Make to Stock (MTS)

Definition

Make to Stock (MTS) is a production strategy used by businesses to manufacture and store goods before receiving customer orders. This approach relies on demand forecasting to estimate the quantity of products needed in inventory. By producing goods in advance, MTS enables companies to quickly fulfill orders and reduce lead times for customers.

Phonetic

The phonetics of the keyword “Make to Stock (MTS)” can be represented as follows:Make – /meɪk/to – /tuː/ or /tə/Stock – /stɒk/ (British English) or /stɑk/ (American English)(MTS) – /ˈem ti ˈes/

Key Takeaways

1. Make to Stock (MTS) is a production strategy where companies manufacture products in anticipation of customer demand, allowing them to maintain a steady inventory and fulfill orders quickly.
2. MTS relies on accurate demand forecasting to determine the optimal quantity of products to produce, reducing the risk of having excess inventory or stock-outs, which can negatively impact customer satisfaction and overall costs.
3. MTS is best suited for products with stable and predictable demand patterns, as well as industries with high competition and low product customization, such as consumer goods, electronics, and retail.

Importance

The business/finance term “Make to Stock” (MTS) is important because it represents a production strategy widely adopted by manufacturers to streamline their operations and meet customer demands efficiently. MTS involves producing goods based on anticipated demand and keeping them in inventory until orders are received. As a result, manufacturers can quickly deliver goods to customers, improving customer satisfaction, and reducing lead times. Additionally, MTS enables businesses to optimize their resource and capacity utilization, minimize stockouts, and achieve economies of scale, leading to reduced production costs and increased profitability. However, it is crucial to have accurate demand forecasts and efficient inventory management systems in place to ensure optimal performance and prevent excessive stock holding or obsolescence. Overall, Make to Stock is a vital production approach that contributes to both business success and customer satisfaction.

Explanation

Make to Stock (MTS) serves as an inventory management strategy typically utilized by businesses that seek to maintain a consistent production output while abating their dependency on fluctuating customer demands. This approach is instrumental in the effortless matching of supply and demand, particularly for products with relatively stable demand or shorter shelf-life. By manufacturing goods in accordance with the anticipated market requirements, MTS facilitates in keeping stock levels optimal, safeguarding companies against unforeseen demand changes, and ultimately enabling operations to run smoothly. This results in enhanced customer satisfaction, as stocks remain readily available, satisfying purchase orders promptly. In industries where the standardization of products is common, such as the fast-moving consumer goods (FMCG) sector, Make to Stock is of paramount importance. It ensures that businesses can align their various processes, including procurement, production, and distribution, under a unified approach to address market needs effectively and efficiently. Moreover, MTS enables organizations to eliminate stockouts and backorders, thereby reducing lead times and fostering customer loyalty. By diligently analyzing historical sales data and any discernible patterns or trends, companies can accurately forecast demand and establish their production schedules accordingly. The MTS strategy, when executed diligently, streamlines business operations, cultivates an atmosphere of trust and reliability, and optimizes resource utilization in the long run.

Examples

1. Automobile Manufacturing: A prominent example of a Make to Stock (MTS) industry is automobile manufacturing. Companies like Toyota, Ford, and General Motors produce vehicles in anticipation of customer demand, based on market research and sales forecasts. They manufacture a variety of models, styles, and colors to stock their inventory at dealerships, allowing customers to find and purchase a car immediately without waiting for it to be produced. 2. Consumer Electronics: Companies like Apple, Samsung, and Sony produce their electronic devices, such as smartphones, tablets, and televisions, using the MTS strategy. They forecast the demand for their products and manufacture them in large quantities before their release. As a result, customers can purchase these devices directly from stores or online retailers without waiting for them to be made after placing an order. 3. Fast-moving Consumer Goods (FMCG): The FMCG sector, which includes companies producing items like packaged foods, beverages, toiletries, and other consumables, also uses the MTS strategy. Companies like Procter & Gamble, Unilever, and Nestle manufacture products in bulk and maintain an inventory based on anticipated customer demand. Supermarkets and grocery stores stock these items on their shelves, allowing customers to purchase them immediately.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Inventory Management
• Demand Forecasting
• Production Scheduling
• Batch Production
• Finished Goods

Sources for More Information

• Investopedia
• Corporate Finance Institute
• FreshBooks
• Siemens