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Make to Stock definition can be described as the traditional Manufacturing and production approach that is used by companies to produce adequate inventory that matches the anticipated demand. It is the opposite of the Make to Order marketing technique, which focuses on the modern and customized manufacturing technique. Instead of producing the goods after receiving an order, MTS focuses on estimating the total orders the product in question will receive.
Basically, the products are produced and added to the stock in advance. The manufacturer has to estimate the demand accurately to avoid over-stock issues. Despite being a traditional marketing strategy, it works wonders for certain industries. Make sure that this strategy is all about forecasting. If you manage to forecast the price accurately, it can turn out to be an efficient and smart production strategy.
Usually, the Make to Stock production method is seen as a way for an organization to get ready for the high and low demand. If you Fail to estimate the demand accurately, you will end up having too much inventory and less liquidity. Even the slightest mistake in the demand forecasting could result in overstock issues. One of the main drawbacks of the make-to-stock manufacturing strategy is the difficulty in estimating accurate demand. As mentioned above, the accuracy of this production technique depends largely on how well you estimate the customer demands for the product.
Wrong or inaccurate estimation can result in revenue losses, limited liquidity, and excess stock. The technique does not work for companies focusing on specialized and expensive products. For example, if you sell computers, laptops, automobiles, aircraft, jewelry, gems, and other such specialized products, then you can’t adopt the make-to-stock production technique. These products turn obsolete in no time.
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That’s the reason why the manufacturer follows the make to order approach to produce the product only after they receive an order for it. Another major issue with the MTS system is that it involves the uniform production approach. We live in a world where a one-size-fits-all approach hardly works. Customers demand customized products that fit their specification requirements, especially when it comes to expensive items.
With MTS, you can’t have the same level of production throughout the year. The production strategy keeps changing depending on the Market factors, changes in the customers’ tastes, latest trends, and more. These changes in the stock and production can prove costly to a business. Now, this additional expense will either reflect on the market value of the product, or the company will bear it.
Put simply, the make-to-stock production technique seems to be a reliable and effective approach only when you are certain your estimations for the future demands for the product in question are accurate. This approach does not work for seasonal stores. The Economy can be unpredictable and the demand for a product can rise or plunge at any time. This makes the MTS approach super challenging for businesses.