According to Lorenzo, make to stock is where a company anticipates certain sales through forecasting and makes orders on products. They use previous sales of the financial year to determine future sales. Make to stock is a strategy that is viable in established companies whose forecasting is dated back many years as compared to small companies. Small companies are more viable with the make to order where they make products according to orders to avoid facing losses. Payback contract is an agreement with the manufacturer where they are paid some amount of money when the product is not sold which is not an advisable contract to any business. Cost sharing is where the manufacture and distributor share cost in case of any losses which is an advisable choice. Implement issue contract is where the manufacturer shares information in regards to cost with the distributor.
According to Ira’s response, it is clear that make to stock is one that is for commonly used products that are easy to forecast their consumption in the market while make to order is for special, custom items that are rarely used and therefore require to be preordered in order to be made. They both require different contracts due to their availability and demand. It is evident that MTS assists in planning and budgeting while at the same time run the risk of overage and shortages. MTO, on the other hand, gives assurance of selling the products but there is the issue of long lead times that is a great disadvantage. The best method is MTS due to the efficiency it provides by having the products readymade and available for its consumer, therefore, there is a lead time for customers. Customers can rely on the company to always have their products ready.
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