Inventory is an essential part of a manufacturing business. For many businesses, 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:
- How long does it take to produce your products?
- Are your customers far away and may need additional time to ship the product to them?
- How costly is it to hold your product in a warehouse or have excess inventory?
A make-to-order strategy is one where the a product only starts being produced once there is an order for it. This is a particularly beneficial technique for manufacturers that allow their customers to customize their orders and those who cannot hold excess inventory due to high holding costs.
In this blog, we will discuss what the make-to-order 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-stock.
What is Make to Order?
The make-to-order strategy exists under a pull system and pertains to the process of fulfilling orders when they are requested by a customer. Depending on the industry and product(s), make-to-order will usually allow the customer to make variations to the product to meet their needs since the product has not been produced yet. This is usually conducted through a well-organized business that has the materials and components on site, to allow manufacturing to begin once the order has been submitted.
Advantages of Make-To-Order:
The advantages of make to order include the following:
- Waste Minimization - One of the most substantial advantages of make-to-order is that you will be able to reduce waste within your manufacturing operation. This is because starting production after the order has been submitted helps clean up the entire production process. It allows manufacturers to eliminate excess costs, material, inventory, or other production processes from the operation. This allows items to be produced within a shorter time frame and be ready to send to customers just in time.
- Reduce the Risk of Inefficiency - Inefficiency in a manufacturing organization is a sure way to incur additional and unnecessary costs. When using make-to-order strategy, you will typically need to adjust your production process to ensure that there are no inefficient operations or steps. This will also prevent you from consuming capacity on resource to produce items that will not be sold if using make-to-stock strategy of push system.
- Customizable Products - Using a make-to-order strategy will allow you to offer customizable products as production only starts after the order has been made. Customers will come to you when they wish to have a more personalized shopping existence and will tend to be willing to pay extra or wait a bit longer than usual due to the customization request. Having customizable products will ensure that the customer is able to pick exact;y that they are looking for which will increase their satisfaction with your products and business.
Disadvantages of Make-To-Order
The disadvantages of make to stock include the following:
- Irregular Sale Demands - One of the greatest downfall of make-to-order is that there tends to be spikes in sales trends over the year. This is a situation that occurs with most businesses but it poses a great challenge for make-to-order manufacturing facilities. As opposed to a make-to-stock facility where they can prepare in anticipation to a spike in demand, the result of a spike in demand means longer lead times for customers as orders are made after the customer places an order. This can cause a strain on your business and lead to unhappy customers.
- Material Stock Falling Behind - In order to achieve a true JIT or lean operation, it is essential to have suppliers that are also on board and able to quickly get materials to you. An essential part of being successful with a make-to-order strategy is to ensure that you have all parts and materials ready so that you can begin production as soon as the order comes in. Unfortunately, running out of materials or supplies is a substantial disadvantage to make-to-order operations and can set you back. It is important to ensure that your material needs will be covered when customer orders come in.
- Customer Wait Times - Customer wait times are one of the most important component to consider when generating a product. Long lead times can make customers sway away from your product when considering a purchase which is why it is essential to ensure that your products can be produced in the most efficient ad rapid manner. Of course, this means balancing quality and speed to keep customers satisfied.
Using a make-to-order strategy is greatly beneficial for manufacturers looking to cut costs within their manufacturing operations. A software that can help implement this strategy is PlanetTogether’s Advanced Planning and Scheduling (APS) software. With PlanetTogether APS, you can create the most efficient and optimized production schedule in minutes, which allows you to receive customer orders and quickly adjust the production schedule to accommodate them.
The shift to PlanetTogether is saving us about 15% in inventory overhead and about 20% in overtime labor expenses. We’re not building equipment to stock any longer - we’re building to ship.
BRUCE HAYS, DIRECTOR OF MANUFACTURING, J&J SYNTHES
Overall, PlanetTogether APS is an essential tool for manufacturers that are seeking to enhance their operational efficiency, reduce waste, increase profitability, and meet customer order need dates.
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!