Balancing make-to-stock and make-to-order

Posted on: 30 November 2015

Developing a schedule that balances customer orders with the need to utilize spare capacity can be challenging. Optimization helps you manage your bottlenecks and avoid schedule gaps.

The Challenge

Many companies face the challenge of balancing make-to-stock and make-to-order. You typically want to prioritize customer orders over forecast so you can produce customer orders just-in-time and use spare capacity for make-to-stock. Developing a schedule that meets both these objectives is often difficult and time-consuming. Current methodologies fall short:

  • Traditional MRP planning does not offer any flexibility in terms of prioritizing different types of demand differently.
  • Many scheduling tools don’t support the process of allowing make-to-stock production to fill the gaps after the make-to-order production has been scheduled. The problem here is that the scheduling tools don’t automatically change the batch size to fit the gaps – they just work with the lot size set by the MRP calculation in the first place. This means that your scheduling tool often gives a schedule where bottlenecks are not 100% utilized, and you are left to correct these short-comings outside the system.

How optimization will help

Optimization attacks this problem differently. Firstly, you give higher priorities to make-to-order production. This ensures customer orders are met on time. Secondly, it doesn’t try to fit fixed order lot sizes into gaps in the schedule.

Instead, it works out the optimal order quantity to fit the gap – you define the differentiated inventory targets for minimum and maximum stock levels. Then optimization will determine which products should fill the gaps in the schedule.

The result is a production plan where bottlenecks are 100% utilized, and you have the optimal balance between make-to-stock and make-to-order.

Christer Liden

Christer Liden

Co-founder & CEO

Christer drives the company's strategic direction and is a recognized expert in Supply Chain Optimization and Integrated Business Planning.

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