Manufacturing production is the process of making finished goods from raw products through the use of human and machine labour, in the most efficient and cost-effective way. There are three methods of manufacturing production: make to stock, make to order and make to assemble.
In this article, we’ll look at the three types of manufacturing production methods, discuss their strengths and drawbacks
Make to stock method relies heavily on accurate forecasting to avoid waste
Make to stock (MTS)
Make to stock is the process of manufacturing production in which the products are created in bulk on the basis of expected demand from customers. That demand is assessed by sophisticated forecasting tools and then delivered at the point of consumer purchase.
Why use make to stock?
The benefits of make to stock manufacturing production are severalfold. The idea is to create just enough stock to meet customer orders, based on accurate forecasts of demand. Undertaking this successfully means there are efficiencies at every step in the manufacturing process, right through to customer delivery.
The forecasting process relies on technology that can assess past demand to feed into an algorithm assessing likely future orders.
Doing this well enables the manufacturer to order raw products in bulk, and produce a high volume of products that ideally matches customer demand. Accurate forecasting also allows workflow and labour to be managed appropriately. This means orders are able to be fulfilled with ease and efficiency, and there is little wastage or lost opportunity.
Who should use make to stock?
Make to stock is regarded as a traditional method of manufacturing production, and is widely used by manufacturers. It is used particularly in high turnover industries that have relatively predictable consumer patterns such as the retail sector.
Make to stock is also a useful manufacturing production system for industries that are influenced by seasonal changes or holidays such as Christmas, Easter and New Year. It is also useful in industries that evolve at speed, such as technology, where products required can change rapidly.
Limitations of make to stock method
Make to stock depends on accurate forecasting of consumer demand. If those forecasts are wrong, the process can lead to insufficient stock to meet demand and the company loses out on sales. On the flip side, it can lead to an oversupply of materials that go to waste. Forecasts are also used to structure workflow and staffing, and if they are wrong this can lead to financial losses and production scheduling issues within the workforce.
How to improve the make to stock method
The key aim for manufacturers looking to improve make to stock processes is to ensure forecasts are as accurate as possible. The reliability of the forecasts is the key to the manufacturer’s success or otherwise, as it affects every aspect of the production line’s efficiencies.
If the forecasts predict fewer orders than are ultimately placed, the manufacturer is left scrambling to meet customer needs. Failing to do so is a lost opportunity, and can also cause reputational damage. On the flip side, if more orders are forecast than ultimately placed, the manufacturer is left to manage an oversupply of stock. Some stock may be perishable and therefore go to waste. If stock is held, there are warehousing and labour costs to manage.
- Read more: Solving Traditional Inventory Challenges with Online Inventory Control
While forecasting tools and software are under constant improvement, variables to global economies and trends cannot always be predicted, and make to stock manufacturers carry that risk.
Make to order methods are more suited to bespoke or custom orders
Make to order (MTO)
Make to order is, as the name suggests, a production process in which the manufacturing is done after the order has been received. This lends itself to bespoke manufacturing that suits particular customer or outlet needs. Unlike make to stock, make to order production begins when an order is received, and therefore has a lower chance of wastage or inefficient production workflow.
Why use make to order methods?
Make to order is driven by specific and detailed customer demand. Manufacturers know the exact order and how much material is needed. This means there is little wastage of inventory or labour in creating the product for sale to the customer.
Who should use make to order?
Make to order is generally used by large and complex organisations, such as defence, airlines or construction. These industries have a need for precise products and can, to a certain extent, absorb a longer lead-time in receiving the goods.
Limitations of make to order
The limitations of make to order are largely around irregular order patterns and the ability to manufacture a product within a reasonable time frame and deliver it to the customer.
Make to order products can be very specific, and as such, there is little visibility over what orders may be coming in at any time. The unreliability of orders and thus financial stability can be very difficult for a manufacturer to manage.
When an order does come in, making and delivering it will inevitably take longer than those made under a make to stock system, as production only takes place once the order has been placed. There are numerous hiccups that can come into play as a result — lack of raw materials, delays in the delivery of materials or components, and workflow being difficult to manage due to the unpredictability of orders being made and particular skills required.
How to improve the MTO process
The make to order process is under constant scrutiny by manufacturers and customers alike, both looking for ways to streamline the system, and ensure better outcomes both with the production process and delivery process.
Mistake-proofing aims to develop products quickly without costly errors. This involves correcting past errors and future-proofing against a repeated error — perhaps by implementing inventory management software to control the flow of goods, upskilling staff, or assessing supplier performance.
Load levelling is a useful tool for make to order manufacturers as it allows small batches of the order to be developed in a time-effective manner. This also allows manufacturers to quickly identify and resolve any issues that may affect the next batch or overall order.
Further, software is also being developed that is able to better manage the make to order manufacturing process by rapidly assessing an order, and matching it against existing inventory, supply chains and labour management.
Constant improvements in make to order manufacturing are central to this process which, when it is done well, minimises waste, maximises resources and delivers a product specifically designed to the customer’s needs.
Make to assemble methods are a hybrid of the previous two methods and used widely across different industries
Make to assemble (MTA)
Make to assemble is a mix of the make to stock and make to order processes, whereby the manufacturer stocks the basic requirements of any order but waits for orders to come in before creating the final product.
Why use make to assemble method?
Make to assemble has many advantages, notably that it tackles various issues raised by the make to stock and make to order processes, and attempts to resolve them through what is effectively a hybrid process.
Because the basic elements of the product are already in stock, make to assemble doesn’t face the same risks of supply, or need such a long delivery timeframe as the make to order method.
Furthermore, as it builds the product on the basis of actual orders, it avoids the risks of overstocking or understocking faced by the make to stock method. It can still use forecasting methods used in make to stock processes to maintain efficiencies with inventory and workflow.
Make to assemble is also relatively cost-effective for the manufacturer as there is a minimal amount of stocked materials and goods, which allows for stable warehousing and storage costs. A make to assemble process can still deliver relatively bespoke products, but in a much shorter timeframe than make to order.
Who would use MTA
Make to assemble is used across different sectors, for example, the food assembly or computing sector. Laptops or desktop computers are often assembled through this manufacturing process, as it is the most cost-effective way of getting through reasonably high numbers of orders without undue delays on delivery. Make to assemble is also used in the consumables sector, with non-perishable stock held in warehouses and the perishable elements added just before delivery.
How to improve the MTA process
Like the make to stock method, the make to assemble method relies on demand forecasting so it faces the same reliability issues. Forecasting can be a notoriously tricky task and getting it wrong, even if only by a small margin, can lead to oversupply or undersupply of stock, and subsequent wastage or inability to satisfy orders.
Further, a two-step system of producing the orders can lead to some complications. Make to assemble relies on the efficient assembly processes, and that the pre-ordered basic components and bespoke sub-parts are put together properly by trained and skilled staff.
Any lapses in the assembly line process can lead to wastage or flawed products, which can cause significant financial losses. As such the assembly line process does need to be run extremely efficiently and effectively for the process to be optimised.
Skilled staff also need to manage quality control and order delivery to ensure the build of each product is done to the exact specifications of the customer and delivered as promptly as possible.
In a nutshell
Regardless of which manufacturing production method you choose, they all rely on good inventory management. Without good inventory management systems and software in place, none of these manufacturing production methods will work efficiently.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.