality, manufacturing, pharmaceuticals, mining, and ITeS.
So, if you are an entrepreneur or business owner looking for a successful SAP MTO implementation journey, your search ends here, please connect with BPX now. We will understand the dynamics of your organization’s MTO cycle in SAP and customize the entire process roadmap, synced, and aligned to your specific business needs. This will in turn help you to minimize costs and realize your true business potential, staying well ahead of the curve!
The Market to Order or Make to Order (MTO) process in SAP refers to a specific type of business operation where products are manufactured or produced based specifically on customer orders or demand. In this process, products are not produced until a customer places an order for them. This is in contrast to other processes like Make to Stock (MTS), where products are produced in advance and kept in inventory or warehouse for potential or future sales pipeline.
The MTO process in SAP helps organizations optimize their production and inventory management. It enables companies to avoid overproduction, reduce excess inventory costs, and respond more effectively to real customer demand. By producing goods only when there is a confirmed customer order, companies can better align their manufacturing operations with actual market demand.
SAP’s modules, such as Sales and Distribution (SD), Production Planning (PP), and Materials Management (MM), are closely integrated to facilitate a seamless MTO process. Through accurate production planning, resource allocation, and real-time tracking, the MTO process in SAP allows organizations to efficiently fulfill customer orders while minimizing the risk of overstocking or keeping inventory that is no longer required.
The various steps and phases in the market to order cycle in SAP can be given below:
- Sales Order creation
- Materials Requirement Planning (MRP)
- Production planning
- Manufacturing or production
- Goods issue
- Product delivery
- Billing and invoicing
- Payment & financials
Implementing the Market to Order (MTO) process in SAP helps to bring on board several benefits and advantages to businesses, particularly those that deal with customized or unique products.
Here are the key benefits of the MTO process:
- Reduced Inventory Costs and better Inventory Turnover.
- Better Demand Management.
- Minimal Risk of Product Obsolescence.
- Greater Customization and Flexibility.
- Improved Cash Flow.
- Enhanced Customer Satisfaction.
- Reduced Lead Times.
- Reduced Waste and Environmental Impact.
- Accurate Demand Forecasting.
- Resource Optimization and Resource Utilization.
- Reduced Overhead Costs and more Accurate Costing.
- Adaptation to changing market trends.
It is important to note here that these benefits can vary based on the specific industry, business model and requirements, and product characteristics and configuration.
Market to Order (MTO) and Plan to Inventory (PTI) are two distinct manufacturing processes in SAP that organizations can use to optimize their production and supply chain operations. Both can be defined as follows:
Market to Order (MTO): MTO is a manufacturing process where products are produced only when current customer orders are received. Products are not manufactured until there is confirmed customer demand.
Plan to Inventory (PTI): PTI is a manufacturing process where products are produced in anticipation of future demand. Products are manufactured and stocked in inventory before specific customer orders are received.
Differences Between MTO and PTI in SAP:
- MTO and its resource allocation are triggered by actual or specific customer orders, thereby minimizing resource wastage. PTI and its resource allocation are triggered by demand forecasts and internal production plans.
- MTO is suited for customizable and unique products, while PTI is implemented more for standardized products with less variation.
- MTO results in lower inventory levels and reduced carrying costs, while PTI leads to higher inventory levels and associated holding, storage, and warehousing costs.
- MTO is characterized by shorter lead times due to immediate production upon order receipt, while PTI witnesses longer lead times due to the need to retrieve products from inventory.
- MTO is highly customer-centric due to the production or procurement of tailored or customized products. Thus, it offers high flexibility to accommodate varying customer demands. On the other hand, PTI is more focused on maintaining product availability for potential customers. It is less flexible due to production being based on demand forecasts.
- In MTO, there is a lower risk of products becoming obsolete. In PTI, there is a higher risk of products becoming obsolete if market demand changes.
Thus, the choice between the two above processes depends on the nature of the products, market demand variability, customer requirements, and other business and market-based factors.