The pandemic and resulting material shortages forced many make-to-stock manufacturers to shift to a make-to-order environment. While many businesses continue to see the move as temporary, they shouldn’t. Instead of falling back to make-to-stock as the pandemic subsides, manufacturers should embrace make-to-order once and for all. Here’s why.
Benefits of make-to-order manufacturing
Make-to-order was a trend before 2020, the pandemic just sped it up. A 2017 Deloitte survey found that 38% of manufacturers had implemented some make-to-order manufacturing processes, while 27% planned to in the next five years. Benefits like lower inventory costs, more flexibility, and increased customer satisfaction drive the trend.
Lower inventory costs
As we’ve all seen, the cost of carrying inventory has grown significantly as inflation and interest rates continue to rise. With rolling waves of inflation, come cautionary tales, such as that of Funko, a pop culture figurine maker that trashed $30M+ in inventory because storage costs became unaffordable.
With make-to-order, manufacturers save big on storage and transportation costs because they don’t have to store or manage excess inventory. Automotive manufacturers like Ford and GM are exploring ways to produce more vehicles on demand, reducing the need for large inventories.
More flexibility and sustainability
With make-to-order, manufacturers can respond more flexibly to customer needs or unexpected spikes in demand. They also reduce waste and minimize their environmental impact because they don’t have to worry about excess inventory becoming obsolete or going to waste.
Happier customers
Make-to-order manufacturing enables manufacturers to offer customers more personalized products that meet their specific needs and preferences. This level of customization can lead to increased customer satisfaction, as customers are more likely to be happy with a product tailored to them.
Better quality
Make-to-order manufacturing also helps manufacturers improve their quality control processes. When producing products for specific orders, manufacturers can closely monitor the production process to ensure each product meets required specifications. This level of quality control leads to higher-quality products and fewer defects.
Overcoming make-to-order challenges
Of course, shifting to make-to-order isn’t without its challenges. Longer lead times, higher upfront costs, and increased complexity concern many manufacturers, but these challenges don’t have to be deal breakers.
Upfront costs
Shifting to make-to-order may require significant upfront investment in new equipment, technology, and processes. Some manufacturers may be hesitant to make this investment, especially if they have a well-established make-to-stock process.
To overcome upfront costs, manufacturers should carefully evaluate their existing processes and identify opportunities for improvement. For example, they may be able to optimize their use of existing equipment or invest in more efficient technology. Manufacturers can also phase in to make-to-order, rather than doing everything at once.
Longer lead times
Make-to-order can also have longer lead times than make-to-stock, which can be a disadvantage in industries where customers demand quick delivery times.
To reduce lead times, manufacturers can use data analytics tools to improve forecasting accuracy and better anticipate changes in customer demand. Companies may also optimize their production processes to reduce lead times without sacrificing quality. For example, they can use Lean manufacturing techniques to eliminate waste and increase efficiency.
Complexity
Make-to-order is often more complex than make-to-stock because manufacturers need to manage more orders and processes, and that requires more planning and coordination. Some manufacturers worry this added complexity will be difficult to manage and could result in errors or delays.
To reduce complexity, manufacturers should invest in technology to streamline their production processes and improve coordination between different departments. For example, they can use cloud-based software to improve communication between sales and production teams, or robotics and automation to reduce the risk of errors.
Make-to-order manufacturing success story
In 2008, MCA Connect began working with one of the world’s best-known technology brands. A few years later, the technology giant acquired a major enterprise storage business. The acquired company struggled with large amounts of shop floor waste, costly and decades-old manufacturing processes, limited visibility into its production line, and an inefficient order scheduling process.
With the help of our manufacturing experts, the enterprise storage company redesigned its production line. The division also implemented our Fixed Interval Scheduling (FIS) solution to optimize its order scheduling process and eliminate partially completed products sitting on the shop floor. Created for make-to-order, FIS allows for scheduling windows of versus days and only schedules orders the company can fully complete and ship.
With FIS, the acquired company gained greater visibility into its production line and the ability to make better business decisions, reducing on-hand inventory by more than 60%.
How to make the shift to make-to-order manufacturing
So how should manufacturers start making the shift to make-order? With careful planning, preparation, and by proceeding one step at a time.
Assess current processes and capabilities
Before shifting to make-to-order, it’s important to assess current production processes and capabilities. This should involve analyzing inventory levels, production lead times, and customer demand patterns. When manufacturers understand their current processes and capabilities, they can identify areas for improvement and determine what changes they need to make.
Identify opportunities and build a plan
After the assessment, manufacturers should identify opportunities for improvement. This could be anything from optimizing production processes and increasing visibility to investing in new technology or streamlining their supply chains. The next step is to create a detailed plan for making the shift to make-to-order manufacturing. This plan should include timelines, budgets, and specific goals for improving production processes.
Communicate changes to stakeholders
Finally, it’s important to communicate the change to stakeholders, including employees, customers, and suppliers. This may involve explaining the benefits of make-to-order, addressing concerns about longer lead times or increased complexity, and providing training and support.
Make-to-order manufacturing is here to stay
A survey conducted by McKinsey & Company in June 2020 found that 80% of manufacturers were considering or had already implemented changes to their supply chain to improve agility and resilience in response to the pandemic. One of the key strategies identified by respondents was the adoption of make-to-order.
Additionally, a report by Grand View Research estimates that the global make-to-order manufacturing market size was valued at USD 202.8 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 7.8% from 2021 to 2028.
It’s clear. The pandemic accelerated make-to-order and the manufacturing practice is here to stay. Companies that resist the change risk falling behind.
Need help with make-to-order?
Through passion and deep industry expertise, MCA Connect helps manufacturers succeed by unlocking innovation with actionable business insights. Our strategic solutions and industry intelligence help manufacturers gain visibility, improve profitability, and gain a competitive edge. To learn more about simplifying make-to-order, view our resources or contact us today.
Doug Bulla
Senior Vice President – Manufacturing Strategy, Data, and AI Solutions, MCA Connect Co-Founder