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...In most supply chains, the upstream activities respond to forecasts, while somewhere on the downstream side the chain waits for orders to be placed. Consider these two former fast food slogans:
- "We do it all for you!"SM (McDonald's)
- "Have it your way!"SM (Burger King)
Consider how McDonald's used to produce finished hamburgers "to forecast" - they didn't know when patrons would come in for lunch, but they produced burgers in anticipation. Burger King waited until patrons actually placed (customizable) orders before the burgers were produced - this is more commonly known as the "Build-to-Order" (BTO) model, while McDonalds' former strategy was called "Build-to-Stock" (BTS). Both models have benefits and drawbacks, and many companies do a combination of both.
The animation below illustrates the major differences between these strategies. Hit "play" to simulate the same order pattern of four orders to two fast food restaurants simultaneously.
Notice that the BTO chain takes time to build the exact item ordered by the customer. As a result, it takes longer to fill each customer order. The BTS chain...
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4.2 / 5 (2542 ratings)Total Reading Time: Approx. 30-60 minutes (for average readers)
Word Count: Approx. 5,400 words
Author: Dr. Warren H. Hausman
Professor of Management Science & Engineering, Stanford University
Certificate: (n/a)
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Contents
- What is a Supply Chain; Three Flows
- Supply Chain Management Challenges
- Sources of Variability
- Build-to-Order, Build-to-Stock, and the Push-Pull Point
- Organizational Silos, Tradeoff Curves
- The Bullwhip Effect
- Product Design for Supply Chain Management
- Metrics for Supply Chain Management
- The Internet and Supply Chain Management
- B2B Integration
- Categorizing Supply Chains and Aligning Strategies
- Conclusions
- Test Your Knowledge
- Feedback