Make-to-Stock vs. Make-to-Order in SAP PP: Understanding Production Strategies

Understanding how you produce your goods is crucial in the world of Production Planning (PP) within SAP. This boils down to two main strategies: Make-to-Stock (MTS) and Make-to-Order (MTO). Choosing the right one impacts everything from inventory management to production scheduling. So, let’s dive in and see how MTS and MTO differ in SAP PP.

Make-to-Stock (MTS): Manufacturing for the Forecast

Imagine producing bicycles. You know from experience that spring and summer see a surge in demand. With MTS, you forecast future sales and produce bicycles in advance, building inventory to meet that anticipated demand. This is a good strategy for:

• High-volume, standard products: Think of those bicycles! They’re pre-configured and produced in bulk.
• Stable demand: If your product sales are predictable, MTS helps avoid stockouts.

Benefits of MTS in SAP PP:

• Efficient production planning: You can plan production runs well in advance, optimizing resource allocation.
• Reduced lead times: Finished goods are already in stock, so fulfilling customer orders is faster.
• Economies of scale: Bulk production can bring down per-unit costs.

Drawbacks of MTS:

• Carrying costs: Holding inventory ties up capital and incurs storage fees.
• Risk of obsolescence: If demand forecasts are wrong, you might end up with unsold stock.

Make-to-Order (MTO): Production on Demand

Now, consider custom furniture. Each piece is unique based on customer specifications. In MTO, production is triggered by a specific sales order. You only manufacture the furniture once a customer order comes in. This is ideal for:

• Low-volume, customized products: MTO ensures the product perfectly meets the customer’s needs.
• Unpredictable demand: There’s no point in building stock for items with highly variable demand.

Benefits of MTO in SAP PP:

• Reduced inventory costs: You only produce what’s ordered, minimizing storage needs.
• Increased customer satisfaction: Customization leads to happier customers.

Drawbacks of MTO:

• Longer lead times: Production starts after the order, so that delivery times might be longer.
• Less efficient production planning: Scheduling production runs for individual orders can be trickier.

Identifying MTS vs. MTO in SAP PP:

Within SAP, you can identify the strategy for a material in its Material Master data. Look for the Production Planning section:

• Strategy Group 10: Indicates an MTS strategy.
• Strategy Group 20: Indicates an MTO strategy.

Choosing the Right Strategy

The best strategy depends on your specific products and market. Consider factors like demand predictability, product customization, and inventory carrying costs.

Beyond MTS and MTO

SAP PP offers a hybrid approach: MTS/MTO. You keep some standard items in stock (MTS) while producing customized variants to order (MTO).

Conclusion

Understanding MTS and MTO in SAP PP empowers you to make informed production decisions. By aligning your strategy with your products and market, you can optimize production efficiency, reduce costs, and enhance customer satisfaction.