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

Blog Series: Optimization in the Real World

It can be a challenge to develop a schedule which enables you to balance your prioritized customer orders with your need to utilize spare capacity. Optimization will enable you to avoid gaps and bottlenecks.

The Challenge

Many companies face the challenge of balancing make-to-stock and make-to-order. Generally speaking, you typically want to prioritize customer orders over forecast so you can produce customer orders just-in-time, and utilize spare capacity to produce-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 fill the gaps after the make-to-order production has been scheduled. The problem here is that the scheduling tools don’t automatically change 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, and then optimization will determine which products should fill the gaps in schedule.

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