Guide to Understanding Make-to-Stock (MTS)

If you’ve ever wondered how companies manage to have products on store shelves just when you need them, you’re in the right place. Make-to-Stock (MTS) is the magic behind the scenes that keeps everything running smoothly, ensuring products are ready and waiting for customers without missing a beat. In this guide, we’ll break down the ins and outs of MTS—what it is, why it works, and how businesses use it to stay ahead of demand. Curious to learn how companies master this delicate balance of supply and demand? Let’s dive in!

What is Make-to-Stock (MTS)?

Make-to-Stock (MTS) is a production strategy where goods are manufactured based on anticipated customer demand and stocked in inventory before they are actually ordered. The idea is to produce and store products in advance, so they’re readily available for quick delivery when customers need them. This approach is commonly used for items with predictable demand, like household goods or consumer electronics, where having stock readily available is crucial to meet customer expectations and maintain market competitiveness. MTS helps businesses optimize production schedules, minimize lead times, and reduce the risk of stockouts.

Make-to-Stock Strategy

The key to a successful MTS strategy is accurate demand forecasting. Businesses must analyze historical sales data, market trends, and seasonal patterns to predict future demand and plan their production schedules accordingly. Effective inventory management is also essential to avoid overproduction, which can lead to excess holding costs or inventory obsolescence, and underproduction, which can result in stockouts and missed sales opportunities.

An MTS strategy can help companies achieve economies of scale by producing in larger batches, thus reducing per-unit production costs. It works well for industries that prioritize fast delivery and large-scale production over customization. However, the MTS approach also involves risks, such as mismatched inventory levels if forecasts are inaccurate or sudden changes in consumer demand. Flexibility and responsiveness to market shifts are crucial components for any company employing an MTS strategy to balance inventory levels and minimize waste.

Make-to-Order vs Make-to-Stock

Make-to-Order (MTO) and Make-to-Stock (MTS) are two distinct production strategies used to meet customer demand, each with its own strengths and ideal use cases.

Make-to-Order involves manufacturing products only after receiving a customer order. This strategy allows for high customization and minimizes inventory costs, as items are only produced when there is a confirmed need. It’s ideal for products that require specific customer specifications or are expensive to store, like custom machinery or luxury items. However, it often comes with longer lead times since production starts after an order is placed.

On the other hand, Make-to-Stock focuses on producing goods in anticipation of future demand and storing them until customers make a purchase. This approach is perfect for standardized, high-demand products like consumer electronics or household goods, as it ensures quick availability and faster delivery times. The main challenge with MTS is forecasting demand accurately; if predictions are off, businesses may face either excess inventory or stockouts.

In short, MTO works well for customized, less predictable products, while MTS is suited for standardized items with steady demand. Choosing between them depends on balancing customer expectations for customization and speed with the business’s ability to manage inventory and production efficiency.

Make-to-Stock Alternatives

Make-to-Stock (MTS) is not the only production strategy businesses use to manage inventory and meet customer demand—there are several alternatives that might be more suitable depending on the type of product and market conditions. Here are some key alternatives:

Make-to-Order (MTO): In contrast to MTS, Make-to-Order involves producing goods only after a customer places an order. This strategy reduces the risk of overproduction and allows for customization, but it usually means longer lead times for customers.

Assemble-to-Order (ATO): A hybrid of MTS and MTO, Assemble-to-Order keeps standard components in stock, and final products are assembled once a customer order is received. This allows for quicker response times compared to MTO, while still offering some level of customization.

Engineer-to-Order (ETO): Engineer-to-Order goes beyond MTO, where products are designed and manufactured based on specific customer requirements. This approach is common for large-scale, complex products like industrial machinery or construction projects, and typically has the longest lead times.

Just-in-Time (JIT): Just-in-Time production aims to minimize inventory by producing goods exactly when they are needed and in the quantities required. This strategy reduces storage costs and waste but relies on accurate demand forecasts and a highly efficient supply chain.

Kanban: Originating from lean manufacturing, Kanban involves a visual scheduling system to control production and inventory levels based on real-time demand. It’s used to ensure that only the required quantity of products is produced, reducing excess inventory and improving efficiency.

Each of these alternatives comes with its own set of advantages and challenges, and the best choice depends on factors like product type, market demand, lead time expectations, and production capabilities.

Make-to-Stock Examples

Here are some real-world examples of MTS in action:

Food and Beverage Industry: Companies like Coca-Cola use an MTS strategy to produce their drinks in bulk and distribute them to retailers worldwide. Given the consistent demand for their products, MTS ensures that beverages are available on store shelves whenever consumers want them.

