Manufacturing in Microsoft Dynamics 365 Business Central: Make to Order vs. Make to Stock & reordering policies

When building a robust manufacturing operation on Microsoft Dynamics 365 Business Central, two of the most strategic decisions you’ll make are your production model (Make to Order vs. Make to Stock) and how you configure your system’s planning mechanism using reordering policies. These choices fundamentally impact everything from inventory holding costs and cash flow to lead times and customer satisfaction.

For manufacturers and distributors, inventory planning is a delicate balance. Holding too much stock ties up capital and increases storage costs, while too little stock results in missed sales and production delays. Microsoft Dynamics 365 Business Central offers multiple reordering policies that help businesses optimize their inventory replenishment strategies.

In this comprehensive blog, we’ll break down the business logic behind both models, explore how Business Central supports them through reordering policies, examine how Material Requirements Planning (MRP) functions in each environment, and show you how to scale your planning operations to manage thousands of items with confidence.

• • Understanding the models: Make to order vs. Make to Stock
  • Key differences between MTO and MTS
  • Reordering policies in Business Central
  • Make to Order: Overview of MRP
  • Make to Stock: Planning Worksheet in action

At a high level, the choice between Make to Order (MTO) and Make to Stock (MTS) determines when you manufacture goods in relation to customer demand. This decision forms the backbone of your manufacturing strategy and directly affects your efficiency, inventory management, and ability to respond to market needs. In the sections below, we’ll dive deeper into the definitions of MTO and MTS, explore their ideal use cases, and discuss how each approach impacts your organization. This foundation will set the stage for examining key differences and help you evaluate which model best fits your manufacturing environment.

Make to Order means you only produce a product after receiving a customer sales order. This model is perfectly suited for:

• Custom or high-value products: Items where holding finished goods inventory is costly, impractical, or impossible due to unique customer specifications.
• Specialized manufacturing: Products that require specific configurations, finishes, or components

Example: A company manufacturing custom industrial equipment or specialized wood flooring, where every order has a different size, finish, or set of components.

In a Make to Stock model, products are manufactured in advance based on forecasted demand or to maintain minimum safety stock levels. This strategy is ideal for:

• Standardized or fast-moving goods: Items that have predictable demand and can be fulfilled instantly from inventory.
• High-volume production: Products with economies of scale when manufactured in batches

Example: A business producing standard fasteners, common automotive parts, or packaged retail goods.

Your choice between MTO and MTS is a core business strategy that influences your operational costs and customer experience. To help compare these two manufacturing approaches, the following chart outlines the key factors that differentiate Make to Order (MTO) from Make to Stock (MTS).

One of the greatest strengths of Microsoft Dynamics 365 Business Central is its ability to support both MTO and MTS models simultaneously—even for the same item at different locations. You can fine-tune replenishment behavior using stockkeeping units (SKUs) to reflect real-world scenarios, such as:

• Producing Item A to stock in your main warehouse (MTS).
• Producing Item A to order in a specialized distribution center (MTO).

Understanding how Microsoft Dynamics 365 Business Central manages inventory replenishment is key to optimizing your manufacturing strategy. The way you plan and execute Make to Order (MTO) and Make to Stock (MTS) processes hinges on selecting and configuring the right reordering policies. These settings, found on the item card under the planning tab, allow you to tailor supply planning to match your unique operational needs and ensure inventory levels are efficiently maintained. The four primary reordering policies are outlined below to help guide your supply planning decisions.

This policy is used specifically for Make to Order (MTO) scenarios. Business Central creates a planned production or purchase order only when a sales order exists—nothing else triggers it.

How it works:

• Inventory is reserved immediately for the sales order
• No safety stock or forecasting is used to trigger supply
• No forecasting, no safety stock, no batch production
• Each sales order generates its own supply order

Best use cases:

• Make-to-Order manufacturers producing custom goods
• High-value, low-volume products (e.g., specialized machinery)
• Businesses that want to minimize inventory carrying costs
• Custom or high-cost items requiring customer-specific production

The fixed order quantity policy instructs Business Central to always order the same quantity whenever stock reaches the reorder point. This is an ideal policy for predictable Make to Stock (MTS) bulk production or purchasing.

