Compare and contrast between make-to-stock and make-to-order systems. In your comparison, why does each system require different types of contracts?
In a make-to-order system, an organization begins product production only when a client’s order is received whereas, in a make-to-stock system, product production is based on sales forecast (Kober & Heinecke, 2012). Individual assessment of production orders is essential in order to meet customer’s expectations whereas in make-to-order accurate sales forecast provide accurate market projections on customers’ expectations. Moreover, make-to-order is subject to wastage and inefficient production because of customization of each client’s order whereas make-to-stock makes production easier because purchase orders get issued on specific parameters (Kober & Heinecke, 2012).
Delegate your assignment to our experts and they will do the rest.
What are the advantages and disadvantages of each type of contract?
Make-to-order system contracts
|
Advantages |
Disadvantages |
|
There is reduced operational costs. |
The absence of inventory supply that is available for sale thus loss of potential sales. |
|
Customer service becomes efficient. |
Customer’s orders take time before they get actualized because customizing requires more time. |
|
Reduction in inventory that is unnecessary |
Inability to synchronize systems that are responsible for materials and finished goods deployment. |
|
Increased productivity in supply chain stuff. |
Lack of the capacity to coordinate with international and local suppliers to provide materials on direct demand signal. |
Make-to-stock system contracts
|
Advantages |
Disadvantages |
| Effective for production of products with uniform specifications, | High inventory costs due to batch production. |
| Production planning is maximized due to the sale forecast that determines production. | Inability to adjust to changing circumstances in the market. |
| Delivery of client’s order in timely and desirable schedules. | Lack of future projections that need to be taken into account for fluctuating client’s demand. |
| Optimization of inventory levels due to accurate forecasting. |
What type of contract would you choose? Give reasons for your decision.
I would choose the make-to-order system contract because of its flexibility in the line of production. It would also facilitate an efficient and reliable inventory management. Moreover, there is a projection on profitability due to ease in monitoring production runs individually. Due to the necessity of strong communication between the sales order and productions department, product’s specification becomes more accurate for utmost client’s satisfaction.
References
Köber, J., & Heinecke, G. (2012). Hybrid production strategy between make-to-order and make-to-stock–a case study at a manufacturer of agricultural machinery with volatile and seasonal demand. Procedia CIRP, 3, 453-458.
