Demand Driven Manufacturing
Part 1 of 5

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The Demand Response Strategy defines how manufactur­ing will respond to customer demand, especially in terms of time. With time competition becoming more prevalent, this aspect of manufacturing strategy is becoming ex­tremely important. In our investigations, we have divided the range of possible demand response strategies into five categories and given each a familiar easy-to-remember name, as follows: Engineer-to-Order, Make-to- Order, Assemble-to-Order, Make-to-Stock, and Make-to-Demand.

In this paper, we will describe each of the demand response strategies and indicate for which products and competitive situations each would be most appropriate. We will dem­onstrate, that to be successful, the demand response strat­egy must be properly matched to the characteristics of the product and the time competitiveness of the market. For example, job shops making low volume high variety prod­ucts in markets with little time competition should use Engineer-to-Order for new products and Make-to-Order for repeat products.

Need for a Demand Response Strategy

Time-based competition is the latest challenge in manufac­turing strategy. Aggressive companies are altering their objectives from competitive cost and quality to competitive costs, quality, and time responsiveness. Competition is becoming increasingly time-based as firms vie to give the fastest response to customer demands. In industries ranging from automobiles to room air conditioners, the leading firms can respond quickly to market demand without having to sacrifice quality or competitive prices. Customers, offered an array of products or services that are roughly equivalent in terms of price and quality, take their business to the firm that responds fastest to their needs. Firms that are locked into the pursuit of traditional cost-based strategies are defenseless against such potent, multidimensional competition and face a rapidly eroding market.

Some of the demand response strategies we will discuss have been discussed in the past, but not as manufacturing strategies. For example, Schroeder<2) discusses the differ­ence between Make-to-Stock and Make-to-Order. How­ever, he discusses them under the heading of "Types of Customer Order", thus missing the point that they are really the firm's time response to demand. The customer order does not determine the type of response—the firm does. Vollmann'31 refers to Make-to-Order, Assemble-to-Order, and Make-to-Stock as "Master Production Schedul­ing Options", also not recognizing that they are actually demand response strategies that have a significant effect on the Master Production Schedule. Other authors have referred to the demand response strategies as "Inventory Control Policies."

Description of Demand Response Strategy

The Demand Response Strategy defines how a company will respond to consumer demand. For purposes of discus­sion we will classify demand response strategies into five categories: Engineer-to-Order, Make-to-Order, Assemble-to-Order, Make-to-Stock, and Make-to-Demand.

Engineer-to-Order

In the Engineer-to-Order (or Design-to-Order) demand response strategy, nothing is inventoried in the producer's system, not even the design. These products have not been made before, at least not by this company. The customer usually asks for a quotation of cost and time from the producer. The quotation itself can be complex and costly. When the customer places the order, the producer first develops the design for required product, which can involve considerable time and expense, receives customer approval of the design, and then orders the needed material. Upon receipt of the material, the producer fabricates the compo­nents, assembles the product, and ships it to the customer.

To be Continued