The production process is the process of assembling items into finished products. There are two main types of production approaches: make to stock and make to order. In the make to order approach, the production of a good is the result of a customer placing the order. In the make to stock approach, the production process occurs when inventory levels fall below a certain threshold, even if there is no customer order.
A make to stock approach can enable cost efficiencies by allowing companies to buy materials in bulk, but it also requires careful demand planning for a product. If demands for a product are over-estimated, there will be a lot of finished goods inventory sitting on the shelf, and if the demand for a product is underestimated, then customers will be unable to buy the product at that given time.
With the make to order approach, a company doesn’t have to carefully plan the demand for a finished good, but needs to plan out the purchasing or raw materials. The make to order approach enables the personalization of goods, whereas the make to stock approach doesn’t.