The Fastest Way to Make to Order is with Strategic Stocking
Manufacturing superstars excel at making products to order with rapid time to shipment. What do the superstars do differently than other make to order companies? Two things — they use item-based planning and strategic stocking of subassemblies and materials.
Most manufacturers use job-based planning
Most make to order manufacturers use job based planning, which is popular because it is easy to simply link a job chain to each sales order and then make and buy everything as needed. Sales order linking is easy, but it is also counter-productive because it generates an excessive number of inefficient jobs and purchase orders that necessitate longer lead times.
Superstars use item-based planning
By contrast, manufacturing superstars use item-based planning whereby jobs and purchase orders are triggered by total demand instead of one sales order at a time. Natural linking occurs when multi-level demand happens to align with a particular sales order, but when demand is shared among interdependent items, jobs and purchase orders are consolidated for more efficient supply quantities.
Most manufacturers make and buy for the job
Most make to order manufacturers make subassemblies and buy materials for each job. Making and buying for one job at a time is popular because it is easy to do and it minimizes inventory.
Superstars use strategic stocking for subs and materials
By contrast, manufacturing superstars reduce time to shipment with strategic stocking of subassemblies and materials. When key components are available from stock, final assembly jobs can be started immediately, which dramatically reduces time to shipment.
Inventory efficiency is the superstar goal
Most make to order manufactures mistakenly believe that minimal inventory is always a good thing, but it can come at high cost in the form of lost sales to more efficient competitors. By contrast, manufacturing superstars understand that strategic inventory is necessary to reduce time to shipment. So instead of minimizing stock on hand, superstars strive for efficient utilization of strategic inventory.
Supply pipelines keep inventory efficient
Manufacturing superstars utilize inventory efficiently through supply pipeline planning whereby dynamic reorder points and minimum order quantities replenish stock at demand-driven intervals. Stock replenishment is only triggered by actual demand, which automatically caps stock on hand to prevent over-stocking.
Superstars engineer to order
For custom to order manufacturing, superstars use job-based planning for the sell item because each sales order has unique specifications. The subassemblies and materials that comprise the sell item, however, use item-based planning that allows for strategic stocking to reduce time to shipment.
Superstars are much more profitable
Even though manufacturing superstars use more inventory that other make to order manufacturers, they are much more profitable. This is because that inventory is kept efficient with high turnover and is used to achieve dramatically faster time to shipment. Faster time to shipment increases sales and market share, boosts margins by spreading fixed inventory costs over greater volume, and boosts cash flow with faster customer payment cycles.
DBA provides the tools you need to be a superstar
Item-based planning and strategic stocking requires a demand-driven planning system for just in time manufacturing. Our DBA Manufacturing software package fits that requirement because it includes Time to Shipment MRP, which enables you to plan time to shipment for make to order items using lead times and order policies, with supply pipeline planning for strategically stocked items. With these simple planning tools, you too can make to order like a manufacturing superstar.