Advantages and Disadvantages of Make to Stock

Inventory is an essential part of a manufacturing business. For many organizations, a major source of revenue comes from the sale of merchandise and products. However, holding inventory also represents one of the largest costs incurred in manufacturing. This is because manufacturing facilities must hold raw materials, parts, WIP items, tools, and finished goods which incur additional costs.

Inventory management strategies must be put in place to balance the cost of carrying goods and the level of customer service and satisfaction they wish to achieve. One of the things that manufacturers can do to control their inventory levels is to choose a production method that will be most advantageous for your organization.

Two of these methods are make-to-order and make-to-stock. While each method has its advantages and disadvantages, it is essential that you ask yourself some questions when it comes to choosing the form of production and inventory control that will most benefit you. These questions include:

• Are you able to generate high volumes of inventory and sell it within a certain time frame?
• Are you seeking to provide customizable products or would rather offer low variations of products but in mass quantities?
• Are you seeking to have a warehousing operation as well as your production?

A make-to-stock strategy is great for manufacturing facilities that are able to sell in high volumes and generate inventory that is held for small periods of time. The companies that benefit greatly from make-to-stock have a steady flow of goods in-and-out of the warehouse and have their customer orders fulfilled within the time frame requested. 

In this blog, we will discuss what the make-to-stock strategy is as well as the advantages and disadvantages associated with it. You can check out this blog for the advantages and disadvantages of make-to-order. 

What is Make to Stock?

The make-to-stock methodology is pretty self-explanatory - you produce enough product to be stocked. Make-to-stock orders are products that are manufactured for inventory based on sale forecasts in anticipation of receiving customer demand. This is a traditional production strategy that aims to match business production and inventory levels with customer demand forecasts. 

Generally, this is an exceedingly beneficial production technique as it allows manufacturing facilities to cover customer orders with ease. However, it is heavily reliant on accurate demand forecasts as miscalculations may lead to either excess stock or a shortage of goods. This is why it is important to understand the advantages and disadvantages of make-to-stock production. 

Advantages of Make-To-Stock:

The advantages of make to stock include the following: 

• Resource Capacity Planning - When you are relying on sales and demand forecasts for your production, you are able to effectively plan your resources and production to ensure that items are being produced in the most efficient manner. Knowing in advance how many units of each item will be required allows you to maximize the usage of resources so that you don’t waste money. 
• Improved Scheduling -  Using a make-to-stock production strategy means that you will be able to design a master production schedule that allows for the smoothest workflow possible. Planning your production in anticipation of demand will also allow you to adjust your schedule in anticipation of increases or slowdowns in demand and increase the visibility into what is required and what is left to do. 
• Minimize Customer Wait Times - An area where make-to-stock sets itself apart from other production strategies such as make-to-order is that it will allow manufacturers to fulfill customer orders and demand with ease. As soon as a customer places an order, the product is available to be shipped out which greatly reduces the customer wait time. This is a significant advantage over the make-to-order strategy as the customer will have to wait additional time for the product to be made before being shipped out.

Disadvantages of Make-To-Stock:

The disadvantages of make to stock include the following: 

• Unpredictable Consumer Trends - While manufacturers using a make-to-order strategy will also struggle with unpredictable customer trends, this is something that must be considered when using a make-to-stock strategy. Demand forecasting is based on past sales and seasonal trends but is also prone to variation in demand that may not be accounted for. Items that were trendy and popular one year may not sell as much the next year and vice versa. 
• Inventory Levels - With make-to-stock, you are creating items to keep in inventory. Therefore, you will have higher inventory levels than manufacturing facilities that have a make-to-order strategy. Many believe that holding a lot of inventory is a waste of money which isn’t beneficial for any operation. In addition, you could potentially be left with excess stock that is likely to get damaged or become obsolete as they are sitting in inventory for a long time. 
• Creating Accurate Forecasts - If your forecasts are not accurate, you will end up with too much inventory, risk stock outs, or lose revenue. It is challenging to accurately predict the future when you only look at past sales data. However, there are many forecasting strategies that incorporate additional surveying and analysis components that can increase the accuracy of the forecasts.

Demand and inventory forecasting are far by one of the most substantial components that will determine the success of a make-to-stock operation. This is why utilizing adequate inventory and demand planning software is essential to combat excess inventory and prevent potential shortages.

PlanetTogether’s Advanced Planning and Scheduling (APS) software will allow you to create accurate forecasts, plan your resource capacity, and manage your inventory levels so that you can enhance your manufacturing operations. 

With PlanetTogether, we’re able to make strategic decisions that improve operations. We can proactively prepare for anticipated increases or slowdowns in demand.

DICK MARX, MATERIALS MANAGER, KNAPHEIDE TRUCK EQUIPMENT

Advanced Planning and Scheduling (APS) Software is a must for manufacturing operations that are seeking to enhance their overall production effectiveness and ultimately reduce waste, increase profitability, and maintain a competitive edge within their industry. 

Advanced Planning and Scheduling (APS) Software

Advanced Planning and Scheduling Softwares have become a must for modern-day manufacturing operations as customer demand for increased product assortment, fast delivery, and downward cost pressures become prevalent. These systems help planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans. APS Systems can be quickly integrated with an ERP/MRP software to fill the gaps where these systems lack planning and scheduling flexibility, accuracy, and efficiency.

With PlanetTogether APS you can:

• Create optimized schedules that balance production efficiency and delivery performance
• Maximize throughput on bottleneck resources to increase revenue
• Synchronize supply with demand to reduce inventories
• Provide company-wide visibility to resource capacity
• Enable scenario data-driven decision making

The implementation of an Advanced Planning and Scheduling (APS) Software will take your manufacturing operations to the next level of production efficiency by taking advantage of the operational data you already possess in your ERP system. APS is a step in the right direction of efficiency and lean manufacturing production enhancement. Try out a free trial or demo!