Business Automation and Software Blog

How to Plan Your Make to Order Costs in 2020

Posted by Robert Baran on Wed, Feb 26, 2020 @ 11:00 AM

For business owners, few things are as exciting as seeing their products gain traction in the marketplace and increase in demand. In order to meet these new demands, operations need to scale, which puts manufacturing processes in the spotlight. When it comes to products that are ordered in smaller quantities (such as a larger item that is only purchased one or a few at a time) or those that require custom parts, you may default to a Make to Order manufacturing mode.

Make to order has its own strategy when it comes to the manufacturing process flow, and it can drastically impact lot costing. These advantages—and disadvantages—may come into play if you’re using Make to Order.

The Make to Order Trigger

One of the main differences with a Make to Order process is the sales order, not stock quantities, triggers production. This means Make to Order will demand more strategic coordination with your vendors. Logistics and lead time are key because there will often be a lesser inventory of these components. However, the Make to Order process does keep production more nimble when it comes to finished goods that have distinct configurations for each different customer or include materials that will only be used for a specific customer and no one else.

The Pros and Cons of Make to Order

There are positives to the Make to Order process. These include:

  • Cost: Make to Order does not include “safety stock” that is set aside to meet volume targets. Thus, running Make to Order requires fewer raw materials on hand, which means less warehouse space and even staff.
  • Finished Goods Inventory: Make to Order means anything produced is already sold. This also means there is no need to store slow- or non-selling units, again reducing cost for warehouse space and finished goods staffing. On top of that, it also benefits cash flow and tax liability, since there are no unsold units tying up valuable cash.

There are also negatives to Make to Order. Even though the approach may be the best one for your customers and/or product(s), you’ll need to watch out for:

  • Low Supply: When orders are not produced until they are received, Make to Order does not require carrying a ready supply of product for purchase. If demand suddenly increases, this lack of inventory and delay in production could lose sales.
  • Lead Time: Make to Order’s on-demand production means your products will carry a longer lead time.

Plan Make to Order Materials and Costs With SYSPRO

So, how can you plan for profitable Make to Order production mode? The answer lies in having a robust ERP system that provides real-time information on current orders, costs, historical sales and trends, and a link to production planning functionality.

ERP systems such as SYSPRO can enable Make to Order functionalities that run smoothly and ensure a company’s profitability. First, the ERP can accurately roll up costs for custom orders. With this accuracy assured, managers can focus more on process improvements in labor, waste reduction, and maintenance programs that will lower variable costs on Make to Order products. SYSPRO can also provide scheduling and planning to run production schedules at optimum levels. Using your ERP data, you can consolidate and/or combine production orders to take advantage of commonly used parts and materials.

SYSRO can also help your team with backward scheduling, or generating manufacturing orders that are timed back from the end date that production is due. This can help supply chain and manufacturing ensure the correct resources are on hand to complete the product on time.

Finally, because Make to Order updates to existing models do not trigger a change for finished goods inventories, your SYSPRO ERP can ensure changes are carried forward to the “next unit up” so the next time production begins, updates and changes are implemented immediately. With all this Make to Order information in your ERP system, it’s easy to generate lot tracking reports to follow design and other changes through a product lifecycle and plan for the future.

Make to Order SYSPRO Success With PositiveVision

Make to Order is an efficient manufacturing process for many types of products and made even more efficient and cost-effective when paired with the right ERP solution such as SYSPRO. Business software system partner PositiveVision has the support, training, and development services you need for a world-class SYSPRO ERP solution experience. SYSPRO’s easy to use technology fits current needs, yet is scalable to accommodate as you grow. Its manufacturing management, reporting, and analysis play key parts in implementing a successful Make to Order process and forecasting future costs. Check in with one of our manufacturing software experts now for your own custom fit SYSPRO experience.

Topics: Make to order