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Good inventory management begins with an inventory strategy and answers the question "how will we use in­ventory to satisfy customer demand?" Do our custom­ers want instant availability of a low-cost, standardized product, or will they wait for a unique product, at a higher cost?

A make-to-stock (MTS) strategy can be used for stan­dard products built and held in anticipation of fore­casted demand. The handouts for this presentation are an example of a MTS product. Their predictable de­mand, low cost, and manageable storage requirements do not expose me to significant risk. Further, the pro­duction process, a copier and stapler in my case, are most efficient when run at a moderate and constant rate. As you have seen, however, MTS production is scheduled on a forecast and serious customer service issues can result if I fail to correctly anticipate demand or if, for whatever reason, I fail to build the required inventory. Other examples of MTS inventory are corn flakes in a supermarket and plasma in an emergency room.

Design or engineer-to-order is at the other end of the inventory strategy scale. It offers the most flexibility in product design, and may even include process design. For example, rather than attending this conference, you could have contracted with a high-priced consultant to observe your company and make recommendations re­garding inventory management and control. This ser­vice would be designed, or engineered, to meet your specific needs. It would also cost far more than this con­ference and would take several weeks, rather than sev­eral days, to complete.

Suppose you already know that one solution for your inventory problems is training for your employees, but training is not your expertise. You might contract with a consultant to develop the training program. You would specify the classes you needed, such as cycle counting or receipt inspection, and the consultant would write the lesson plans and other deliverables. This would be a make-to-order strategy. It would take longer and cost more than the MTS session handouts, but it would bet­ter meet your needs. It would also be faster and cheaper than the design-to-order consulting service.


The assemble-to-order strategy is a compromise be­tween make-to-stock and make-to-order. A limited va­riety of components, or semi-finished inventory, are produced, based on forecast or kanban and held in an­ticipation of customer orders. When an order is received, a unique combination of components can quickly be assembled and delivered to the customer. This APICS conference is a good example of assemble-to-order. Vari­ous educational sessions (think of them as semi-finished goods) have been produced, and you are given a choice of assembly to meet your specific needs.

To summarize the inventory strategies:

     Design-to-order offers the most product and process
flexibility, but requires the longest lead time.

     Make-to-order restricts product flexible to that avail­
able from our process, but is faster and cheaper.

     Assemble-to-order is still faster but restricts product
flexibility to the available components.

     Finally, make-to-stock offers low cost instant avail­
ability but with no flexibility other than that designed
into the product itself.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14

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