The stocking analysis is an analysis that helps determine if an item should be made or purchased to stock or made or purchased to order. It is not a required analysis to run but can be helpful to see what the system suggests what to stock versus not to stock. The logic is applied throughout the BOM hierarchy as well as throughout the distribution network.

• Make/Purchase-to-Stock (M/PTS): A production or distribution environment where products are available before receipt of a customer order. Customer orders are typically filled from existing stocks, and production or purchase orders are used to replenish stock.
• Make/Purchase-to-Order (M/PTO): A production or distribution environment where are made or purchased after receipt of a customer’s order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer. Where options or accessories are stocked before customer orders arrive, the term assemble-to-order is frequently used.

For a manufacturing company, we encourage building lean processes that enable moving as much finished goods to the make / configure to order category. The key here is having a customer replenishment time (CRT the time the customer places the order to when they expect delivery of their order) greater than the time required to fulfill the order taking cumulative lead times and capacity into consideration.

Though this is a pretty straight forward rule, the real challenge is how best to determine the criteria for products that a company is selling particularly when bills of materials are involved. We offer this approach that is embedded in DemandCaster for consideration.

There are 3 variables that you should consider when applying the M/PTO or M/PTS logic scheme at your company.

1. Customer Replenishment Time (CRT): As stated above, this is the time the customer expects their products to be shipped from their order date. Most ship from stock companies offer a same day or next day delivery thereby necessitating stock. By setting your CRT a few days longer than your products cumulative lead time to procure and/or produce the product, you may be able to get by without stocking.
2. Production and Vendor Lead Times: This is the time it takes to either produce or procure a product (calculated in Lead Time Analysis UI). As stated above, if the lead time is less than the CRT time, you may be able to avoid stocking. Where it gets tricky is as you move down a BOM. For a pure MTO item with lets a three level BOM, you have to add the longest lead time of each level to determine where the MTO portion is versus MTS. For example, if the CRT is 14 days on item that takes 10 days to build and 14 days to procure material, stock must be carried for the material to maintain the fulfillment lead time to under 14 days. If stock is not carried the fulfillment lead time will be 24 days which will exceed the customer replenishment time.
3. Product Segmentation: This is covered in the Segmentation section. We encourage low order frequency C-level items to set as M/PTO unless they are service parts or are strategically important i.e. an important customer purchases the item. DemandCaster stocking algorithm segments raw materials in a manner that assigns business importance by the revenue, cost, or margin contribution of their parents.

If an item is determined to be Make or Purchase to Order, the stock designation is changed to “Order” and in turn the safety stock is automatically changed to 0. You then assign the appropriate consumption type based on the planning needs of the business. There are two options: Make/Purchase to Order, MTO - Forecast, or MRO - Order/Forecast as described in the Systems Settings and as further explained in the Consumption Type article.