What is MTS?
Make to Stock (MTS) is a manufacturing strategy in which products are manufactured based on consumer demand forecast. Considered as a traditional manufacturing model for mass production of consumer goods, Make to Stock manufacturing relies on the accuracy of demand forecasts to decrease overuse of raw materials and inventory, which is regarded as a push-type production. The core focus of manufacture to stock is to match inventory with the predicted demand, and then create a push to production. Compared to the Make to Order (MTO) manufacturing strategy, which is a pull-type production that doesn’t start manufacturing goods until consumers have purchased orders, Make to Stock depends on market and trend predictions in the industry.
Why Produce On-Demand Manufacturing:
As the market continues to grow, the income and spend of consumers also increases, thereby, creating an overall higher demand in the economy. However, consumer’s market demand is constantly dependent on the boom and bust cycles of the market. This means that even if a company’s inventory increases while the consumer demand decreases, the inventory has a good chance to turn into cash when the demand eventually does recover. This is why manufacturing companies spend time and resources to accurately predict the future based on the demand fluctuation cycle of the past.
Advantage of MTS
Make to Stock manufacturing, just like Make to Order (MTO) manufacturing, has several advantages, specifically when it comes down to reducing waste in the factory. Producing products on demand by analyzing past market cycles also enables manufacturers to properly predict monthly budgets, equipment, and inventory. This process in itself also helps manufacturing businesses better allocate their resources. Storing just the right amount of inventory reduces opportunities to overstock or over purchase materials.
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Disadvantages of MTS
While predicting consumer demand based on past market cycles can be an important advantage of the make to stock manufacturing process, it can also be a disadvantage. If market predictions are not accurate, or an unexpected event occurs, manufacturing businesses may find themselves with too much inventory and too little of a demand. This could also lead to risk of obsolescence, especially with products like technology equipment, as inaccurate forecasting can make products obsolete as new technology advances. Excess inventory can also lead to high revenue losses. Additionally, Make to Stock production means businesses adjust operations when needed, rather than producing at a steady level all year long. This process of adjustment can be expensive and increase cost when the purpose of this strategy is to reduce amounts spent.