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Make-to-Order and Make-to-Stock Systems


This essay is an attempt to learn more about make-to-order and make-to-stock systems. In addition, this article will show the main contracts, their advantages and disadvantages. Moreover, this paper will tell how such contracts can protect both suppliers and buyers.

Key words: make-to-order systems, make-to-stock systems, buy-back contract, revenue-sharing contract, quantity-flexibility contract, sales rebate contract, pay-back contract, cost-sharing contract.

Make-to-Order and Make-to-Stock Systems

There are two main product systems which dominate on the market. They are make-to-order and make-to-stock systems. Make-to-stock systems are aimed at manufacturing of products and their stock as inventory call. Make-to-order systems are aimed at manufacturing of products but only after their order call. Make-to-order systems have their peculiarities. They are not appropriate for all types of products (Simchi-Levi & Kaminsky, 2003).

Of course, each type of system requires different types of contracts because they have various policies. These contracts help to protect both sides of the market in the best way. Make-to-order systems contain different types of orders. They are buy-back, revenue-sharing, quantity-flexibility and sales rebate contracts. Of course, each type of contract has its advantages and disadvantages. Buy-back contract allows returning goods, which were not sold; if the goods were damaged in transit they will be replaced with other ones; the government sets the strict control over work plans. However, this type of contract has a short durability. The main advantage of the revenue-sharing contract is that the risk is divided between the partners. However, this type of contract has some disadvantages. As usual, it gives low earnings, the quality is very poor and the quantity is large. Concerning quantity, flexibility contract allows to match better supplier demands and if the supplier has flexible capacity, it will allow to increase overall supply chain profits (Simchi-Levi & Kaminsky, 2003).

Make-to-stock contracts differ from make-to-order contracts. They are pay-back and cost-sharing contracts. According to pay-back contract, buyer has to pay the agreed sum of money to the manufacturer but not to the distributor. It is advantageous. However, distributor’s risk increases. Cost-sharing contract allows buyer to share some of the production cost to the manufacturer. In his turn, manufacturer has to give a discount on the wholesale price. However, cost-sharing contract requires the manufacturer to share its production cost information with the distributor (Simchi-Levi & Kaminsky, 2003).

In my opinion, buy-back contract is the best for selling goods. You can take unsold goods and return them. The manufacturer or distributor will return to you the agreed sum of money. Then you can invest them in other necessary products. Most of the stores use this type of contracts. In addition, I recommend to use pay-back contract. I would cooperate directly with manufacturers and have no need to pay for distributor.

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