There are various production models manufacturers can stick to, depending on the industry and company size. The most popular ones are make-to-order and make-to-stock approaches, which may have a lot in common at first sight. However, there’s a crucial difference between them when it comes to production planning and management.

Key Differences

Make-to-Order:

• Goods are produced based on individual orders.

• Can be highly customized.

Make-to-Stock:

• The number of produced goods depends on demand forecasts.

These two workflows influence many aspects of a manufacturer’s business, including supply chains, production planning, and technological processes.

Production can be classified in many ways. For instance, the classification can be made in dependence of technologies or production time cycles. Make-to-order and make-to-stock represent the classification in terms of the business model of production companies, because some businesses combine both types mentioned above, but still companies using make-to-order model show better financial results in different international markets.

This article compares make-to-order and make-to-stock models and discusses how automation solutions can help production companies improve overall efficiency.

Order processing and management

Both make-to-order and make-to-stock models have unique characteristics related to order processing and management:

Make-to-Stock:

• Companies can pre-define product parameters and characteristics (e.g., furniture items can have a predefined "color").

• 1C:Drive helps such manufacturers optimize this process using a product characteristics generator based on predefined characteristics and types.

Make-to-Order:

• Manufacturers use built-in order progress reports and demand planning tools to plan materials procurement, usage, and completion time.

Production planning

Make-to-Stock:

• Focuses on production before actual orders are received.

• Output level planning relies on accurately forecasting demand, using historical records and real-time data to determine the optimal amount of items and to reduce waste from overproduction.

Make-to-Order:

• Manufacturing begins only after receiving a customer order.

• Production planning can be more complex, as orders can be standard or unique, requiring specific equipment, materials, and employee resources.

• It is crucial for manufacturers to accurately assess the cost of each product before production to minimize deviations from the initial quote. Often, planning starts during negotiations with customers.

Automating these processes can be really helpful. For example, with ERP solution for make-to-order, manufacturers enjoy full control of the production planning. They can fulfill more orders simultaneously by keeping track of production resources, prioritizing, scheduling, and monitoring the status of production orders.

Warehouse Stocks

As previously mentioned, a make-to-stock strategy focuses on aligning warehouse stocks with anticipated consumer demand. The key is to forecast future demand and ensure that inventory levels are sufficient.

• If demand is lower than expected, it leads to overstocking and wasted money.

• Conversely, high demand might result in an inability to fulfill orders.

In a make-to-order workflow, completed items are not stored in the warehouse. Instead, they are manufactured specifically for a particular purchase order and shipped directly to the customer. However, challenges such as maintaining sufficient material stocks and human resources require careful demand analysis. The manufacturing process can also be influenced by changes in delivery terms.

Warehouse Inventory Management System

The warehouse inventory management system allows you to optimize warehouse usage by tracking and controlling the availability of production resources. You can buy materials based on customer demand analysis, which helps keep your warehouse lean.

Operational Analysis

Make-to-Stock Businesses

Make-to-stock businesses are susceptible to any mistakes in calculations for:

• Demand

• Inventory

• Production capacity

Make-to-stock production implies many subprocesses that need to be optimized for seamless product flow. This is why operational analysis is crucial to ensure everything runs smoothly.

Make-to-Order Production

Make-to-order production companies face challenges such as:

• Finding production growth points

• Cutting costs

• Optimizing resources