Make to Stock and Make to Order

By- Soham Neha

Introduction
The kinds of products and services offered by a company drive

operations strategy. Products and services can be classified as maketo-order or make-to-stock.

Traditionally, most companies utilized a push or Make-To-Stock

(MTS) system, holding inventory at the end of the supply chain. However, in an MTS system, firms need to be able to estimate demand to determine how much to produce and stock, and so these systems rely heavily on forecasts, which in many cases are not very accurate.
Thus, many progressive companies have shifted to pullor Make-

To-Order (MTO) systems, holding no inventory at all and producing to order. In these systems, companies produce based on actual customer demand instead of forecasts. have to run both, or a hybrid.

Nowadays we rarely see standalone MTO or pure MTS; most firms

Types Of Production Process

Types of Production Processes(depending upon the customer order)

Production processes or manufacturing operations may broadly be divided into two categories. Make to stock production process Make To Stock (MTS) is ostensibly 'making enough, before the orders arrive, to supply ex-stock'. These firms make items that are completed and placed in stock before customer order is received. Produce finished goods. Customer buys from inventory Make to order production process MTO (Make To Order) is strictly 'make after an order arrives, making only the quantity ordered. These complete the end item depends upon customer order. This is because manufacturer cannot anticipate what each customer wants.

Make-to-Stock
Forecast orders

customer

Production Customer Order

Product Finished Goods Inventory

Product

4-4

Make-to-Order
customer
Customer Order Product Production

4-5

Example
Make-to-stock products and services are designed and produced for

"standard" customers in anticipation of demand. Shelves are prestocked with the items, and customers choose from among the products or services that are available for purchase. Examples include ready-to-wear apparel, books, televisions, airline flights, spec homes, and standard vacation packages.

Make-to-order products and services are designed, produced, and

delivered to customer specifications in response to customer orders. Make-to-order production is controlled by the requirements type. Examples include wedding invitations, custom-built homes, custom-tailored clothes, charter airline flights, component parts, and most professional services (such as medical, legal, and financial services). Critical operations issues relate to satisfying the customer (since each customer wants something different) and minimizing the time required to complete the order.

How to get down on deciding type of process

Advantages and Disadvantages

Make to stock production process:-

Advantage: smooth production This means that the irregular requirements flow that would result from different customer requirements quantities can be smoothed and simply produced to stock. Disadvantage: inventory Problems
Make to order production process:-

Advantage: Speed and Flexibility allow for Quick reliable delivery with little or no finished goods inventory Disadvantage: intermittent production Orders can not be completed on time.

MTS Performance Measures

Product is manufactured and stocked in advance of

demad.
Inventory turnover or protect against stockouts due to

variability of inflows and outflows.

Back order fill rate Inventory accuracy Time to replenish Others, such as shrinkage rate

MTO Performance Measures

Each order is specific, cannot be shred in advance.
Process needs to maintain sufficient capacity. Variability in both arrival and processing time.

Role of capacity rather than inventory.

References
Operation Management: Theory and Practice
By B. Mahadevan Make to Order or Make to Stock: Model and

Application Author: S. Rajagopalan