Manufacturing Inventory Options to Combat Year-End Challenges

As the year draws to an end, many manufacturers are faced with the challenges of inventory. One of the greatest challenges for a company is to control profitability margins so its business remains competitive in the market. Inventory-management strategies have been a task based on compliance with an accounting standard. However, there are other options, such as “Make To Order” (MTO) and “Make To Stock” (MTS).

Here are the main activities of each:

MTO is also referred to as “Build To Order” (BTO). Here is what MTO means.

  • It is appropriate for highly-configured products, such as computer servers, automobiles, or products that are very expensive to keep in inventory.
  •  It includes specialized industries, such as construction, aircraft and vessel production, bridges, etc.
  • It is accounted for only after a confirmed customer order is received.
  • It allows consumers to purchase customized products.

What do you need to implement it?

  • Sale order monitoring for individual production orders, keeping control of your costs, and informing your customers about a particular sales order.
  • Implement measures to reduce inefficiency and waste risks.

Advantage and Disadvantages

  • Fulfills orders with the exact product specification required by the customer;
  • Manages stock obsolescence;
  • Causes additional production time while increasing flexibility and customization to meet the customers’ needs.

Here is what MTS means.

Businesses base their production on demand forecasts. Final products are assembled before customers have ordered them.

Advantage and Disadvantages

  • Customers can get items quickly, but only if the correct quantities have been manufactured or the manufacturing business risks overproduction.
  • The ERP system must have strong, statistical capabilities in order to support the sales forecasting process. Sales forecasting relies mainly on market expectations and projections, but the statistical data provided by the ERP system has useful additional information.
  • The sales forecast will be transformed into a production planning tool, similar to the MTO production model.
  • MTS leads to an evenly-spread production schedule, which is good for efficiency and effectiveness. However, there is a need for flexibility to adjust to suddenly-changing market circumstances.
  • The purchasing staff must take into account the projected future need for components in relation to an already fulfilled production quota.
  • MTS is not advantageous to customized specifications.

Cathy Marotta | 11/10/2017

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