In make-to-order production the Order penetration point (OPP) is located deep in the production: the product is manufactured (almost) from the scratch into a finished product based on arrived customer order. There is no finished goods inventory; the production inventories contain work in progress and material, components and parts.
Make-to-order is a typical solution in situation, where the production volume is relatively small in relation to the amount of different finish product variants. In such cases a finished goods inventory is not feasible: having all possible products in stock would require a lot of tied capital and would cause high costs. Even warehouse space can be a limiting factor.
In make-to-order production the delivery time experienced by the customer is considerably longer than in make-to-stock production, and often also clearly longer than in assemble-to-order production. Make-to-stock is chosen over assemble-to-order for example in situations, where the product is not suitable for modularization or it has not been modularized yet, or if the production volumes are so small that having the modules in buffer inventory would not be financially feasible.
Make-to-order production enables a very large product portfolio. There is relatively little money tied in inventory, since instead of finished goods the inventory is in components and parts. All work in progress is connected to a customer order, which reduces risk. The work load in production can vary in time even heavily, because production activities are directly dependent on customer orders. In practice this is managed with varying production volumes which requires flexible resources and/or quoting longer delivery times when demand is high.
In its basic form make-to-order means that the product has been designed ready, and drawings and work instructions exist. In practice the division between make-to-order and engineer-to-order is not always that strict, but there may be small scale engineering also for make-to-order products. Make-to-order may also involve purchasing parts or materials based on order. If the majority of parts and materials is purchased based on customer order, we can also use term Purchase-to-order or Buy-to-order.