Consumer Electronics: Brands like Apple or Samsung produce popular items like smartphones and tablets in advance to ensure they are readily available for customers at launch or in retail stores. These products have predictable demand, making MTS an effective strategy for ensuring quick delivery.

Apparel and Footwear: Clothing and shoe companies like Nike use MTS for their core product lines that have consistent demand throughout the year. Producing popular items in bulk allows these brands to keep inventory stocked and reduce lead times for customers.

Automotive Industry: Car manufacturers like Toyota use MTS for standard vehicle models that are consistently in demand. These models are produced in advance and kept in inventory at dealerships, allowing customers to purchase and drive away a car without waiting for production.

Pharmaceuticals: Companies like Johnson & Johnson produce over-the-counter medications, such as pain relievers and cold medicine, using an MTS approach. This strategy ensures that pharmacies are always stocked with these essential medicines to meet ongoing consumer needs.

Home Appliances: Manufacturers like Whirlpool produce home appliances like washing machines, refrigerators, and ovens using MTS. These products are produced in large quantities and stocked in warehouses so that they are ready for immediate delivery when customers place orders.

Packaged Goods: Products like toothpaste, soap, and detergent are manufactured in large quantities by companies like Procter & Gamble. The consistent and predictable demand for these items makes MTS an effective strategy to ensure they are always available in stores.

These examples show how the MTS strategy benefits industries where speed, availability, and predictability of demand are crucial for meeting customer expectations and maintaining competitiveness.

Make-to-Stock Advantages

Make-to-Stock (MTS) offers several advantages, especially for businesses that deal with standardized products and predictable demand. Here are the key benefits of using an MTS strategy:

Quick Delivery: One of the biggest advantages of MTS is the ability to fulfill customer orders almost immediately. Since products are already manufactured and held in inventory, customers experience minimal wait times, leading to higher satisfaction.

Economies of Scale: By producing in large quantities, companies can achieve lower per-unit production costs. Bulk production reduces the cost of raw materials, labor, and production processes, which contributes to overall cost savings.

Efficient Production Scheduling: Since MTS relies on producing goods based on anticipated demand, it allows for better production planning and more efficient use of manufacturing resources, leading to fewer disruptions in the production process.

Reduced Stockouts: MTS ensures that products are always available, which minimizes the risk of stockouts. This is especially important in industries where immediate availability is key to maintaining customer loyalty.

Lower Lead Times: Having inventory on hand helps reduce lead times between the customer’s order and the final delivery. This is crucial in competitive markets where consumers expect rapid availability.

Meeting Seasonal Demand: MTS is particularly effective for products with seasonal demand, such as holiday items or back-to-school supplies. By producing and storing inventory in advance, companies can quickly meet the spike in customer demand during peak seasons.

Better Supply Chain Coordination: Maintaining a consistent inventory level helps align production with downstream processes like distribution and retail, ensuring a smooth flow of products through the supply chain.

Improved Customer Satisfaction: Customers who are used to getting products quickly are more likely to have a positive experience with the brand, increasing the likelihood of repeat business and enhancing brand loyalty.

Make-to-Stock Disadvantages

While a Make-to-Stock (MTS) strategy offers several benefits, it also comes with some notable disadvantages, particularly for businesses that face unpredictable demand or require flexibility. Here are the main drawbacks of using an MTS approach:

Demand Forecasting Risks: The effectiveness of an MTS strategy heavily relies on accurate demand forecasting. If forecasts are inaccurate, businesses risk producing too much or too little. Overestimating demand can lead to excess inventory, while underestimating it can result in stockouts and lost sales opportunities.

High Inventory Holding Costs: Storing inventory comes with significant costs, including warehousing, insurance, and maintenance. The longer products are held in inventory, the more costly it becomes, which can eat into profits, especially for items with lower turnover rates.

Risk of Obsolescence: In industries with rapidly changing trends or technologies, such as consumer electronics or fashion, holding inventory can lead to obsolescence. If a product becomes outdated or customer preferences shift, companies may be left with unsellable stock that needs to be discounted or discarded.

Limited Flexibility: MTS does not allow for customization, as products are manufactured in advance based on predicted demand. This lack of flexibility can be a drawback for businesses that want to offer tailored solutions to customers or adapt quickly to market changes.

Inefficient Use of Resources: Producing goods in advance may lead to inefficiencies, such as overutilization or underutilization of production resources. If the demand forecast is off, production schedules may not align with actual sales, leading to wasted resources.

