Give examples of organisations or supply chains that operate using
a) a build-to-stock strategy,
b) a build-to-order strategy.
The correct answer and explanation is :
a) Build-to-Stock (BTS) Strategy:
An example of an organization that uses a Build-to-Stock (BTS) strategy is Ford Motor Company. Ford manufactures vehicles in large quantities and stocks them in inventory at dealerships. The vehicles are produced in anticipation of consumer demand, and customers can purchase them directly from the stock available at local dealerships.
In a Build-to-Stock strategy, products are made in advance based on predicted demand and are stocked in warehouses or stores. When a customer places an order, the product is readily available for immediate delivery. This strategy relies heavily on forecasting demand accurately and maintaining an adequate inventory to meet this demand. It is common in industries where consumer demand is predictable and products have long life cycles.
b) Build-to-Order (BTO) Strategy:
A classic example of a company that operates using a Build-to-Order (BTO) strategy is Dell Technologies. Dell allows customers to configure and customize their computers to their specifications before manufacturing the product. This means that every product is made based on individual customer orders rather than being mass-produced in advance and held in inventory. Once an order is placed, the production process begins, and the product is built according to the specific requirements of the customer.
In a Build-to-Order strategy, products are not manufactured until a customer places an order, which minimizes the need for large inventories and helps reduce the risk of overproduction. The BTO model is particularly useful for industries where customization and personalization are important, such as the tech industry or high-end products like luxury cars or custom furniture. Since the company only produces what has been sold, it often has more flexibility and can better cater to specific customer needs.
Explanation:
- Build-to-Stock (BTS) aims to produce goods in advance to stock them for future demand. It is best suited for products with consistent, predictable demand and shorter lead times. While it offers quick availability for customers, it carries risks of excess inventory or stockouts if demand predictions are incorrect.
- Build-to-Order (BTO), on the other hand, reduces inventory and manufacturing costs since products are created only after an order is received. This strategy provides customization but may result in longer lead times for customers, as production starts only once the order is confirmed.