Build to Inventory

What is built to inventory?

Build to Inventory is a production and inventory management technique that follows a “push” model. In contrast to “build to order,” which focuses on producing things only after receiving client orders, “build to inventory” entails manufacturing or procuring products based on expected sales. This means that businesses make things ahead of time and store them in inventory in the hopes of meeting future demand.

How does it Work?

1. Sales Forecasting: Companies use historical data and market analysis to predict future sales volumes.
2. Production Planning: Based on the sales forecast, production schedules are created to manufacture goods in advance.
3. Inventory Storage: The finished products are stored in warehouses or other storage facilities.
4. Distribution: When customer orders are received, the products are shipped from the inventory to fulfill the demand.

Advantages of Build to Inventory:

• Cost Savings: By producing in bulk, companies can benefit from economies of scale, reducing production costs.
• Consistent Supply: A stocked inventory ensures a steady supply of products to meet customer demand, minimizing stockouts.
• Faster Delivery: Since products are already available, delivery times can be shorter.
• Reduced Lead Times: Production lead times can be shortened as products are already manufactured.

Disadvantages of Build-to-Inventory

• Inventory Costs: Maintaining a large inventory can be expensive due to storage costs, obsolescence risks, and insurance premiums.
• Risk of Overstock: If sales forecasts are inaccurate, companies may end up with excess inventory that becomes obsolete or needs to be discounted.
• Lack of Flexibility: It can be difficult to respond quickly to changes in customer demand or market conditions.

When is Build to Inventory Suitable?

Build to Inventory is often suitable for:

• Products with predictable demand: Products with stable sales patterns, such as essential goods or seasonal items.
• High-volume production: Industries with large-scale production, where economies of scale are significant.
• Short product life cycles: For products that quickly become outdated or replaced by newer models.

Finally, build to inventory can be a successful production and inventory management method, but it needs to be carefully considered when considering variables like risk management, inventory costs, and demand forecasting. Businesses can make well-informed judgments about their inventory management techniques by being aware of the benefits and drawbacks of this approach.