CPIM Practice Exam

What distinguishes make-to-order from make-to-stock production?

1. Make-to-order is more inventory-heavy

2. Make-to-stock focuses on newly developed products

3. Make-to-order requires longer lead times

4. Make-to-stock is used for products with predictable demand

The correct answer is: Make-to-stock is used for products with predictable demand

The distinction between make-to-order and make-to-stock production models hinges primarily on how products are manufactured and the demand they address. Make-to-stock is characterized by producing items based on forecasted demand and maintaining inventory levels to meet anticipated sales. This method is particularly effective for products that have predictable demand patterns, allowing businesses to efficiently manage their supply chain and ensure availability for customers. In contrast, make-to-order production involves manufacturing goods only after an order is received, thus leading to longer lead times. This model is often used for customizable products or those with erratic demand. The necessity to maintain stock for predictable demand in a make-to-stock model enables companies to quickly fulfill orders without delay, making it essential for maintaining a competitive edge in markets where timing is crucial. Understanding this distinction clarifies why make-to-stock is aptly suited for products with predictable demand, allowing businesses to optimize their inventory management practices effectively.