ETO, or Engineer-to-order is the production mode where the Order penetration point (OPP) is located furthest up in the value stream, i.e. further away (upstream) from the customer than in other basic production modes (Make-to-order MTO, Assemble-to-order ATO and Make-to-Stock MTS). The product is manufactured based on customer order, but in addition to the producing the goods, the order also requires product engineering. There is no finished goods inventory; the production stocks consist of work in progress as well as material, components and parts. The production may also work with very little material inventories if all or most needed materials are ordered from suppliers based on the customer order.
Engineer-to-order is typical solution in situations, where customer needs a product which is customized specifically to his/her needs. For example equipment where key measurements or other parameters are dependent on the exact place / situation of use, or some functionality is needed which does not exist yet in any product. The amount of product engineering can be a small, order-specific modification or sizing – or a major R&D effort of planning new functionality. Out of the basic production modes, Engineer-to-order has the longest lead times for the customer, but on the other hand the customer can get exactly the product he/she needs; the amount of product variants is at least in theory endless. Also inventory risks and capital tied to inventory tend to be smaller than on other modes.