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Make to Order or Stock?
Thursday 24th May 2018
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Logo A tool
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MTO, MTS and two hybrid MTO/MTS variants

Poorly understood with some bad maths?

The textbook methods are a bit wrong, but the bigger issues are:-

  1. Right tool, wrong place, and
  2. Factories which must do both, or a hybrid.
MTO (Make To Order) is strictly 'make after an order arrives, making only the quantity ordered.' In such 'lead time' businesses there shouldn't be any residual stock, although there always is … overruns, customer changed their mind or sourced elsewhere and so on.
Make To Stock (MTS) is ostensibly 'making enough, before the orders arrive, to supply ex-stock'.
Nowadays we rarely see standalone MTO or pure MTS; most firms have to run both, or a hybrid.

The first hybrid is succinctly described as "when we get an order (and don't have enough residual stock), make a 'grown up' quantity"
Not everyone can or should run 'lot size one' or SMC/SMED (Single - ie less than 10 - minute changeover, or single minute exchange of die)
This is actually a commercial issue, although historically it has been dumped with planning.
Who have often responded with familiar tools, not appropriate tools.

The principles are easy - reserve enough capacity for the MTO items, balance the unpredictability by allowing total stock to 'float'.

Easy to say, hard to do right and even harder for managers to know it is being done right. A quote puts it in context. "We were impressed with [the systems] and [the dedication]. But we [found it hard] to see if any of the systems were working"

Supply Chain Tools approach is to start with the control systems. If managers (and directors) can't see that its working, then it probably isn't. With modern graphic Tools, there's simply no excuse for planning being a mysterious hideaway for distrusted geekdom.

As an illustration of how to make the process visible, ask about the system we built for a motor industry supplier.

The second hybrid is rarely seen. It's a product supplied from stock to 'little and often' customers, and on a lead time for large, infrequent orders. (It's surprising how often those disruptive 'bandit orders' originate from sister companies!)

Ask for a briefing on the rogue order trap.

This is one more example where the responsibilities are scattered, usually between sales, order processing and perhaps marketing. Logistics' role should be as coordinator. Usually it's a Tower of Babel.

"We reached that point in our season where running out stops being a crime, and becomes an aspiration."
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