Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Made to Stock (MTS)

What it is:

Made to Stock (MTS) is a production and inventory strategy in which companies manufacture products or provide services according to their forecast of customer demand.

How it works (Example):

Let's say Company XYZ produces widgets, which are popular Christmas presents. Because retailers often buy thousands more widgets in August, in preparation for the holiday season, Company XYZ manufactures triple the amount of widgets in July to fulfill these orders. Company XYZ is using an MTS approach.

Why it Matters:

Companies that provide MTS products and services create competitive advantages by providing what other companies cannot -- more product or service at a crucial time. However, the MTS approach costs much more because companies must retool, redesign or ramp up production processes at certain times rather than operate at an even keel all year. This in turn often means that customers pay more but get product when they want it. This creates a competitive disadvantage because sometimes this means they must pay more, though this is easily overcome if the companies in the sector are competing on service and timing rather than price. Of course, being wrong about demand forecasts can also be an expensive mistake.