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MTS in MTO environment is an important part of Supply Chain strategy.
Supply chains in most companies are designed as primarily ‘Make to Stock’ (MTS) or ‘Make to Order’ (MTO). Most industry sectors have a mix of players operating in MTS and MTO mode, although one of the two modes is dominant. Just to recall, it is decided by the customer’s tolerance time and the vendor’s supply lead time.
Companies operating in MTO mode do consider putting certain products on MTS. The hybrid mode definitely adds value. The question is… which products should be put on MTS?
Some companies do it for products where production runs are small and they would like to take a longer run for various local efficiency measures. They effectively play around with forecasting future orders and advancing their production. Such a strategy is entirely internal focused and often leads to more problems than profits.
The right strategy is to see it from the customer’s point of view. We know that a well-executed MTS strategy cuts down the supply lead time, thereby leading to faster delivery of customer orders. If customers find value in it and are willing to either pay a higher price or give a higher share of business, we should go ahead with MTS. On the other hand, if customers are indifferent, MTS strategy is unlikely to add value to business.
MTS / MTO segmentation should, therefore, be customer focused instead of being internal focused.