Make to Stock – MTS

In make-to-stock production the customer orders are delivered from finished goods inventory. The production anticipates future demand by producing and replenishing goods into finished goods inventory based on forecasts or triggered for example by re-order point. In make-to-stock production the OPP (Order penetration point) is located in the finished goods inventory, closer to customer than in other production modes.

Make-to-stock is a typical solution in situations, where the customer requirements for delivery times are very short, and each item has fairly high and predictable demand. Such products are for example foodstuff and many other consumer goods.

In make-to-stock production all activities prior (upstream) of the OPP are done based on plans and forecasts, not real customer orders. Although this contains a risk (demand does not necessarily happen as planned), it also gives an opportunity for a more efficient production for example through levelling of the produced amounts. However, inventories tie capital, cause costs and increase risks. A good Sales and Operations Planning (S&OP) process helps to avoid unnecessary tied capital and high costs and minimize for example risk of spoilage.

Make-to-stock may in some cases be the mandatory and only possible choice if production lead times are long and customer lead time requirements short. In such situation it is very important to improve the production and reduce lead times, in order to have the possibility to move to more order-driven modes such as ATO (Assemble to order) or MTO (Make to order).