What are Make-to-Stock and Make-to-Order?

Choosing the right production strategy can be crucial for the success of an ecommerce or DTC (Direct to Consumer) business. Two popular approaches are make-to-stock (MTS) and make-to-order (MTO). Each has its benefits and challenges, and the choice depends on your specific business model, customer demand, and inventory management strategy.

In this blog, we’ll compare make-to-stock vs. make-to-order strategies, discussing their pros, cons, and how to determine the best approach for your ecommerce business.

What is Make-to-Stock (MTS)?

Make-to-stock (MTS) is an inventory strategy in which products are manufactured based on forecasted demand and kept in stock until orders are received. The primary goal of MTS is to have products readily available for customers, minimizing wait times.

• Advantages:
  • Reduced Lead Time: Since products are already made, customers can receive them immediately after placing an order.
  • Economies of Scale: Producing in bulk often leads to reduced production costs, benefiting from economies of scale.
  • Smoother Production Schedule: Production is done based on planned schedules, leading to more efficient use of labor and machinery.
• Challenges:
  • Risk of Overstocking: Incorrect demand forecasting may lead to excess inventory, increasing holding costs.
  • Limited Customization: Products are standardized, which can limit your ability to meet specific customer needs.

To understand how the make-to-stock strategy works in ecommerce and its advantages, check out our detailed guide on make-to-stock strategy.

What is Make-to-Order (MTO)?

Make-to-order (MTO) is a strategy where products are manufactured only after a customer places an order. This approach is common for businesses that prioritize customization and prefer not to keep high levels of inventory.

• Advantages:
  • Lower Inventory Holding Costs: Since products are only made when ordered, businesses can save on storage and holding costs.
  • Customization Opportunities: MTO allows for a higher level of customization, making it easier to cater to unique customer requirements.
  • Less Risk of Overstock: Since production is based on confirmed demand, there is minimal risk of having unsold inventory.
• Challenges:
  • Longer Lead Time: Customers have to wait for products to be manufactured, which may lead to longer delivery times.
  • Higher Production Costs: Smaller production runs may lead to higher per-unit costs, as bulk production savings are not realized.

Make-to-Stock vs. Make-to-Order: A Comparison

When deciding between make-to-stock and make-to-order, it's essential to evaluate both options based on key factors like customer demand, lead time, and production costs.

Which Strategy is Right for Your Ecommerce Business?

The choice between MTS and MTO depends on several factors, including the type of products you sell, your customers' preferences, and your inventory management capabilities. Here are some considerations to help you decide:

• Customer Demand: If your products have a predictable demand pattern and your customers expect quick delivery, make-to-stock may be the better choice. This strategy works well for businesses that deal with fast-moving consumer goods.
• Customization Needs: If your customers want personalized products or custom configurations, make-to-order is the way to go. This strategy is often used by businesses offering unique or customizable items.
• Holding Costs: Consider your ability to store inventory. If inventory holding costs are a concern, make-to-order will help you minimize these expenses. For more information on calculating holding costs, visit our guide on inventory holding cost calculation and optimization.
• Lead Time Tolerance: If your customers are willing to wait for their products, make-to-order is a suitable choice. However, if fast delivery is crucial, make-to-stock may be a better fit.

Hybrid Approach: Combining MTS and MTO

Many ecommerce businesses find that a hybrid approach works best for them. This means using make-to-stock for products with stable demand while offering make-to-order for more customized items. This approach allows businesses to benefit from the fast lead times of MTS while also providing customization through MTO.

Using a hybrid approach can help balance the cost advantages of bulk production with the flexibility of made-to-order products. For example, a fashion ecommerce store may keep basic clothing items in stock while offering customizations like monograms as MTO options.

Best Practices for Implementing MTS and MTO Strategies

• Accurate Demand Forecasting: For make-to-stock, accurate demand forecasting is essential to avoid overstocking or stockouts. Tools like Fabrikatör can help improve demand forecasts by providing real-time data analysis. Understanding how to maintain safety stock can also support your MTS strategy—learn more about it in our post on how to calculate safety stock.
• Customer Communication: For make-to-order, clear communication with customers regarding lead times is crucial to manage expectations and maintain customer satisfaction.
• Leverage Inventory Management Tools: Implement inventory management software that supports both MTS and MTO. Tools like Fabrikatör help streamline inventory management, automate replenishment, and track demand trends, making it easier to manage both strategies.

Make-to-Stock and Make-to-Order? Which One Should You Choose?

Choosing between make-to-stock and make-to-order depends on your ecommerce business model, customer expectations, and your ability to manage inventory efficiently. Both strategies have their own advantages and challenges, and in many cases, a combination of both can provide the flexibility needed to meet market demands.

By leveraging the right tools and techniques—such as accurate demand forecasting, inventory management systems, and effective communication—you can ensure that whichever strategy you choose, it will help your business grow and keep customers happy.

About Fabrikatör

Fabrikatör offers powerful inventory management tools to support both make-to-stock and make-to-order strategies. Whether you're looking to optimize your demand forecasting or manage custom orders more efficiently, Fabrikatör provides solutions to keep your inventory lean and responsive to customer demand. Get a free demo today to see how Fabrikatör can enhance your inventory management.