In the manufacturing industry, choosing the right production strategy is critical to balancing inventory costs, meeting customer demand, and optimizing operational efficiency. One widely used strategy is Make-to-Stock (MTS) production, a model focused on producing goods based on forecasted demand and maintaining inventory ready for immediate delivery.
Within the SAP manufacturing ecosystem, MTS production is a foundational approach that integrates forecasting, planning, and execution to help manufacturers efficiently manage stock levels while ensuring customer satisfaction.
Make-to-Stock is a production methodology where products are manufactured based on predicted demand and stored as finished goods inventory. The primary goal is to have products available “on the shelf” to fulfill customer orders quickly, reducing lead times and enhancing service levels.
This approach contrasts with Make-to-Order (MTO), where production only begins once a customer order is received. MTS is ideal for standardized products with relatively stable and predictable demand patterns.
SAP provides robust tools to support MTS production across the supply chain, ensuring manufacturers can plan, produce, and distribute goods efficiently.
- SAP S/4HANA Production Planning (PP): Manages demand forecasts, material requirements planning (MRP), and production orders based on stock replenishment strategies.
- SAP Advanced Planning and Optimization (APO): Enhances demand planning and supply network planning to improve forecast accuracy and inventory optimization.
- SAP Integrated Business Planning (IBP): Offers cloud-based integrated forecasting, inventory management, and sales and operations planning to align production with market demand.
- SAP Extended Warehouse Management (EWM): Ensures efficient storage, handling, and distribution of finished goods.
¶ How SAP Handles MTS Production
- Demand Forecasting: Using historical sales data and market trends, SAP’s advanced planning tools generate demand forecasts.
- Material Requirements Planning (MRP): Based on forecasted demand, MRP calculates the materials and components required, triggering production orders for finished goods.
- Production Execution: SAP Manufacturing Execution (ME) or SAP Digital Manufacturing Cloud (DMC) oversees shop floor activities, ensuring products are manufactured as per plan.
- Inventory Management: Finished goods are stored in warehouses managed by SAP EWM, ready for customer orders.
- Order Fulfillment: Customer orders are fulfilled directly from stock, reducing lead time and improving customer satisfaction.
- Reduced Lead Time: By maintaining finished goods inventory, companies can deliver products immediately upon order receipt.
- Optimized Inventory Levels: SAP’s forecasting and planning tools help balance inventory investment with service levels.
- Improved Customer Service: Quick order fulfillment enhances customer satisfaction and loyalty.
- Streamlined Production Scheduling: Production runs can be planned in batches, optimizing machine utilization and reducing changeovers.
- Cost Efficiency: Bulk purchasing and production reduce per-unit costs.
¶ Challenges and SAP Solutions
While MTS has many advantages, it also carries risks such as excess inventory, obsolescence, and forecasting errors. SAP addresses these challenges through:
- Real-Time Analytics: SAP S/4HANA’s real-time data processing enables continuous monitoring of inventory levels and demand patterns.
- Demand-Driven Replenishment: SAP IBP supports demand-driven MTS models that adapt production dynamically to changing market signals.
- Integration with Sales and Distribution: Synchronizing MTS production with sales data helps refine forecasts and reduce waste.
- Scenario Planning: SAP tools allow manufacturers to simulate different demand scenarios, optimizing stock levels proactively.
MTS is most suitable when:
- Products are standardized with stable demand.
- Fast delivery is critical.
- Economies of scale in production and procurement are important.
- Predictive demand data is reliable.
Examples include consumer packaged goods, electronics, and automotive parts.
Make-to-Stock production remains a cornerstone strategy in manufacturing, and SAP’s comprehensive suite of planning, execution, and inventory management solutions empowers organizations to implement MTS effectively. By leveraging SAP’s intelligent tools, manufacturers can optimize inventory, reduce costs, and provide superior service in today’s competitive markets.
For manufacturers considering MTS or looking to enhance their current processes, SAP offers the technology backbone to drive efficiency and agility throughout the production lifecycle.