In the world of manufacturing, the traditional debate between Make To Order (MTO) and Make To Stock (MTS) often presents a false choice, suggesting companies must navigate their complex environments using one strategy over the other. However, this binary view overlooks the intricate dynamics and evolving demands of modern production environments and supply chain networks. Why limit your strategy when integrating MTO and MTS can offer the best of both worlds? This blog post aims to provide supply chain professionals with a deeper perspective on how to effectively integrate MTO and MTS within their operations.
The Reality of MTO and MTS in Today's Manufacturing
At the heart of MTO is the principle of initiating production based on specific sales orders, which allows for customization and minimizes inventory costs. MTS, on the other hand, anticipates customer demand through forecasts, ensuring products are readily available but risking potential overstock. While these definitions serve as a foundation, the reality is that manufacturing operations rarely adhere strictly to one approach. The question arises: in a market that values both customization and immediacy, is choosing between MTO and MTS really necessary?
Hybridization: The Path Forward
The modern manufacturing landscape demands a more nuanced strategy, one that combines MTO and MTS to navigate the complex web of product requirements, sales orders, and forecasts. This hybrid approach recognizes that different products may require distinct strategies within the same company. For example:
- Sales Orders might trigger production in a classic MTO scenario. There is a direct link between the sales order(s) and the production order.
- Forecasts could initiate MTS production, independent of specific sales orders. The production order cannot be linked to a sales order (also called anonymous production).
- A Combination of Sales Orders and Forecasts often necessitates a mixed approach, where Material Requirements Planning (MRP) defines the net requirement, translating it into a production order that balances MTO with MTS. It is important to define a cut-off moment to decide what part of the forecasts and what part of the sales order will be considered. Because in the long run everything will be a forecast and in the short term everything will become a sales order and their might be some overlap.
- Minimum Inventory Requirements might be the go-to for products with stable or predictable demand, ensuring a constant supply without direct sales order triggers.
The Role of Production Triggers
Achieving flexibility in manufacturing requires a tailored approach to production triggers, with the understanding that these triggers can vary significantly across products and even within the same product line. Key triggers include:
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Production Order: Initiated by sales orders or forecasts, suitable for semi-finished and finished goods..
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Product Requirement: Triggered by material needs stemming from downstream requirements and production orders or insufficient inventory levels, applicable to semi-finished and finished goods.
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None: Some items, especially raw materials, might not directly trigger operations but could lead to purchase orders based on net requirements.
BOM Structure Considerations
The complexity deepens with products that have a Bill of Materials (BOM) structure, involving multiple levels of semi-finished products. The strategy for triggering production of these semi-finished goods can differ, influenced by sales orders, forecasts, or the requirements of finished goods production. This scenario often results in a mixture of MTO and MTS across different BOM levels, requiring even more nuanced planning and execution.
Navigating Complexity with Advanced Planning Tools
In the complex landscape of manufacturing where Make To Order (MTO) and Make To Stock (MTS) strategies intertwine, the importance of agile and adaptive planning tools cannot be overstated. These tools are crucial for navigating the multifaceted challenges of integrating diverse production triggers, such as sales orders, forecasts, and minimum stock levels, into a coherent operational strategy.
Choosing the right planning tool becomes crucial, as it must not only accommodate the intricacies of different manufacturing processes but also enhance the strategic flexibility between MTO and MTS models. One example of such a tool is Checkmate, which stands out for its versatility in handling various production triggers enabling manufacturers to optimize both resources and customer satisfaction, ultimately leading to a more resilient and responsive production strategy.
Conclusion
The choice between Make To Order and Make To Stock is no longer a binary decision in the complex landscape of modern manufacturing. By embracing a hybrid approach and utilizing sophisticated planning tools, companies can achieve a balanced, responsive production strategy. This strategy not only caters to the diverse needs of today's market but also positions businesses for resilience and success in the face of evolving challenges. For supply chain professionals, understanding and implementing this nuanced approach is key to driving operational excellence and competitive advantage.
