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What Is Make to Stock (MTS)?
Let me explain to you what make to stock (MTS) is—it's a traditional production strategy that businesses use to align their inventory with what they anticipate consumers will demand. Rather than producing goods and then trying to sell them, with MTS, you estimate the potential orders for your products and then build enough stock to fulfill those estimates.
Key Takeaways
You should know that MTS is all about matching inventory to expected consumer demand. This method demands a precise forecast of demand to decide on production quantities. To use MTS, you'll need to adjust your operations at certain times instead of running at a constant production level throughout the year. The biggest issue with MTS is that an off forecast can leave you with either too much or too little inventory, which directly affects your profits.
How Make to Stock (MTS) Works
The MTS method hinges on an accurate demand forecast to figure out how much stock to produce. If you can estimate demand for your product correctly, MTS becomes an efficient way to handle production.
In practice, MTS helps a company gear up for ups and downs in demand. Inventory levels and production are usually based on forecasts drawn from historical data. But if that forecast is even a bit wrong, you might end up with excess inventory tying up your cash or not enough stock to capitalize on sales opportunities. This error risk is the main downside of MTS. Incorrect data can cause overstock, stockouts, lost revenue, or failure to meet demand, cutting into potential income. In quick-changing fields like electronics or tech, extra inventory can obsolete fast.
Moreover, MTS means you have to rework your operations at specific points, not keep production steady all year. These adjustments can be expensive, and you'll either pass those costs to customers or eat them yourself.
Important Considerations
The usual unpredictability in the economy and business cycles makes MTS tough for any company, but it gets especially tricky if you're in a sector with cyclical or seasonal sales patterns.
Alternatives to Make to Stock (MTS)
If you want to sidestep MTS drawbacks, consider alternatives like make to order (MTO) and assemble to order (ATO). Both link production directly to demand. With MTO, you start making an item only after getting a confirmed customer order. ATO is a middle ground—you build basic parts ahead, but don't assemble the final product until an order arrives.
Example of Make to Stock (MTS)
Manufacturers often use MTS to prepare for peak production times. Take retailers like Target, who make most sales in the year's fourth quarter. Their suppliers ramp up production in the second and third quarters to meet that surge.
For instance, suppose The LEGO Group reviews past years and predicts a 40% demand jump in the fourth quarter over the third. Using MTS, they produce 40% more toys in July, August, and September to cover it. Then, in the fourth quarter, they check historical data to forecast the drop into the new year's first quarter and cut production accordingly.
If LEGO switched to MTO, they wouldn't boost LEGO brick production by 40% until Target placed a bigger order. With ATO, they'd make the extra bricks ready but not package full kits until the order comes in. This shares the forecasting risk between LEGO and Target, reducing inaccuracies.
What Are the Benefits of Make to Stock?
One key benefit of MTS is producing inventory based on expected consumer demand, helping you avoid having too much or too little stock.
What Are the Drawbacks of Make to Stock?
For MTS to work well, you absolutely need accurate forecasts. A wrong one can lead to excess inventory or failing to meet demand.
Another Example of Make to Stock
Companies making holiday-popular goods might use MTS. A toy maker, for example, would forecast demand and produce items to match it.
The Bottom Line
Make to stock is a standard manufacturing strategy that aligns inventory with predicted consumer demand. Its success depends entirely on your ability to accurately forecast what customers will want. If the forecast is off, you could end up with surplus stock or shortages, hurting your bottom line.
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