Make (Production) to order and Make (Production) to stock

What is Make to Order or Production to Order?

Make to Order Stock – Make to order (MTO) or production to order is the process of products manufactured upon a business receiving a customer’s order. A make to order business also applies to companies that sell products that are built to order, such as a bespoke manufacturing company. If your business is make to order, it means the customers will have to wait for the products, however, this allows for more personalization as a customer has a chance to customize their order.

As the business will not start production until receiving the order, this will affect leading times, making it longer. Though, there are ways of combating this by calculating your lead times.

The make to order method belongs to a pull system of manufacturing as it relies on customer orders before starting production. Other methods that fall under this type are built to order (which is another term for make to order), assembly to order, and engineer to order.

A Make to Order or production to order Example

How about this for a make to order example.

You want to be the coolest kid on the block, so you decide to become a video gamer. However, you don’t want some generic PC that is being offered by some of the bigger companies.

You’ve researched all the components (processors, RAM, hard drive, etc.) and know what you would like in your perfect rig. But you really don’t trust yourself building the computer and handling the hardware.

If you go to a company that builds customized PC’s you will be offered tons of options and variations to build a desktop or laptop that meets your specific needs.

Once you’ve populated a form or talked through your dream PC’s specifications with an employee, you’ll immediately place and pay for your order.

That’s the customers’ side of the journey finished – well, almost finished. Now they wait for the delivery of their product.

Over at the company, they receive the customer’s order and now the manufacturing of that PC will begin on receipt of a manufacturing order.

A well-organized business will have the materials and components on-site (or at another location depending on how they store inventory and operate) ready, so that the manufacturing can begin, and not be delayed by low levels of stock.

As mentioned before, make to order products exist under a pull system:

The pull system = Products being pulled to manufacturing from a customer’s purchase.

What Are the Advantages of Make (production) to Order?

Here are three reasons as to why a make to order operation might be beneficial to your business:

1. Minimize waste

Minimizing waste doesn’t just apply to your business attempting to reduce expenses on material that is being disposed of or that is unnecessary to production.

Minimizing waste means that resources are only spent on your product if it benefits your customers. If a process, action, or addition to a product does not add value to the customer, it is considered waste.

2. Reduce the risk of inefficiency

All manufacturing takes place on receiving the customer’s order, meaning the company’s operations are directed to just focusing on the manufacturing of products as efficiently as possible. However, you’ll need to decide when to start production by choosing either forward scheduling or backward scheduling.

3. Customizable products

Customers will come to you when they want a more personalized shopping experience, making your products very unique compared to other companies who MTS.

Unfortunately, there also comes some downsides with being a business that is make to order.

What Are the Disadvantages of Make (production) to Order?

Let’s look at three disadvantages that you can face if you decide to take this approach to manufacturing:

1. Irregular sale demands

Businesses usually experience peaks or spikes in sales, for example, seasonal periods increase in sales since it’s the Christmas period.

This means that your business might notice lulls in sales, or even a massive boom in demand, both of which can put a major strain on your business.

2. Material stock falling behind

The nature of a make to order business means that your business must always be primed and ready for the next customer order to begin manufacturing as soon as possible.

Although, incorrect stock level readings of materials or a ton of orders can result in your business running out of material at a crucial moment, putting you behind on your orders.

3. Customer wait times

It’s not their fault, and if we’re honest with ourselves, we’re all a little impatient.

Customers want their products and they want them now.

Make to order, once again, giving the nature of the method, means customers have to wait a while before receiving their products. And if they must wait longer than they originally realized, this is going to manifest in their dissatisfaction toward you.

That was a brief overview of the make to order method and how it could potentially benefit your business.

But, now let’s look at its counterpart, which is again another avenue of a manufacturing technique that you could explore.

What is Make to Stock or Production to Stock?

Make to stock orders (MTS) or production to stock are products that are manufactured for inventory, based on sale forecasts and expectations on customer demand.

The idea of this traditional production strategy is to match your business’s production and inventory with customer demand forecasts.

However, this can be tricky and even risky as the slightest miscalculation can mean being left with dead stock, a shortage, or an excess of inventory.

If you’re a company that practices make to stock, you should be able to spread production at certain periods to avoid an expected influx in sales.

The make to stock method is a push system of manufacturing as it covers products that are made to forecasted demand.

The push system = Products being pushed to production from expected sales.

A Make to Stock or production to stock Example

Unlike make to order, make to stock products wait for the customers to come and purchase them.

To keep the examples in a similar field as earlier, you want to buy a PC that will be used as the family desktop. You’re not looking for something fancy, you just want a PC that can get the job done.

You head to an electronics store that sells all sorts of electronic goods, and they stock several PC’s. You look at the different models on display, you pick out one that you like and someone from the store runs behind the scenes and emerges with your product.

The customer’s journey is finished, but the journey toward creating the final product started long before, in anticipation of the customer’s arrival.

The business would have analyzed their previous sales and based on different trends (in the current economy and its own sales history) it will make a forecast based on its capacity and the amount of demand.

Perhaps, just for an example, the PC was purchased leading up to Christmas, and the company can see a spike in PC sales from the Christmas before and were able to surmise that they will need more stock for the expected rush.

This means the PC the customer bought for their family in December, may have originally been manufactured several months prior, to have increased levels of stock to cope with the Christmas rush.

What Are the Advantages of Make (production) to Stock?

As already stated before, this might be a viable method for you depending on your type of business. But we’ll still look at the advantages and disadvantages to get an understanding of if MTS is a strategy that you should be incorporating.

Three advantages are:

1. Spread resources and production

As you’ll be manufacturing your products ready for the customer’s demand, you can properly and carefully organize your resources and production that will be carried out to maximize your efficiency.

2. Make to stock scheduling

Using this method means that you’ll be able to design a master production schedule to make sure your workflow is as smooth as can possibly be.

It allows you and your employees to know where they need to be and what is left to do.

3. Minimize customer wait times

Finally, your products will be waiting for your customers – obviously if everything is completed on time.

As soon as your customers have placed their order, their product can be shipped out to them, reducing the customers waiting time by a huge amount.

Using a make to stock method seems like a dream come true for someone who values organization and having complete control of their business’s workflow.

The best defense is a strong offense, so to speak.

What Are the Disadvantages of Make (production) to Stock?

However, this tactic can also come with some disadvantages as, for the most obvious reason, this type of manufacturing process relies heavily on the assumption of the industry.

Let’s take a look at three disadvantages that could affect you and your business:

1. Unpredictable nature of consumer trends

You can forecast by analyzing past sales and seasonal spikes, but even though you’ve made completely accurate and correct assumptions, your products, unfortunately, aren’t selling as well as you originally predicted.

Or the other extreme, there’s a sudden boom that you weren’t prepared for. It’s just the nature of the beast.

2. Inventory levels

You can technically be in a perpetual state of either having too much or not enough stock.

3. The difficulty making accurate sales forecasts

The industry can be complex and affected by a ton of variables, so that already makes it difficult to forecast your sales. However, one little mistake or miscalculation means you could end up with too little or an excess of stock, which is going to cost your business.

There are pros and cons to choosing to follow either workflow, however, you should know that if you do decide to organize production following one of these tactics, that doesn’t have to be your final choice.

Production & Operations Management

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