How it works:

• The system monitors stock levels and identifies when they fall below the reorder point
• A purchase order or production order is triggered for the fixed quantity
• The process repeats each time the reorder point is reached
• When inventory falls below a defined reorder point, the system always plans for a fixed quantity, regardless of the actual demand needed to reach the maximum level

Best use cases:

• Items with steady, predictable demand (e.g., screws, bolts, fasteners)
• Products with economies of scale when purchased or manufactured in bulk
• Supplier agreements requiring minimum order quantities
• Bulk manufacturing or purchasing scenarios

This policy is used in Make to Stock (MTS) environments where you need to cap your stock levels to prevent overproduction or over-purchasing. The Maximum Order Quantity policy helps businesses control excess inventory by ensuring stock never exceeds a predefined maximum level.

How it works:

• When stock reaches the reorder point, the system calculates the required quantity but caps it at the maximum level
• The system plans inventory replenishment up to a defined maximum level
• If demand is higher than the max quantity, multiple smaller orders may be generated instead of one large order

Example: If your maximum stock is 2,000 and you currently have 500 on hand, the system will plan an order for 1,500 units.

Best use cases:

• Businesses with limited warehouse space
• Products with short shelf life (e.g., perishable goods)
• Companies looking to reduce holding costs
• Operations requiring tight inventory control

This is the most flexible of the Make to Stock (MTS) methods, allowing you to dynamically meet fluctuating demand. Lot-for-Lot is one of the most flexible reordering policies in Business Central. Instead of using a fixed order quantity, this policy aggregates demand over a predefined period and creates an optimized replenishment order.

How it works:

• The system accumulates all demand for a product over a set period (e.g., one week or month)
• It plans supply to meet the total demand within a specified planning period (which can be a day, week, or month)
• A single purchase or production order is generated to cover that demand
• The system gathers all requirements (sales orders, forecasts, safety stock needs) over that defined time window and consolidates them into a single planned supply order
• The next order is placed at the end of the planning period

Best use cases:

• Products with fluctuating demand patterns
• Businesses looking to minimize order frequency while maintaining stock availability
• Items with long supplier lead times, requiring consolidated ordering
• Operations seeking to optimize procurement costs

• Safety stock: Defines the minimum quantity you always want on hand. This buffer helps protect against unexpected demand spikes or supply delays.
• Blank (No planning): If no reordering policy is selected, the system won’t plan anything for the item.

In Microsoft Dynamics 365 Business Central, Material Requirements Planning (MRP) is a powerful tool that helps manufacturers plan their production and purchasing based on real demand. When you’re operating in a Make to Order (MTO) environment, MRP behaves in a unique and highly targeted way. Instead of reacting to forecasts or stocking strategies, it responds directly to customer sales orders. This approach keeps inventory levels lean, avoids overproduction, and ensures that resources are allocated only when needed.

In a Make to Order environment, production planning begins the moment a sales order is entered into the system. For MTO, Business Central doesn’t rely on forecasts, safety stock, or historical usage trends. Instead, it plans strictly around actual customer demand. Once a sales order is placed, the system recognizes the requirement and begins planning to meet it—nothing more, nothing less. This approach keeps inventory levels lean, avoids overproduction, and ensures that resources are allocated only when needed.

When an item is produced specifically for an order, it’s essential that the finished goods are not accidentally allocated to another customer. Business Central handles this through inventory reservation. The system can be set up to automatically reserve inventory for a sales order, or you can opt for manual control, allowing users to choose which stock to reserve. Once inventory is reserved, it’s removed from general availability. This guarantees that the quantity produced is tied directly to that specific customer’s order. This capability is especially important for manufacturers producing customized products, or in cases where certain customers require dedicated stock.

