Manufacturing environments

Manufacturing has different attributes in making a final product;

Engineer-to-order – the manufacturer does not start the production until it receives the order from the customer. The inventory in this environment is purchased after the order is received. Engineer-to-order environment usually applies to projects or products with unique requirements such as bridge or military fighter jet.

Make-to-order – It resembles a make-to-order environment except that it takes long lead time to complete the product. The inventory in this environment is held as raw materials ready to be used when the order arrives. For example, the restaurant will not start cooking your food until your order is received.

Assemble-to-order ­– the manufacturer does not produce finished goods but has inventory held as standard components for final assembly. Assemble-to-order manufacturing supports the postponement strategy where final assembly takes place only when customer order specification is received. Dell uses a postponement strategy where inventories are held as standard components to make a finished computer according to customer specification. 

Make-to-stock – this is the common type of manufacturing. The manufacturer produces products to fulfill the anticipated market demand. Inventory is held as a final product and therefore has the shortest lead time compared to other manufacturing environments. Everything we see in the supermarket is a good example of make-to-stock manufacturing.

The relationship between lead time and manufacturing strategy

Figure 10. Relationship between manufacturing strategy and lead time. Source: Adopted from Arnold, Chapman, and Clive, Introduction to Materials Management, 7th edition.

In figure 10, the level of speed to produce and deliver the product to customer depends on the manufacturing strategy used. The engineer-to-order has the longest lead time among options as the manufacturer needs to design the product according to customer requirements before proceeding to the next process. On the contrary, a make-to-stock strategy has the shortest lead time as inventory is held as finished good ready for consumption. These strategies are industry-specific as one may not be applicable for product type the manufacturer produces.

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