What is MTS and MTO and the difference between them?

The difference between MTO and MTS is
MTO--> Make to Order
Production is the process where the production order is triggered from a Sales Order. Ex: The Prod process will start only after receiving the sales order from the customer. In this case the product could be customer specific only (Variant)

MTS--> Make to Stock
MTS scenario can be accomplished by the following settings
Need to use strategy group 20 in material master MRP view-Stretgy group 20 is assigned to strategy 20
Strategy 20 is assigned to Requirement type KE (Individual customer requirement)
Requirement type KE is assigned to requirement class 040 (Indiv.cust.w/o cons.)
Requirement class has all the parameters where we can define Prodcution order type that will be used to create the prod order. The above link needs to be established.

Also the MTS can be achieved using Sales Order schedule line catagory which will be assigned to Requirement type/class. Item category is assigned to Reqtype/class and the Item category is maintained in the material master.

You can use any of the baove config settings.

For MTO --> you just need to have all PP cycle settings in place nothing special needed as it is a plain PP cycle.

1. Make-to-order production is a process in which a product is individually manufactured for a particular customer. In contrast to mass production for an unspecified market where a material is manufactured many times, in make-to-order production a material is created only once though the same or a similar production process might be repeated at a later time.

2. You can use make-to-order production in two scenarios -
(a) For branches of industry or products where a small quantity of products with a large number of different characteristics are manufactured (Variant Configuration).
(b) When a product has to be assembled particularly for a sales order (Individual Customer Requirement).

3. Stock keeping is not usually carried out for products that are made to order. In companies using make-to-order production, the demand program only determines the production area, in which various variant types are produced. Depending on how you track the costs associated with make-to-order production, there are two ways to process make-to-order items during sales order processing.
(a) Make to order using sales order
(b) Make to order using project system (not relevant for SD application)

4. For make to order production using the sales order, all costs and revenues involved for an order item are held collectively at that item. A particular rule is used that can be changed manually to transfer costs to profitability analysis.

5. Make to order production is largely a production planning configuration. It is also controlled by the requirements type, which is determined by three things
the strategy group (MRP 3) in MMR
the MRP group (MRP1) in MMR
the item category and MRP type (MRP 1)

6. Make-to-order production is controlled by the requirements type. The requirements type is determined on the basis of the MRP group (MRP1) and the strategy group (MRP3) in the material master record. In addition, a plant must be assigned for make-to-order items in the sales order.

MTO - Make to Order

Make-to-order production with capacity checking enables vendors to trigger production of a requested product as soon as a sales order reaches the system. An automatic process checks machine capacity, schedules production, and determines the requested product’s availability date. This enables vendors to make immediate, reliable offers and commitments to their customers for the requested quantities and delivery dates. While particularly well-suited to high-tech manufacturers and makers of industrial machinery and equipment, this method also addresses the requirements of other make-to-order manufacturers.

MTS - Make to Stock

Make-to-stock production is designed for manufacturers that usually operate on the make-to-order model – configuring their finished goods after sales order entry – but that nevertheless manufacture the components of the finished goods in a make-to-stock process. The SAP best practice definition describes how manufacturers can accurately predict the future demand for components, communicate with suppliers of critical parts, and plan the production and distribution of finished goods, all based on actual material and capacity restrictions.