Make-to-Stock – The Complete Guide

Definition

Make-to-stock is a production strategy that is based on matching inventory to consumer demand. The consumer demand for products is gauged on the analysis of historical sales data and demand forecasting.

Make-to-stock also known as Build-to-stock, is associated with the mass production techniques during the Industrial Revolution where vast quantities of goods were produced or inventory is ‘built up’ and stocked in the warehouses to fulfill future demand.

An important thing to remember is that make-to-stock is a push system of production meaning products are being pushed to production based on expected sales.

Make-to-stock can be a successful production technique if demand forecasting is carried out accurately. If the demand for products is measured correctly, then companies will know how much stock to produce. Otherwise, you could face a risk of having deadstock, excess, or less inventory.

A Make-to-Stock Example

Let’s take an example to understand how make-to-stock would work in a toy manufacturing company.

Imagine it’s October, and you are a customer who walks into a toy store to buy one for your child before the holiday season begins. You browse through the shelves and decide to buy a teddy bear. For you as a customer, the journey ends when you finish purchasing that teddy bear.

However, behind the scenes, in the production unit of that toy company, the road to creating the finished product started long before, in anticipation of your (customer’s) arrival.

The company would have analyzed their past sales data and seen a spike in demand during the months leading up to Christmas. They would have deduced they would need more stock of that teddy bear to meet the expected demand.

Thus, in all possibilities, the teddy bear you bought had been produced month prior to store more inventory for the upcoming Christmas rush.

Who Could Use a Make-to-Stock Strategy?

Manufacturing companies use make-to-stock production techniques to combat the potential rise in consumer demand. For example, when manufacturing companies are supplying to large retail chains, they prepare for periods of high production beforehand, even though the actual hike in demand is going to happen many months later.

An FMCG company can utilize a make-to-stock strategy in order to produce large batches of products to lower the cost of production per unit.

This is a great strategy for companies that create fewer numbers or specific products that require little to no customization. Since such manufacturers have to focus on the same kind of product, they have reliable sales data to forecast demand and plan their production process in advance.

Make-to-stock is a viable production strategy for companies that create products that are purchased in bulk. However, it also depends on the type of your business so you should know the pros and cons of the make-to-stock technique of production.

Advantages of Make-to-Stock

• Increase in efficiency and use of resources – Since make-to-stock allows you to streamline production according to future consumer demands, you can carefully arrange the spread of resources to maximize production efficiency.
• Smooth production workflow- Make-to-stock helps you to design your production plan prior to the actual production. This way you can schedule work processes and organize your team for smooth functioning throughout the year.
• Fewer waiting customers- build-to-stock enables you to store inventory even before the actual rise in demand occurs. Therefore, your customers will not have to wait for the products they want when they come to you.

Disadvantages of Make-to-Stock

• Customers are unpredictable- consumer demand is highly dynamic in nature, hence, you can never be sure about how much inventory to produce. Even though your analysis of sales patterns of bygone years might be accurate and you think your demand forecast is on point, it is possible that this year could be different from the previous one.
• Inventory levels- since customer demand can never be understood accurately, you are always at risk of stocking too much or too little inventory.