How to Best Understand Make to Stock

This Article Covers

  • The Make to Stock Definition
  • The Relationship Between the Sales Order and the Replenishment Trigger
  • Where Make to Stock Environments Apply

Definition-2

Make to Stock Definition

Make-to-Stock (MTS, a.k.a. Build-to-Stock or Build-to-Forecast): Here the replenishment is triggered by a forecast. Probably misnamed, MTS should probably have been called make to forecast, as the forecast is the trigger for replenishment – which of course results in stock until the actual sales order arrives.

Make to stock, or sometimes called (MTS) is one of the major manufacturing environments. The others are

  • Assemble to order
  • Engineered to order
  • Make to order.

Make to stock is the most common of the manufacturing environments. While little discussed, make to stock allows for economies of scale in procurement, manufacturing, and distribution, which lowers the unit costs of items.

The Relationship Between the Sales Order and the Replenishment Trigger

All procurement and production are performed before the sales order is received. By contrast, both Engineering-to-Order and Make-to-Order all of the procurement and production is performed after a sales order is received.

And that is with the products in the BOM for Engineering-to-Order being procured and produced the latest after the sales order is received as, at the time of the receipt of the sales order, it is not known exactly what is to be built.

In MTS, the replenishment is triggered on the basis of a forecast.

Where Make to Stock Environments Apply

In markets or submarkets where customization is more important than volume or cost to the consumer, production can be postponed until after the sales order.

In markets or submarkets where costs are more important, and there are little in the way of benefits of customization for the product make to order is not an option.  A good example being light bulbs for instance. Here production should be performed before the receipt of the sales order. It should also be observed that multiple manufacturing environments are employed for the same category of product. For instance, one can either buy a dress shirt from Brooks Brothers in a store, which was produced with a make to stock manufacturing environment or can provide one’s measurements to a tailor and have the shirt custom made in a make to order manufacturing environment.

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References

Make to order, assemble to order and more topics related to replenishment triggers are covered in my book.

Replenishment Triggers Book

Replenishment Triggers

Getting the Terminology Right

The terms make to order and make to stock roll quickly off of people’s tongues regardless of their knowledge of other supply chain conditions. Many executives speak about “moving to make to order environment.” For most companies, this simply is not realistic. And many businesses that say they do make to order/configure to order/engineer to order are doing assemble to order planning.

The Universality of The Manufacturing Environment Type

These terms are specific types of manufacturing environments. They are embedded in almost all supply planning applications ranging from the most basic ERP to the most sophisticated advanced planning system. However, each manufacturing environment leads to some implications, implications that are most often not completely understood.

Getting Clear on Requirements Strategies

Requirements strategies are what control what drives the replenishment of supply in systems. In most cases, the need strategies control whether the forecast or the sales order triggers replenishment.

This book cuts down the amount of time that is required for people in companies to understand the relationship between manufacturing environments (the business) and requirements strategies (the technology setting in the supply planning application).

By reading this book you will learn:

  • What are the major manufacturing environments and what determines which manufacturing environment a company follows?
  • How do the different manufacturing environments impact how inventory is carried?
  • How are the various production environments configured in software?
  • What is mass customization, and how accurate is useful is this concept in real life?
  • What is the interaction between variant configuration and the manufacturing environment and the bill of materials?

Chapters

Chapter 1: Introduction
Chapter 2: The Different Manufacturing Environments
Chapter 3: Triggering Replenishment
Chapter 4: Requirements Strategies
Chapter 5: The Make to Order Illusion
Chapter 6: The Limitations to the Concept of Mass Customization
Chapter 7: Forecast Consumption
Chapter 8: Variant Configuration in SAP ERP
Chapter 9: Conclusion

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