Enterprise Resource Planning
Conventional productions and stocking systems have been programmed to record the products or stocks as part of the stock until they have been sold actually. However, firms who look out to exploit economies of scale in order to reduce per unit cost, have developed stocking systems which intend to produce the product when it is ordered, such systems are referred to as the Make-To-Order systems . (Gopalan, p1. 2002) However, where the make-to-order systems provide a number of measures to minimize costs, they, on the other hand may not be suitable for every kind of products.
Therefore precise measures should be taken and requirements and objectives should be clearly understood when manufacturing or other firms decide to implement the make-to-order or make-to-buy inventory systems, or choose to switch from either of the two systems. Following are some aspects which firms might consider when choosing to implement the make-to-order systems: • Importance of Personalized Products Is there sufficient producer surplus to produce customized products, in other words are the customers willing and able to pay the extra amount to the value added good, due to customization?
• Customer Patience Usually all firms are not able to or forcefully doesn’t wait for the customers to order customized goods, initially all products are standardized, however they are customized according to the order, therefore it takes time for the firms to make changes in the products as per the customer needs. Therefore here at this point this is necessary to see that whether the customers are prepared to wait for transition time over which the product is customized. If not, then margin on customization may be loosed.
Moreover expected sales might be reduced as customer might switch to the ‘firms B’ due to ‘firm A’s” inability to or to take longer time to produce customized products. • Costs of Stock-Outs Continuing the discussion on the assumption that customers are patient enough to wait for the customization time. The problem of stock-outs is reduced if make-to-order systems are used. Make-to-order systems turn out to be advantageous when the costs of stock-outs, such as cost of ordering new stocks, carriage costs, and inability to meet production orders, are relatively high.
(Quick MBA, p. 1, 2002) • Cost of Holding Inventory There are a number of costs which add up to cost of holding/storing inventory. These may be in terms of stock losses due to theft, physical damage and security costs etc, apart from these, if the inventory is easily perishable then it might lose its value over time between stocked and sold. Make-to-order systems may be preferred where inventory costs are high. • Modularity
Modularity refers here to the notion that a particular product does not require extra components or spare parts, if such products are sold, then it would be easy to manage the safety stocks in order to reduce the problem of stock-outs. • Lead Time If customers are not willing to wait for the customization time than the feasibility of the make-to-order systems may reduce. • Set-Up Costs Make-to-order systems maybe costly to implement and in use, as not only the software may need to be upgraded or altered but the hardware may also require to be changed.
Therefore if the customization benefits to the production firm turn out to be less than the initial costs of the setting up of such system then again the feasibility to continue such systems might not be rational. The main aim of having implemented the Make-to-order systems is to exploit the economies to scale i. e. and to manage the production and inventory in an efficient way. Therefore it may be suggested that to a more or lesser extent IT based solution can be applied. Enterprise Resource Planning (ERP) is one of the IT based solution to most of the businesses irrespective of their size. (Quick MBA, p. 1, 2002)