Make-to-order vs make-to-stock
What is the difference between make to order and make to stock?
Which business model fits better?
When should we use one or another?
What are the pros and cons of using make-to-order and make-to-stock?
Few introduction words…
These are just some of the questions that we ask when planning our manufacturing process.
In the startup phase more or less everything goes based on intuition and experience, but later we need to wisely choose between two models. At first sight, there is no obvious difference but when we analyze more deeply, we can see very important differences that can save or lose a lot of money during the curse of time. First, let us explore the features of each approach.
MAKE TO ORDER
We are sales beasts. We optimized all our sales channels and marketing is driving our sales. Numbers are skyrocketing and orders are just pouring into our sales module. Everything is bright and shiny.
Except in manufacturing.
Our shop floor guys are stuck in production. Raw materials slots in the warehouse are empty, and work order queue on our CNC center is longer than a black-Friday rush in front of our favorite high-tech fruit logo store.
As you can see from this disaster scenario, there are some pre-requirements that need to be meet up in order to run our manufacturing smoothly. Don’t get me wrong – fortunes are made when built to order process is fine-tuned.
And what do we need to ensure in order to keep things under control? Okay, it is not a top secret and we like to share knowledge – isn’t that the reason why we are writing this in the first place? 🙂
So, here they are – the top 5 must implement features if you wish to run your “build-to-order” manufacturing smoothly.
First, (Orwell would like this one) – Monitoring, monitoring, and monitoring.
You need to have eyes and ears in each corner of your shop floor. You need to know exactly where are you standing with your inventory levels, are machines operational, and to manage your supply chain on the top level. Why? Because you don’t want to disturb your manufacturing process, especially if you are a small business and your resources are on a high demand level.
Second, Flexibility.
You need to have flexibility built into the DNA of your manufacturing process.
You need to be able to shift gears, speed up one order and put on hold another.
Third, the Fulfillment process.
Your procurement team backed with the help of an MRP/ERP Software should be able to react quickly on new demands and deliver goods on time and in right places, of course, with demanded goods, so your RMA is not overheated.
Forth – you still need Safety stock to ensure JIT (just in time) delivery of goods. And that’s a touch of art. Too much can put you in the trouble by tying up financials and producing an unnecessary cost, on another side – not enough can produce additional cost in transport and brake the deadline.
And at last – the last one – fifth, Synergy between the dynamic components of your manufacturing system.
This one is about building a team that likes to work in dynamic conditions, that is fast to respond and whose team members are ready to jump in for one another.
Benefits:
- Customer satisfaction
- Optimized costings for transport and warehousing
- Fast reaction to market terms
Risks
- Inefficiency
- Wastage
- Deadlines
MAKE TO STOCK
Okay. If “make to order” is for acrobats, then make to stock is for the fortune tellers.
This is the perfect manufacturing process if you have a crystal ball and you know how to use it.
Joke aside, yes, that is just what you need in order to successfully run your make-to-stock manufacturing. If you are wondering why – I’ll tell you why:
This type of manufacturing is driven by FORECASTING. Which means that you need to have strong capabilities to predict the demand based on previous sales. Usually, from the small business perspective, these are monthly, quarterly, half-term, and yearly cycles.
It is achievable, but you need to take into account a lot of variables and you need to work in a stable economy.
If the economic terms are fluctuating then you need to guess when and what to expect (and if you are good at guessing, then you better move to Wall Street 😉 ).
In order to have good forecasting, the software system must have great reporting.
“Statistical data”, “business intelligence” and “AI-driven” are just some of the terms that you will get used to.
You need to possess the right assets, in terms of knowledge, to really understand trends and set your goals.
And, the last but not least, is your art of seduction – for the great relationship with your vendors.
You depend on them, usually, these are long term contracts and you need to choose the right suppliers to keep your shop floor running
Benefits
- cost decreasing using blanket PO and other long-term suppliers contracts
- cost consistency
- more stable environment
- predictive machines maintenance cycles
- overall less stressful environment
- better efficiency
- stockpiling caused by bad planning
- manufacturing interruptions
- slow “market” response time
Now, once you have all the facts, it’s up to you to decide: which member of the Circus are you?
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