In our previous article “did you know you cannot have a constraint in a ‘make to stock’ system”, the suggestion is that you must have excess capacity, otherwise the stock system will move more and more towards a constrained system, thus effectively creating a MTO (make to order system).

If this suggestion is true, and you wish to NOT be constrained, what happens to common measures such as unit cost thinking, or utilisation measures such as resource uptimes and all the associated downtime measurements? What about job costing? All these measures are based on a divider that is typically volume. If volumes are adjusted back to make what is affectively the “sold” production ie there is no artificial production releases, then many “efficiency” measures are effectively useless at helping us make operational decisions and improvement decisions.

What measures would be useful in a MTS system?

  • Sales$,
  • Margin$ (Sales$ less directly variable$)
  • Operating Expenses (non directly variable)
  • Entity Net Profit
  • Entity Cashflow
  • ROI
  • And the status of the stock buffers, especially those in their last 1/3rd of availability)

And that is about it!

Any other measures will add confusion and may ensure incorrect decisions based on wrong assumptions.

If there is an aspect you wish to discuss, please contact me at peter.thorby@viago.co.nz