Make-to-stock (MTS)
What is Make-to-stock (MTS)?
Make-to-stock (MTS) is a manufacturing strategy in which production planning and production scheduling are based on forecasted product demand. Products made during one production period are used to fulfill orders made in the next production period. This means that in make-to-stock production planning, production is triggered prior to and independent of specific customer orders.
Make-to-stock is considered a push-type operation, which means supplies – raw materials and supplier-provided components – are “pushed” through the production process, and planning starts with supplies and works forward to the finished product. In contrast, make-to-order (MTO) is a pull-type operation.
In today’s manufacturing marketplace, a high inventory of finished goods is usually an unacceptable cost burden, imposing the expenses of inventory management, warehousing, spoilage and more. Likewise, inventory shortages are costly because of expediting premiums, overtime, and missed delivery times. Therefore, the ideal of make-to-stock production planning is to match the quantity of finished goods at any given time with customer demand during the next period of time. To approach this ideal, planners must successfully forecast demand and appropriately balance supplies and production capacity to meet that demand.
Two keys to efficient MTS planning are (1) accurate demand forecasting and (2) tools that enable rapid adjustments to changing forecasts. Demand forecasting has become more challenging in nearly every market because of the growing variety of products for which a manufacturer must forecast demand, as well as inherently unpredictable factors affecting demand – natural disasters, health crises, and certain seasonal variations (e.g. geopolitical or weather-related shortages of raw materials), to name a few.
Modern advanced planning and scheduling (APS) systems offer MTS planners the digital tools needed both to generate achievable, efficient plans and schedules and to quickly adjust to changes in demand forecasts, supply availability, and production capacity. APS software can also be used to automatically make schedule adjustments based on real-time data.
Make-to-stock Planning Process
In addition to demand forecasting, effective make-to-stock planning must incorporate a complex web of considerations, including manufacturing capacity planning, labor and utilization, raw material inventory and replenishment plans, and on-hand and future inventory of finished goods.
Make-to-stock planning on an APS system begins with generation of an accurate and achievable master production schedule (MPS) based on:
- Rough cut capacity
- Pack-forward figures
- Target days of stock cover
- Manufacturing preferences
- Minimum and maximum reorder quantities
- Reorder multiples
- Product shelf life
To be as efficient as possible, make-to-stock planning must also take account of intermediate stock levels – points in the manufacturing process where work-in-progress (WIP) accumulates prior to the next operation. A make-to-stock approach often results in relatively high intermediate stock levels, so optimizing these levels is an important consideration in the planning process.
APS-based make-to-stock planning accommodates all of the above considerations. It also allows production capacity to be specified as quantity, duration or weight. Capacity can be varied over time using a calendar system capacity tool, and available capacity is figured into the MTS plan as a limiting factor for each time period.
Importantly, an APS system can interact seamlessly with an inventory management system, which improves the accuracy of demand forecasting. Additionally, the interaction between an APS and a materials management system for the supply chain helps to accurately balance supplies with demand.
Benefits of Make-to-stock Production Planning
By performing make-to-stock planning on a robust APS system, manufacturers eliminate some of the difficulties and inefficiencies of legacy or spreadsheet-based planning systems. They gain a greater opportunity to make the right product in the right quantities at the right time.
Additional benefits:
- Optimized MTS planning
- Minimized inventories
- Fewer expedited operations
- Lower cost of production