Understanding Make to Stock (MTS) Manufacturing Strategy

by Knowledge Resources |

Make to Stock (MTS) is a manufacturing strategy in which products are produced based on demand forecasts, rather than actual customer orders. This approach involves producing a large quantity of products in advance and stocking them in inventory, ready for sale. In this article, we’ll take a closer look at the Make to Stock strategy, its advantages and disadvantages, and when it may be an appropriate approach for a company.

What is Make to Stock (MTS)?

Make to Stock is a manufacturing strategy in which products are produced in advance and kept in inventory until they are sold. This approach involves predicting demand for a particular product and producing a quantity that is expected to satisfy that demand. The aim of MTS is to have products available for customers to purchase immediately, without any delay in the production process.

Advantages of Make to Stock

  1. Quick delivery: The primary advantage of MTS is that products are available for immediate sale. This means that customers can receive their products quickly, without any delay in the production process.
  2. Economies of scale: MTS allows for larger production runs, which can result in lower per-unit costs. This is because fixed costs, such as setup costs, can be spread over a larger number of units.
  3. Stable demand: MTS is appropriate for products with stable demand, as it allows for efficient production and inventory management. This approach is particularly effective for products that have a predictable demand pattern, such as seasonal products.

Disadvantages of Make to Stock

  1. High inventory costs: MTS requires companies to hold a large inventory of finished products, which can be costly to maintain. This can tie up capital and lead to additional storage and handling costs.
  2. Risk of overproduction: The biggest risk with MTS is that a company may produce too much of a particular product, which can result in excess inventory. This can tie up capital and result in additional storage and handling costs, and potentially lead to waste.
  3. Poor responsiveness to changes in demand: MTS is less responsive to changes in demand, as production is based on forecasts rather than actual customer orders. This means that a company may be left with excess inventory if demand does not meet expectations.

When is Make to Stock an Appropriate Approach?

Make to Stock is most appropriate for companies that produce products with stable demand, and where the cost of producing a single unit is relatively low. This approach is most effective when demand is predictable and stable, as it allows for efficient production and inventory management.

Make to Stock is commonly used in industries such as consumer goods, where products are sold through retail channels. Products such as clothing, electronics, and household goods are typically produced using the MTS approach, as they have a predictable demand pattern and a relatively low per-unit cost.

Conclusion

Make to Stock is a popular manufacturing strategy that allows companies to produce products in advance and stock them in inventory until they are sold. This approach can provide several benefits, including quick delivery, economies of scale, and efficient production and inventory management. However, there are also several risks associated with this approach, including high inventory costs and a lack of responsiveness to changes in demand. Companies should carefully consider the advantages and disadvantages of MTS and whether it is an appropriate approach for their particular products and market conditions.

 

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