Make to stock environment VS.

Assemble-to-order production

The number of finished products is usually substantially greater than the number of
components that are combined to produce the finished product

euro per
number of each
EXAMPLE alternatives component
Processor alternatives 4 20
Hard disk alternatives 3 70
DVD alternatives 4 50
Speaker system alternatives 2 40
Monitors alternatives 4 90
All the rest that is included in the computer 1 80
Total euro per components to be assembled into a pc 350
Total number of type of components 6

Total number of different components that are used 18

Total number of combinations of components (different finished products) 384

Let's suppose that the company has the following production capacity and demand, and see
what happens in a make-to-stock versus a assemble-to-order situation
production every day 768
demand every day 768

SITUATION 1: MAKE TO STOCK WITH NO INFORMATION ABOUT MOST WANTED

PRODUCTS (COMBINATIONS)

Every day some products can be produced, but if we do not know what specific products are
going to be demanded, it is easy to understand that the stock of finished products should be very
large to always satisfy customers

Total stock of finished products to be sure to satisfy demand 294,912

….which means a number of days of total stock of 384

value of the stock (euro) of finished products (just for components, without
considering the work and added value in the assembling process) 103,219,200
SITUATION 2: MAKE TO STOCK WITH SOME INFORMATION ABOUT MOST
WANTED PRODUCTS (COMBINATIONS)

If we know that there are two main combinations (A and B) that are the most
wanted, in quantity that vary from 250 to 300 per day , we can be sure that we
will have stock enough of those finished products just producing such quantities

stock to satisfy demand of combination A 300 78%

stock to satisfy demand of combination B 300

but if we want to be sure to have in stock also all other products so to satisfy all
customers immediately, we must keep in stock this number of products 64776

….which means a number of days of total stock of 84.34375

value of the stock (euro) of finished products (just for components) 22,671,600

SITUATION 3: ASSEMBLE TO ORDER

In the assemble-to-order environment it is less necessary to limit the number of

different product models, as the process becomes more flexible

The reason is that the main stock is a stock of components, whereas the stock of
finished products is virtually zero or very low; this because when the product is
finished , it is then almost immediately sent to the customer

To calculate the stock needed to satisfy customers we simply multiply demand

by each component; so we just look at the demand values and at the production
values and we multiply by the number of components used, so that we have in
stock all components that are needed in all possible cases of combination, in
total we have this number of components 13824

Value of the stock (euro) 775,680.00

The big challenge for companies that have this kind of production is to decrease
as much as possible the time of production and delivery, so that the customer
does not have to wait too long
euro per
group of
components
80
210
200
80
360
80