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Manufacturing Production (Strategy) – Definition

Manufacturing Production Definition

Manufacturing production is a strategy that enables manufacturers to achieve maximum efficiency in the manufacturing and production of goods intended for sale. Manufacturing production processes can be broadly classified into three main types — (1) Make to Stock (MTS), (2) Make to Order (MTO) and (3) Make to Assemble (MTA). These manufacturing production strategies offer different approaches to handling inventory control, overhead, customization and production speed, while providing various levels of savings in labor costs.

A Little More on What is Manufacturing Production

Before we elaborate on the concept of manufacturing production, let us consolidate our understanding of the terms manufacturing and production, and appreciate the subtle differences between the two. In its simplest terms, manufacturing is the process of converting raw materials, components or parts into finished goods for sale on a large scale. The manufacturing process almost always involves a production line of machinery and skilled labor. On the other hand, production refers to the procedure of processing an input, which can either be raw materials or semi-finished goods, and converting it into the output. While the basic definitions of both manufacturing and production make sound similar, there are two principal differences between the two —

  1. Only tangible products can be manufactured. On the other hand, both tangible as well as intangible outputs can be produced from inputs.
  2. Whereas in the process of manufacturing, the manufacturer obtains the raw materials from outside sources, in production, the producer owns the raw materials.

Let us now study the three types of manufacturing production strategies in detail.

  • The Make to Stock (MTS) Strategy: The make to stock strategy is one of the more conventional manufacturing production strategies that bases production activity of a particular product on its predictable demand in the market. For example, a manufacturer of raincoats will typically aim for higher production numbers just before the advent of the rainy season. Similarly, a manufacturer of woollen garments will ramp up production before the onset of winter. However, the make to stock strategy can prove to be counterproductive in situations where it is difficult to predict the patterns of demand. As such, companies that manufacture goods with unpredictable business cycles can either end up with a large inventory of unsold products or conversely, miss a great business opportunity, if they employ the MTS strategy.
  • The Make to Order (MTO) Strategy: The make to order strategy involves manufacturers awaiting orders from the market before manufacturing stock. Such a strategy not only makes it much easier for manufacturers to control their inventories, it also curbs their over-reliance on market demand. The MTO strategy is mostly utilized by manufactures that offer varying levels of customization on their products — automobile manufacturers, computer hardware and peripheral manufacturers, as well as manufacturers of heavy industrial equipment. The most noticeable drawback of the MTO strategy is that the manufacturer needs a constant sequence of orders to keep the manufacturing facilities running. Moreover, from the perspective of the customer, wait times are significantly longer in such a process. Lastly, the prospects of applying the MTO strategy is limited to a few product types.
  • The Make to Assemble (MTA) Strategy: The make to assemble strategy involves the manufacturing of component parts in anticipation of orders for assembly. The MTA strategy can be considered as a combination of both the make to stock (MTS) as well as the make to order (MTO) strategies since manufacturers employing the MTA strategy typically stock component parts based on demand predictions, and only assemble them after customers place their orders. Such a strategy allows the manufacturer to quickly and efficiently customize products based on customer demand. On the downside though, the manufacturer will end up with a stock of unwanted component parts if customer orders do not materialize. Conversely, if the manufacturer receives too many orders, it may face difficulties servicing them with the labor and components it has on hand. The MTA strategy is mostly adopted by restaurants that prepares a number of raw materials in advance in order to quickly assemble the product once the order arrives from the customer.

Risks Associated with Manufacturing Production Strategies

All the above manufacturing production strategies carry different levels of risk. This risk can be classified into two types —

  • Risks associated with quantity: Regardless of the efforts that manufacturers put in to choose manufacturing production strategies best suited to their business, it is not always feasible to manufacture the right quantity of products to satisfy market demand. As such, manufacturers may supply finished products well in excess of their market demand, thus causing a flooding of the market. Such flooding of products will, no doubt, benefit the customer with dropped prices, but for the manufacturer, it directly translates to a drop in profits. On the other hand, underestimating the market demand of a particular product will result in the manufacturer being unable to meet the supply requirement of that product. This will drive the customer elsewhere and ultimately leading to a drop in sales. The key solution to the risks associated with quantity is to keep production costs to a minimum and employ an efficient sales management team.
  • Risks associated with quality: Quality control is one of the most important aspects of a successful production process. Often, in their pursuit for higher production to meet growing customer demand, manufacturers lose focus on quality control. This oversight may cause irreversible damage to the sales prospects of their products in the long term. The only solution to this is for manufacturers to perpetually monitor the quality of their products across the production cycle.

References for “Manufacturing Production

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