should the forecast be even slightly off the company may find they have too much inventory and limited liquidity or too little inventory and unmet profit potential this possibility of error is the primary disadvantage of using the mts system for production wrong information can lead to excess inventory stockouts unavailable inventory and revenue losses it can also lead to an inability to meet demand which reduces income potential in fast paced sectors such as electronics or computer tech excess inventory can quickly become obsolete 1
also an mts approach requires a business to redesign operations at specific times instead of keeping a steady level of production year round this regular adjustment can be costly and the increased costs must either pass on to the consumer or be absorbed by the company the typical unpredictability of the economy and business cycles make mts challenging for any company but the strategy becomes particularly complicated when a business operates in a sector that experiences cyclical or seasonal sales cycles alternatives to make to stock mts common alternative production strategies that avoid the downsides of mts include make to order mto and assemble to order ato both tie production to demand but in the case of mto the output of an item begins after the company receives a valid customer order ato is something of a compromise between mts and mto basic parts are constructed in advance but a finished product is not created until a valid order comes in example of make to stock mts manufacturing companies often use the mts method to prepare for periods of high production for example many retailers such as target generate most of their sales in the fourth quarter of the year for the manufacturing companies supplying these retailers a majority of their production has to come in the second and third quarters of the year to prepare for the increases in demand 2using the mts production method let s say that the lego group maker of the popular lego bricks and other toys looks back at its previous years and surmises based on past data that demand will increase by 40 in the fourth quarter versus the third quarter to prepare the manufacturer produces 40 more of its toys in july august and september to meet the demand forecasts for the fourth quarter additionally during the fourth quarter lego looks at past numbers to see how much demand will decline from the end of the year to the first quarter of the new year reducing production accordingly if lego is adopting an mto strategy it will not increase the production of say its lego bricks by 40 until and unless target sent in a larger order for them if it were taking an ato approach it might have the increased bricks made and ready but wouldn t put together complete packaged kits of them until it received target s order this way the risk of an inaccurate demand forecast is mitigated as both lego and target share it 