Make To Stock (MTS)

What Is Make To Stock (MTS)?

Make to stock (MTS) is a traditional production strategy that is utilized by businesses to match the inventory with anticipated consumer demand. Rather than setting a production level and afterward endeavoring to sell goods, a company utilizing MTS would estimate the number of orders that its products could create, and afterward supply sufficient stock to meet those orders.

Make To Stock Explained

The MTS method requires an accurate forecast of this demand to decide how much stock it produces. In the event that demand for the product can be estimated accurately, the MTS strategy is an efficient decision for production.

Disadvantages of MTS

In theory, the MTS method is a way for a company to prepare for increases and diminishes in demand. Nonetheless, inventory numbers and, subsequently, production, are gotten through the creation of future demand forecasts that have a basis in past data.

Should the forecast be even somewhat off, the company might find they have too much inventory and limited liquidity, or too little inventory and neglected profit potential. This possibility of blunder is the primary weakness of involving the MTS system for production. Wrong data can lead to excess inventory, stockouts, and revenue losses. It can likewise lead to an inability to fulfill need, along these lines lessening income potential. Also, in speedy sectors, for example, gadgets or computer tech, excess inventory can immediately become obsolete.

Likewise, a MTS approach requires a business to redesign operations at specific times, rather than keeping a consistent level of production all year. This customary adjustment turns out to be exorbitant, and the increased costs must either give to the consumer or be absorbed by the company.

The viability of the make to stock (MTS) approach is completely dependent on the ability of a firm to accurately foresee the future demand customers will have for its products. The commonplace unpredictability of the economy and business cycles make MTS trying for any company, yet the strategy turns out to be especially convoluted when a business works in a sector that encounters cyclical or seasonal sales cycles.

Alternatives to Make To Stock

Normal alternative production strategies that keep away from the drawbacks of MTS incorporate [make to order](/specially make) (MTO) and [assemble to order](/collect to-order) (ATO). Both tie production to demand, yet on account of MTO, the output of a thing starts after the company gets a legitimate customer order. ATO is something of a compromise among MTS and MTO: Basic parts are built in advance, yet a completed product isn't made until a legitimate order comes in.

Real World Example

Manufacturing companies frequently utilize the MTS method to prepare for periods of high production. For instance, numerous retailers, like Target (TGT), produce the majority of their sales in the fourth quarter of the year. For the manufacturing companies supplying these retailers, a majority of their production needs to come in the second and third quarters of the year, to prepare for the increases in demand.

Utilizing the MTS production method, suppose that The LEGO Group, maker of the famous LEGO blocks and other toys, glances back at its previous years and construes, in view of past data that demand will increase by 40% in the fourth quarter versus the second from last quarter. To prepare, the manufacturer produces 40% a greater amount of its toys in July, August, and September to fulfill the need forecasts for the fourth quarter. Also, during the fourth quarter, LEGO sees past numbers to perceive how much demand will decline from the year's end to the primary quarter of the new year, lessening production in like manner.

On the off chance that LEGO is taking on a MTO strategy, it won't increase the production of, say, its LEGO blocks by 40% until and except if Target sent in a bigger order for them. Assuming it were adopting an ATO strategy, it could have the increased blocks made and ready, yet wouldn't put together complete packaged kits of them until it received Target's order. Along these lines, the risk of an inaccurate demand forecast is relieved, as both LEGO and Target share it.

Highlights

• A MTS approach requires a business to redesign operations at specific times, rather than keeping a consistent level of production all year.
• The MTS method requires an accurate forecast of this demand to decide how much stock it produces.
• Make to stock (MTS) is a traditional production strategy that is utilized by businesses to match the inventory with anticipated consumer demand.