Cash Flow Challenges: Producing and storing inventory requires a significant upfront investment in materials, production, and warehousing. This can tie up cash flow, limiting a company’s ability to invest in other areas or respond to new opportunities.

Market Sensitivity: Changes in customer preferences or market conditions can quickly render produced inventory undesirable, especially for consumer goods. Businesses using MTS are vulnerable to sudden shifts in the market that may not have been predicted during the planning stage.

Risk of Excess Inventory: Overproduction can lead to excess inventory, which may need to be sold at a discount or even written off, leading to reduced profitability. This is especially problematic in industries where products have a limited shelf life or where trends shift frequently.

Make-to-Stock FAQs

Q: What is Make-to-Stock (MTS)?
A: Make-to-Stock (MTS) is a production strategy where products are manufactured in advance based on anticipated demand and stored in inventory. The goal is to have products readily available for quick delivery when customers place orders.

Q: Who uses Make-to-Stock?
A: MTS is commonly used by manufacturers of standardized products with stable and predictable demand, such as consumer goods, electronics, pharmaceuticals, and home appliances. It works well for industries where customers expect quick availability and minimal wait times.

Q: How does Make-to-Stock differ from Make-to-Order?
A: Make-to-Stock involves producing goods before customer orders are received, whereas Make-to-Order (MTO) produces goods only after a customer places an order. MTS aims to minimize lead times with pre-made inventory, while MTO focuses on customization and reducing excess inventory.

Q: What are the advantages of Make-to-Stock?
A: The advantages of MTS include shorter lead times, reduced risk of stockouts, economies of scale in production, and the ability to meet customer expectations for quick delivery. It helps ensure that products are readily available, leading to improved customer satisfaction.

Q: What are the disadvantages of Make-to-Stock?
A: The main disadvantages include the risk of overproduction, high inventory holding costs, limited flexibility for customization, and the potential for products to become obsolete if demand predictions are incorrect or market conditions change.

Q: How do companies forecast demand in Make-to-Stock?
A: Companies use historical sales data, market trends, seasonal patterns, and statistical modeling to forecast demand. Accurate demand forecasting is critical to avoid the risks of overproduction or stockouts.

Q: Which industries benefit the most from Make-to-Stock?
A: Industries that benefit most from MTS are those with consistent demand patterns, such as food and beverage, consumer electronics, automotive for standard models, and pharmaceuticals for over-the-counter medications.

Q: How does inventory management play a role in MTS?
A: Effective inventory management is crucial in an MTS strategy to maintain the right balance between having enough stock to meet customer demand and avoiding excessive inventory. Companies must carefully monitor inventory levels to minimize holding costs and reduce the risk of obsolescence.

Q: Can Make-to-Stock be used with other production strategies?
A: Yes, MTS can be combined with other production strategies, such as Assemble-to-Order (ATO), where standard components are produced in advance, and the final assembly is done once an order is received. This allows businesses to offer customization while maintaining short lead times.

Q: What challenges do businesses face with Make-to-Stock?
A: The main challenges include accurately predicting demand, managing inventory holding costs, dealing with unexpected changes in customer preferences, and avoiding the risk of excess or obsolete inventory. Businesses must be agile and have robust inventory and production management systems to mitigate these challenges.

Conclusion

The Make-to-Stock (MTS) strategy is a powerful approach for businesses looking to ensure quick product availability and satisfy customer demand. By producing goods in advance based on reliable forecasts, companies can streamline operations, reduce lead times, and enhance customer satisfaction. However, it’s essential to keep in mind the potential risks associated with inventory management and demand forecasting. Striking the right balance between having enough stock on hand and avoiding excess inventory is key to making MTS work effectively. With the right planning and execution, businesses can reap the benefits of MTS while remaining flexible and responsive to market changes.

About Qoblex

Since 2016, Qoblex has been the trusted online platform for small and medium-sized enterprises (SMEs), offering tailored solutions to simplify the operational challenges of growing businesses. Specifically designed for B2B wholesalers, distributors, and eCommerce ventures, our software empowers users to streamline operations from production to fulfillment, allowing them to concentrate on business growth. Qoblex efficiently manages inventory and order data across multiple sales channels including Shopify and WooCommerce, integrates with popular accounting systems such as Xero and QuickBooks, warehouses, and fulfillment systems, and boasts a robust B2B eCommerce platform. With a diverse global team, Qoblex serves a customer base in over 40 countries, making it a reliable partner for businesses worldwide.