Make to What ?

Make to What is a blog about whether companies should be in Make to Stock mode or Make-to-Order mode or something different





Normally companies operate in Make to Stock mode due to long lead times and the fact that the tolerance time of customers is much shorter than the lead time. Customers can't wait so a ready made stock is required from which customers can buy. This is more so as we go further in the distribution chain closer to the end customer.





Over the years due to process improvement techniques most notably Theory of Constraints, companies have managed to reduce their lead time to one third or lesser than what they were earlier. As one aware, most of the lead time is in the waiting / queue time. The actual processing / set up time is quite small in most industries





The reduction in the lead time meant that in certain industries, companies could move from Make to Stock to Make to Order. Make to Order was always considered better since production was against a firm order rather than unpredicatable make to stock which could result into unsold inventories.





So lets take the example of a company which is operating in Make to Order environment , it supplies the product to a bigger OEM. It struggles to meet the Order Due Date performance and is always operating in a urgent / crisis mode.





By moving to DBR / Buffer Management , the company is able to reduce the lead time on the orders and operate in a more controlled fashion. Isn't this great, the company selling in Make to Order environment with lead times / due date performance no one can beat.





This is great but the next step is to move into Make to Replenish / Available model , a kind of refined Make to Stock model but stock which is not built based on forecast but on actual consumption by the next link in the distribution chain.





In this case, the supplier starts managing the inventory of the customer, without the customer having to worry about the inventory levels. So instead of customer triggering an order based on reaching the threshold stock level, the customer always has a buffer stock with him at all times. As soon as something is taken from this stock buffer, a order is created on the supplier who then replenishs the buffer stock.





The measurements are also quite interesting here, the supplier starts being measured based on Throughput Dollar days in case the buffer is empty till it is replenished upto the defined levels. The higher the TPD days the lower is the performance of the supplier. TPD means the throughput lost due to unavailability of the particular part in the buffer stock.





So we started from Make to Stock , moving to Make to Order and now we are in Make to Replenish / Available mode.





In the next blog, lets look at different industries and suitability for Make to Stock, Make to Order, etc