Produce to order or for stock?

One of the first logistics decisions is whether to produce to orders or to stock.

You can organize your business so that you only produce after receiving an order. This is reasonable if you are selling

• in wholesale channels with large quantity orders
• custom products with individual styling or fit.

Or, you can organize your business to produce for stock and carry enough finished inventory to fill orders as they come in. This is reasonable if you are selling

• basic goods that are reordered
• with an accurate knowledge of expected sales.

The trade-offs in the two options are time and inventory. Producing to order has relatively longer production time requirements after the order and low inventory requirements. Materials can be purchased after the order is taken and in the amount needed for the order. Finished-goods inventory includes only cancelled orders and mistakes.

Producing to stock has short order-to-delivery time because the finished products are produced before the order is placed. But the inventory of finished goods is large. Costs of materials, labor, and warehousing are incurred before any orders are placed.

Many small businesses use a combination approach

• stocking some products
• making others to order only.

They produce products that have been strong sellers in past seasons and can deliver them immediately. They offer other products with a longer lead time, producing them after orders are taken.

Another approach is to define your business niche as "one-of-a-kind." You can build the customer expectation that they must wait for a unique product.