A company’s production strategy (largely determined by the industry of the company), whether make-to-order (MTO) or make-to-stock (MTS), is crucial in shaping its approach to demand planning.
In a make-to-stock (MTS) environment, production is driven by demand forecasts (and the related inventory positions). The end products are produced in advance and stored based on expected demand. This approach is rather a push system, where historical data, market trends, and seasonal patterns help predict future demand. MTS is typically used in industries with stable demand patterns and well-established products, such as consumer packaged goods (CPG), electronics, or automotive components.
If you overestimate demand, you’re stuck with excess inventory, driving up storage costs. If you underestimate, you risk stockouts and lost sales. A common pitfall is reacting to sudden demand spikes—like customers stocking up during a promotion—by increasing the forecast, which can lead to inefficiency later.
Collaboration with marketing is essential to understand how promotions or incentives might shift demand or even cannibalize sales of other products.
In make-to-order (MTO) environments, production of the end product is triggered only when an order is received. This pull system is common in industries like pharmaceuticals, fashion, or customized manufacturing, where products are tailored to specific customer needs. MTO minimizes excess stock, but it brings challenges with lead times and production readiness.
MTO often deals with longer lead times, which can result in customer dissatisfaction if production takes too long. To manage this, many companies hold inventory for basic components that can be quickly assembled when an order comes in, essentially blending MTO with MTS principles.
Collaboration with sales teams is critical here. Salespeople can provide insights into upcoming contracts or large deals, allowing you to adjust your forecasts for raw materials and components ahead of time.
Make to stock vs make to order by Intuendi: https://intuendi.com/resource-center/make-to-stock-or-make-to-order/
Make to stock vs make to order by Siemens: https://blogs.sw.siemens.com/opcenter/make-to-order-versus-make-to-stock-planning-what-makes-sense-for-you/
Industry | Trends | Stability vs volatility | Impact of promotions | New products | Shelf life relevance | External factors | Salespeople involvement |
E-commerce | Rapid growth, high seasonality | High volatility | High | Frequent | High | Interest rates, inflation | Limited |
Chemicals | Industrial production, economic cycles | Moderate, cyclical | Low | Rare | Moderate | Commodity prices | Moderate |
Consumer goods | Consumer-driven, seasonal | Moderate volatility | High | Frequent | High | Economic conditions | High |
Life sciences & pharma | Stable, spikes with new drugs | Generally stable | Low | Occasional | Critical | Regulatory changes | Limited |
Metals | Tied to industrial cycles | Volatile, large projects | Low | Rare | Low | Infrastructure, economy | Moderate |
Building materials | Construction-driven | Moderately volatile | Low | Occasional | Low | Construction cycles | Moderate |
Office supplies | Stable, academic cycle peaks | Stable, some seasonality | Moderate | Moderate | Moderate | Economic cycles | Moderate |
Electronics & high-tech | Fast innovation cycles, tech refreshes | High volatility | High | Frequent | Moderate | Technological advancements | High |
Industrial manufacturing | Stable, sensitive to economic downturns | Stable, economic dependent | Low | Occasional | Low | Global economic trends | Moderate |