Types of supply chain strategies

Made-to-Stock

Made-to-stock is the strategy of an organization to produce products based on anticipated demand. Here the companies keep the stock to serve the forecasted future demands of the customers. Accurate forecast of demand is possible, thus make to stock strategy can be very cost effective. The failure of strategy may occur due to unrealistic demand forecast and may also cause over production.

  • Immediate delivery of goods
  • Based on a predicable demand pattern
  • It is difficult to identify the customer orders in the production process
  • Total Production Required = Total Forecast + Back Order + Ending Inventory – Opening Inventory

Made-to-Order

Under made-to-order system goods are produced specifically when someone requests the item, so that the item can be customized as desired by the person who requested it. Most fast-food purchases, such as burgers or sandwiches, are made to order; the food has been cooked, and items are warm, but the final product is not assembled until the customer has actually ordered it.

  • Customer’s specifications unique
  • Other characteristics common to MTO
  • Assemble-to-Order

Assemble-to-order(ATO)

It is a method of manufacturing which allows you, or your customer, to select a base product and configure all the variable parameters associated with that product. Based on the configurable items on each quote or order, ATO systems typically generate the manufacturing routing and/or bill of materials based on features and options such as colour, size, etc.

Total Production Required = Sales plan for each components + Planned reduction in backlog of the components + Planned increase in the components inventory

Engineer-to-Order

Engineer to Order (ETO) is a manufacturing process defined by demand driven practices in which the component is designed, engineered, and built to specifications only after the order has been received. Engineer to Order manufacturers apply this strategy of producing customer-specific products that require unique engineering or design work, or significant customization activities.

  • Customer’s specifications unique
  • Other characteristics common to MTO
  • Challenges with an Engineer-to-order model

Moving forward with an engineered-to-order approach means that there will be a high level of customer participation in the design and manufacturing process of the product. With multiple parties working together to make a complex product a reality, it is not uncommon for difficulties to transpire along the way. And a problem in the design phase can be just as damaging as a setback in manufacturing phase. Typically with the engineered-to-order Strategy, production information and specifications are constantly changing between the ETO Company and the customer. Because most product data (design specifications, requirement files, engineering changes, etc.) is often tossed back and forth several times between the ETO Company and the customer, either party can be confused if information is poorly managed while exchange of product information. For example, it might be not easy to answer questions like how much and what inventory should be lined up for production. Because engineered-to-order products are well-tailored, they are often built from difficult to source parts, expensive parts and highly engineered components. Acquiring the necessary product components can be both a time consuming and costly endeavor causing issues before and during production runs.

Terminologies used in logistics:

Inventory Control

Inventory Control is the supervision of supply, storage and accessibility of items in order to ensure an adequate supply without excessive or oversupply. The system and process for managing and locating objects or materials is referred to as Inventory Control System.

Carriage Cost

In shipping terms, carriage cost (freight cost) is the expense incurred for the movement of goods from one location to another. In most cases, carriage cost is discussed in context of an order transaction between a buyer and a seller. Before a carriage cost can be determined, trade prices have to be set in order to appropriately define the costs associated with the transporting of the goods.

Storage/warehouse cost

Warehousing Cost is the costs involved in storing goods in a warehouse. Warehousing costs are levied by the warehouse owners and are an unavoidable expense for the companies that use the space. The owners should be conversant with the applicable charges

Lead Time

A lead time is the latency (delay) between the initiation and execution of a process. In supply Chain Management, it is the time delay between initiating an order and delivery of goods to the customer.

Transportation Scheduling

Transportation Scheduling is the process of determination of all dates relevant for transportation, based on the delivery date. The system determines when transport activities must start to ensure that the requested delivery date is met. It also decided the route in which the delivery has to be made.

Storage Capacity

Storage capacity is the maximum volume of goods that can be kept in a warehouse. In other words it is the maximum space available to store the goods safely inside the storage.

Forecasting of supply chain

Components of a forecast

  • Systematic (Level, Trend, Seasonality)
  • Random (Cannot be explained by historical demand patterns)

Systematic Forecast – Measures the expected value of demand

Random Forecast

A company cannot and should not try to forecast the direction of random components

It should only predict the random component’s size and variability which provides a measure of forecast error.

  • Demand planning and forecasting is considered to be the very first step in determining long term capacity needs, business plan and supply chain activities of an organization
  • Technique adopted by most industries including consumer durables, FMCG, automobiles, electronics, hospitality, airlines etc.
  • Long-term forecasts are usually less accurate than the short-term forecasts
  • Aggregate forecasts are usually more accurate than disaggregate forecasts
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