Make-to-order and make-to-stock manufacturing ERP software look and sound similar at first glance; however, their processes are distinctly different. Make-to-order software links production orders to one or more sales orders while make-to-stock software bases production on sales prognosis. Make-to-order and make-to-stock manufacturing software will have implications on your ERP system. Make sure you know the implications for both before deciding which software your company will choose.

Make-to-Order

In make-to-order software, production orders are caused by sales orders. For this to work properly, your ERP system must have a strong link between the sales order module and production-planning module.  When a sales order comes in, the link translates that order into a production order and the production process is started. The system allows you to monitor the progress of the production orders so you can relay the progress of the sales order back to the customer.

For example, say a client orders a specific machine. This particular machine consists of many components listed on a bill of material. With the help of the bill of material, the sales order is translated into a production order. Components that are either kept in stock or purchased outside the company will be combined with other orders to make a production schedule. Once the schedule has been determined, production begins.

Planning production and purchasing products can get confusing in a make-to-order environment. The production planning and purchasing departments can be prepared when companies have pipelines of prospective orders. This, however, does not always happen. Many times production planning is based on a customer’s ‘whim’ and, in this case, your ERP solution must allow you the flexibility to meet your client’s needs by either delaying or speeding up various orders.

Making sure that you have all the necessary components in stock is cost-prohibitive; therefore, your purchasing department must be prepared and ready to act should your supplier be unavailable to deliver. By making in-time delivery arrangement with suppliers beforehand and updating the purchasing module of your ERP system, production planning can be a smooth process.

Make-to-Stock

Production planning in make-to-stock is determined by sales forecasts for a certain timeframe, such as a year, six months or a quarter. In order to carry out this process, the ERP system must be able to provide statistical data and projections based on historical information. This transition from sales forecast to production planning is similar to the make-to-order process of sales orders to production orders.

A benefit of make-to-stock is that, in most cases, your production is evenly spread out over a certain period of time. This prevents the hectic disarray often used to describe make-to-order production. However, this does not mean make-to-stock production is without its faults. In order to operate efficiently, production must be smoothly adjusted to coordinate with sales projections. 

In the end, the needs of your company will determine whether you need an ERP system geared toward make-to-order or make-to-stock. Careful evaluation of your company's needs and current processes will lead you to the best manufacturing software option for you.

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