What does the 'made to order' practice in inventory management refer to?

The 'made to order' practice in inventory management specifically involves manufacturing products only after receiving customer orders. This approach allows businesses to tailor products to specific customer requirements, reducing excess inventory and minimizing the risk of overproduction. By waiting for actual orders, companies can ensure they are producing items that are directly aligned with current market demand, enhancing customer satisfaction and potentially improving cash flow since they are not investing in inventory that may not sell.

This method contrasts with practices such as producing stock in anticipation of future sales or using historical sales data to guide production, which may lead to either surplus stock or shortages if actual demand does not align with these predictions. Therefore, the essence of the 'made to order' model lies in its responsiveness to customer needs, creating a more efficient and demand-driven production process.