After the sales order is recorded, running MRP in Business Central produces a planned production order that matches the sales order exactly. There’s no grouping of demand or accumulation of orders from multiple customers. MRP creates a one-to-one relationship between the sales order and the supply. For example, if a customer requests 300 units by a specific date, the system calculates backward from that date based on production routing and lead times to determine when manufacturing should begin. A planned production order is created with that precise quantity and timeline. This level of precision is what makes MTO planning so effective for businesses with highly variable or customized demand.

In Make to Order mode, Business Central takes a strict view of what counts as usable inventory. Even if stock already exists in the system, MRP will not use it to fulfill new sales orders—unless that inventory was specifically produced for the same customer and order. If the system finds existing inventory or production orders that don’t align with the sales demand, it recommends cancelling them. This keeps inventory clean and ensures that orders are only fulfilled with what was intentionally produced for them. This reinforces the principle of only building what’s needed, when it’s needed, and for whom it’s needed.

One of Business Central’s most helpful planning tools is the Item Availability by Event view. This timeline-style interface shows all transactions—such as existing stock, incoming supply, and outgoing demand—alongside the running inventory balance. When working in Make to Order, this view clearly displays the link between a sales order and its corresponding planned production order. If multiple sales orders exist, the system creates a separate supply line for each one. This gives planners full transparency into how the system is responding to demand and ensures confidence in the results.

Now let’s flip the script and look at what happens when a business operates under a Make to Stock (MTS) model. This planning approach is ideal for businesses that produce goods ahead of customer demand, either based on forecasts, recurring orders, or a need to maintain consistent inventory levels. Business Central provides flexible planning tools to support MTS operations—including lot-for-lot, safety stock, and maximum order quantities.

When MRP is run from the Planning Worksheet, the system looks at net inventory position and responds accordingly. If current stock is sufficient to cover open demand and safety stock, no new orders will be suggested. If inventory is low, Business Central will generate a supply plan that respects the planning parameters. For example, if a business has 65 units in stock and a sales order for 50, MRP may decide that no new supply is needed—because the stock is sufficient and above the safety threshold. The worksheet clearly flags any firm production orders that are no longer needed, often recommending they be cancelled.

When sales demand exceeds what you’re willing to produce in a single batch, Business Central follows your Maximum Order Quantity setting. For example, if a sales order is for 300 units, but your max order quantity is 100, the system won’t create one large production order—it will split it into multiple orders, each capped at 100. This strategy helps businesses manage floor capacity, resource scheduling, or machine constraints while still meeting the full demand.

One of the most valuable features of MTS planning is the ability to maintain a Safety Stock buffer. This is the minimum inventory level you want to have on hand at all times. When MRP runs, it not only fulfills active sales orders but also plans production to replenish safety stock, keeping your shelves ready for future demand. At the end of a planning period, if Business Central determines that supply is about to dip below the safety stock threshold, it will schedule additional production to bring the inventory back to your desired buffer level.

Whether you operate in a Make to Order or Make to Stock environment, Microsoft Dynamics 365 Business Central gives manufacturers a powerful planning framework that aligns production with real-world demand. MTO offers precision planning tied directly to customer orders and minimal inventory exposure, while MTS provides the ability to build ahead of demand, maintain stock availability, and support higher-volume operations. Business Central’s reordering policies—Order, Fixed Reorder Quantity, Maximum Quantity, and Lot-for-Lot—provide the flexibility needed to tailor planning behavior for each item, location, or product family.

When configured correctly, these tools work together to create a balanced, responsive supply chain that reduces risk, improves efficiency, and ensures your production team always has clear, accurate direction.

If you’re looking to go even deeper into how MRP functions behind the scenes—including action messages, order tracking, and exception-based workflows—explore our full guide to Material Requirements Planning in Business Central.

Mastering the complexity of manufacturing in Business Central requires more than just knowing where to click—it demands a partner who truly understands your production goals. At Rand Group, we offer comprehensive services that span the entire lifecycle of your ERP system. From expert implementation that ensures your Make to Order (MTO), Make to Stock (MTS) strategies, and reordering policies are set up for maximum efficiency, to dedicated support that resolves issues and provides ongoing optimization advice long after your go-live, training, we are committed to your success. Contact us today to take the next step toward confident, streamlined manufacturing with Rand Group.