Make To Stock (MTS)

What does 'Make To Stock - MTS' mean

Make to stock (MTS) is a traditional production strategy that is used by businesses to match production and inventory with consumer demand forecasts. The (MTS) method requires an accurate forecast of demand in order to determine how much stock should be produced. If demand for the product can be accurately forecasted, the MTS strategy is an efficient choice for production.

Explaining 'Make To Stock - MTS'

The effectiveness of an MTS strategy is completely reliant on the ability of a company to predict the future demand of its customers. This becomes increasingly challenging when a company operates in an industry with cyclical sales cycles or seasonality. It is also generally hard to implement an MTS strategy due to the fact that the business cycle is naturally unpredictable.

An Example of the MTS Method

Manufacturing companies often use the MTS method to prepare for periods of high production. For example, many retailers, like Target, generate most of their sales in the fourth quarter of the year. This means, however, that for the manufacturing companies supplying these retailers, a majority of their production has to come in the second and third quarters of the year, to prepare for the increases in demand.

Drawbacks of the MTS Method

In theory, the MTS method is a great way for a company to prepare for increases and decreases in demand. However, inventory numbers, and therefore production, are derived by creating future demand forecasts based on past data. There is a high likelihood that the forecasts will be off, even if by just slightly, meaning that a company might be stuck with too much inventory and too little liquidity.

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