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
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.
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.
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,
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
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