What Is Manufacturing Production?
Manufacturing production refers to the methodology of how to most efficiently manufacture and produce goods for sale, beyond just a bill of materials. Three common types of manufacturing production processes are: make to stock (MTS), make to order (MTO), and make to assemble (MTA). Such strategies have advantages and disadvantages in labor costs, inventory control, overhead, customization, and the speed of production and filling orders.
Key Takeaways
- Manufacturing production refers to the strategies companies use to manufacture and produce goods for sale.
- Many variables impact manufacturing production, such as the availability of raw materials, marketplace demand, labor costs, and inventory costs.
- A company that uses the make-to-stock (MTS) strategy matches the level of goods it keeps in inventory with anticipated consumer demand.
- A company that uses the make-to-order (MTO) strategy produces a product only after receiving a confirmed customer order.
- A company that uses the make-to-assemble (MTA) strategy stocks the basic parts needed for production but does not begin to assemble them until a customer places an order.
Understanding Manufacturing Production
Manufacturing is the creation and assembly of components and finished products for sale on a large scale. It can utilize a number of methods, including human and machine labor, and biological and chemical processes, to turn raw materials into finished goods by using tools.
Production is similar to manufacturing but broader in scope. It refers to the processes and techniques that are used to convert raw materials or semi-finished goods into finished products or services with or without the use of machinery. Whether it is one or the other, manufacturers need to match their production methods to the needs and desires of the market, the available resources, order volume and size, seasonal shifts in demand, overhead costs (such as labor and inventory), and numerous other variables.
Types of Manufacturing Production
Make to Stock (MTS)
The make-to-stock (MTS) strategy is a traditional production strategy that is based on demand forecasts. It is best utilized when there is a predictable demand for a product, such as for toys and apparel at Christmastime. MTS can be problematic when demand is more difficult to predict, however. When used with a business or product that has an unpredictable business cycle, MTS can lead to too much inventory and a dent in profits, or too little inventory and a missed opportunity.
Make to Order (MTO)
The make-to-order (MTO) strategy (also known as "built to order") allows customers to order products built to their specifications, which is especially useful with heavily customized products. Examples of make-to-order products include computers and computer products, automobiles, heavy equipment, and other big-ticket items. Companies can alleviate inventory problems with MTO, but the customer wait time is usually significantly longer. This demand-based strategy cannot be used with all product types.
One limitation of make-to-order (MTO) products is that the production costs tend to be higher than make-to-stock (MTS) products because of the amount of customization required to fulfill the customer's order.
Make to Assemble
The make-to-assemble (MTA) strategy is a hybrid of MTS and MTO in that companies stock basic parts based on demand predictions, but do not assemble them until customers place their order. The advantage of such a strategy is that it allows fast customization of products based on customer demand. As such, a good example is found in the restaurant industry, which prepares a number of raw materials in advance and then awaits a customer order to start assembly. One downside to MTA is a company may receive too many orders to handle given the labor and components it has on hand.
Special Considerations
The just-in-time (JIT) inventory system is an example of a strategy that focuses on one component of manufacturing production—inventory management. The system benefits companies because it allows them to decrease waste and inventory costs by only receiving goods used in production at the time they are needed.
Companies that employ a JIT inventory system do not store large inventories of parts and raw materials needed to produce their goods. Instead, deliveries of these items arrive at the production facility in smaller quantities as needed to complete production. To make a JIT strategy work, efficient scheduling is of the essence to ensure production is not delayed because of the lack of materials. Electronic inventory systems help managers monitor inventory and respond quickly when production materials get too low.
