Question

Positioning of the customer order decoupling point is important to understanding production environments. For example, firms that serve customers from finished goods inventory are known as make-to-stock firms.

Compare the different types of firms and its advantages (assemble-to-order, make-to-order, engineer-to-order) in terms of their customer order decoupling point.

Answer 1

Customer order decoupling point is a term describing the process or node in the supply chain network where the activities are no longer driven by individual orders. It is in short written as CODP. Sometimes it is called as order penetration point.

This important because it determines the lead time for a customer purchase. It is coined in 1985 by Hoekstra and Romme. It is widely used in production and manufacturing fields.

All the activities at the left side of the decoupling point (demand upstream)will start based on the forecast of the specific customer. All activities at the right side of the decoupling point (demand downstream)will start as soon as the customer order gets issued.

Make to stock (MTS)

In MTS firms, all the activities are forecast driven. In this case the CODP is positioned as far downstream in the material flow as possible. No activities are customer order driven and usually the master schedule at the end item level.

Advantage of MTS

1) spread resources and production

2) make to stock scheduling

3) minimise customer wait times

Make to order (MTO)

In MTO firms, all the activities of the controlled system are customer order driven. When the customer order is received, the customer waits until the product is finished. The planning approach can be based on DD (as in MRP), where the end item is master scheduled and DD is calculated for all other items down to the CODP.

Advantage of MTO

1) waste minimization

2) reduce the risk of inefficiency

3) customizable products

Assemble to order (ATO)

Assemble to order is a business production strategy where products that are ordered by customers are produced quickly and are customizable to a certain extent. It typically requires that the basic parts of the product are already manufactured but not yet assembled. Once an order is received, the parts are assembled quickly and the final product is sent to the customer.

Advantages of ATO

1) lower capital costs

2) Customizability of orders

3) Quick delivery times even with customization

Engineer to order (ETO)

Firm that will work with the customer to design and then make the product. It is a type of manufacturing process in which a product is designed, engineered and finished after an order has been received.

Advantage of ETO

1)The products are tailored to a customers need which ensures customer satisfaction.

2) The companies do not have to worry about having inventory that does not sell.