Which of the following risks poses the greatest threat for a make-to-order (MTO) company with a make-to-stock (MTS) supplier?
Which of the following risks poses the greatest threat for a make-to-order (MTO) company with a make-to-stock (MTS) supplier?
In a make-to-order (MTO) company, products are manufactured only after an order has been received, which minimizes inventory risk for the company itself because it does not hold large amounts of unsold stock. On the other hand, a make-to-stock (MTS) supplier produces goods to keep as inventory, anticipating future orders. This practice means the supplier bears the inventory risk, as they must manage unsold stock, especially if customer demand does not match their production levels. Thus, the greatest risk for an MTO company with an MTS supplier is the inventory risk for the supplier.
In an MTO model, the company manufactures products after receiving an order from the customer, which minimizes its inventory risk because it does not hold large quantities of stock. In contrast, in an MTS model, the supplier manufactures products to stock them in inventory in anticipation of future orders. This means that the supplier carries significant inventory risk, especially if demand for those products decreases or is uncertain.
Why not B ?