Characterizing and structuring a new make‐to‐forecast production strategy

Abstract

Abstract To date, the theory of production in operations management has lacked a production strategy for one major segment of the manufacturing industry. For large engineered equipment, a relatively recent but increasingly common production strategy has arisen to better meet today's competitive pressures for faster delivery of more customized products without increasing costs. A hybrid of the make‐to‐order (MTO) and make‐to‐stock (MTS) production strategies, manufacturers launch major product models to a demand forecast (MTS) and then modify the partially completed products as the actual orders arrive (MTO), a production strategy we refer to as make‐to‐forecast (MTF). This paper has two purposes: (1) it describes and conceptualizes the MTF situation in a variety of industries and places the MTF strategy among the other major production strategies in the theory of production and (2) it analyzes decision rules for matching partially completed units to incoming customer orders—one of the unique and perhaps most demanding challenges of the MTF environment. It shows that two order matching rules developed in the paper outperform the ad hoc rules commonly used in practice. We test and confirm the generalizability of the superior performance of these two rules in 13 different industry variations of the MTF production situation. Last, the insights provided by the model are discussed in terms of their practical relevance.

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