Demand Driven Manufacturing
Part 2 of 5

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Make-to-Order

In the Make-to-Order demand response strategy, only the product designs and some standard raw materials are in inventory, i.e., the products are standard products that have been made before. The processing activities are tailored to each individual customer order. The order cycle begins when the customer specifies the product that he or she wants; the producer can assist the customer to prepare the specifications. The producer quotes a price and deliv­ery time based on the customer's request. The quotation process itself is less costly and complex than Engineer-to-Order. The customer and producer frequently discuss alternatives to reduce cost, reduce time to ship, and/or meet the customer's actual needs more closely.

Assemble-to-Order

In the Assemble-to-Order demand response strategy, all subassemblies or modules are available in inventory. When a customer orders a product, the producer quickly as­sembles the modules and ships the final product. This demand response strategy is used by companies having modular products with a number of the final products having common modules. In practice, the demand for the modules can be forecasted much more accurately than can the demand for the final product. Thus, these companies can respond to customer demand much more efficiently by forecasting and stocking the modules, and then assembling the final product upon receipt of the customer order.

Make-to-Stock

In the Make-to-Stock demand response strategy, the pro­ducer stocks the finished product in inventory for imme­diate shipment. Rather than starting with the customer, the cycle starts with the producer specifying the product, acquiring the raw materials, and producing it for stock. If the price and quality are acceptable, the customer orders the product. Assuming the product is indeed on hand, the producer ships immediately from stock. Operations fo­cuses entirely on replenishment of inventory; actual cus­tomer orders cannot be identified in the production pro­cess. At any particular time, the actual level of production may bear little correlation to the level of actual orders being received.

Make-to-Demand

This is a totally flexible demand response strategy that delivers the firm's product with the quality and delivery time exactly as desired by the customer. This strategy is completely responsive to the customer's order, but can deliver the product with a delivery speed approaching that of Make-to-Stock. It can use any combination of the other response strategies that are needed to meet customer demand. Depending on the competitive situation, designs, raw materials, components, assemblies, or finished prod­ucts may be kept in inventory. This type response has evolved as a comprehensive reaction to the recent emphasis on time-based-competition.

Selecting Demand Response Strategy

Figure 1 shows the influence of the nature of the product and the nature of the market (primarily the amount of time competition), on the Demand Response Strategy. Down the left side of the matrix we have the five conditions of the product and market from One-of-a-Kind with No Time Competition to Totally Flexible Products with Varying Time Competition. Across the top of the matrix we have the five demand response strategies previously described: Engineer-to-Order, Make-to-Order, Assemble-to-Order, Make-to-Stock, and Make-to-Demand.

A rectangle in the matrix indicates a match between: (1) the nature of the product and market and (2) the demand response strategy. We discuss each of matches below.

• The One-of-a-Kind product with No Time Competition primarily uses the Engineer- to-Order response strat­egy since there is no need to commit any resources, not even engineering resources, until the order is received. This category includes products that are new and/or unique such as research and development efforts, ships, bridges, and steel mills.
• Few-of-a-Kind products with Weak Time Competition tend to use Make-to-Order since products of this kind have been made before and there is little competition because of low volume. Customized products such as research computers, hand- crafted sailboats, and re­placement parts are included in this category.
• Modular Products with Moderate Time Competition should use the Assemble-to- Order response strategy to take advantage of the modularity of their products and achieve a time advantage over their competition without committing unnecessary resources.
• Commodity Products with Strong Time Competition must use the Make-to-Stock response strategy if they hope to satisfy customer demand. If a commodity product is not immediately available, the customer will go elsewhere to buy it.
• Companies having Totally Flexible Products with Vary­ing Time Competition must use the Make-to-Demand response strategy in order to provide exactly what the customer wants when he wants it.

To be Continued