What does ‘Make To Stock – MTS’ mean
Make to stock (MTS) is a traditional production strategy that is used by businesses to match production and inventory with consumer demand forecasts. The (MTS) method requires an accurate forecast of demand in order to determine how much stock should be produced. If demand for the product can be accurately forecasted, the MTS strategy is an efficient choice for production.
Explaining ‘Make To Stock – MTS’
The effectiveness of an MTS strategy is completely reliant on the ability of a company to predict the future demand of its customers. This becomes increasingly challenging when a company operates in an industry with cyclical sales cycles or seasonality. It is also generally hard to implement an MTS strategy due to the fact that the business cycle is naturally unpredictable.
An Example of the MTS Method
Manufacturing companies often use the MTS method to prepare for periods of high production. For example, many retailers, like Target, generate most of their sales in the fourth quarter of the year. This means, however, that for the manufacturing companies supplying these retailers, a majority of their production has to come in the second and third quarters of the year, to prepare for the increases in demand.
Drawbacks of the MTS Method
In theory, the MTS method is a great way for a company to prepare for increases and decreases in demand. However, inventory numbers, and therefore production, are derived by creating future demand forecasts based on past data. There is a high likelihood that the forecasts will be off, even if by just slightly, meaning that a company might be stuck with too much inventory and too little liquidity.
Further Reading
- Combining make-to-order and make-to-stock inventory policies: an empirical application to a manufacturing SME – www.tandfonline.com [PDF]
- A profit and loss analysis for make-to-order versus make-to-stock policy—a supply chain case study – www.tandfonline.com [PDF]
- Make-to-order, make-to-stock, or delay product differentiation? A common framework for modeling and analysis – www.tandfonline.com [PDF]
- Capacity coordination in hybrid make-to-stock/make-to-order production environments – www.tandfonline.com [PDF]
- Simultaneous production planning of make-to-order (MTO) and make-to-stock (MTS) products using simulation optimization. Case study: Soren Restaurant – www.tandfonline.com [PDF]
- Novel bi-level hierarchical production planning in hybrid MTS/MTO production contexts – www.tandfonline.com [PDF]
- A comparison of make-to-stock and make-to-order in multi-product manufacturing systems with variable due dates – www.tandfonline.com [PDF]
- A net present value assessment of make-to-order and make-to-stock manufacturing systems – www.sciencedirect.com [PDF]
- Comparison of order-fulfilment performance in MTO and MTS systems with an inventory cost budget constraint – www.tandfonline.com [PDF]
- Successful implementation of an order release mechanism based on workload control: a case study of a make-to-stock manufacturer – www.tandfonline.com [PDF]
