Make to Stock vs Make to Order: Decide Per Product

• Make to order is feasible for a product when the customer will wait at least as long as your total lead time (materials, production and dispatch). When they will not, hold stock at the stage that closes the gap.
• Hold finished goods when demand is steady and variants are few. Hold components when many variants share parts. Hold raw material only, or nothing, when orders are custom or lumpy.
• Annual holding cost = daily demand × days of cover × unit cost × annual carrying rate. In our illustrative case, stocking components costs ₹64,000 a year against ₹96,000 for finished goods.
• In Arka Inventory, a standard bill of material suits stocked products and an order-based bill of material suits made-to-order products. Material availability checks and commit inventory keep both honest.

Make to stock builds products ahead of orders, to a forecast, and ships from finished goods. Make to order starts production only after a confirmed order. The real difference is the point where a product becomes tied to a specific customer, which researchers call the customer order decoupling point.

The customer order decoupling point has five recognised positions: make to stock, assemble to order, make to order, purchase and make to order, and engineer to order. If the point sits at finished goods, you make to stock. If it sits at components, you assemble to order: parts are stocked and final assembly waits for the order. If it sits at raw material, you make to order. If even purchasing waits for the order, you purchase and make to order. If design waits for the order, you engineer to order.

Each product needs its own choice. One factory can stock a steady seller and build a special order to order. A practitioner rule of thumb is that stable, high demand suits make to stock and small, highly fluctuating demand suits make to order.

Roser's rule of thumb is that when make-to-order jobs are no more than about 30% of the workload, they can be given priority over stocked items. Check this against your own plant.

For a quick check, look at where your stock value sits today. Split your last stock valuation into finished goods, work in progress and raw material. That is the same split the Reserve Bank of India collects from manufacturers in its quarterly order books and inventories survey. Mostly finished goods means you are already stock-led. Mostly raw material means you are order-led. Our recommendation is to compare that picture with the product-by-product test below, because a gap between the two usually marks a product placed wrongly.

Run five steps for each product and write the results on one line. The result is a stocking point and a yearly holding cost you can compare. A pros-and-cons list cannot tell you whether to stock a particular product, because the answer depends on what your customer will wait, how long you take, and what a day of stock costs you.

1. Customer wait (a, in days). Ask your three biggest customers how long they will wait, and check your lost quotes for the delivery time that cost you the order.
2. Total lead time (L, in days). L = materials lead time (b) + production time (c) + dispatch time (d). Use your actual averages, not the supplier's quoted best case.
3. Gap (G, in days). G = L − a. If G is zero or less, make to order works for this product.
4. Stocking point. If G is above zero, pick the stage to stock from the table, then confirm the lead time left after that stage is no longer than a.
5. Holding cost. Annual holding cost = daily demand × days of cover (days of demand held) × unit cost at that stage × annual carrying rate. Build your carrying rate with Inventory Carrying Cost in India.

Variant count and shared parts decide between the first two rows. Forecast error is the tiebreaker: when MAPE is high, stock components rather than finished goods, because parts shared across variants absorb forecast misses that a single finished product cannot. This is our recommendation. Measure forecast error as mean absolute percentage error (MAPE): for each month, take the gap between actual and forecast sales as a percentage of actual, then average the months. Inventory Forecasting Methods shows how to run that on your own sales.

In the example below, stocking components costs ₹64,000 a year and stocking finished goods costs ₹96,000. All inputs are illustrative and the working is our model, not a published figure.

• Customer wait a = 5 days. Materials b = 10 days, production c = 3 days, dispatch d = 2 days.
• Total lead time L = 10 + 3 + 2 = 15 days. Gap G = 15 − 5 = 10 days.
• Daily demand is 4 units, so 1,460 units a year (4 × 365). Finished unit cost is ₹12,000, of which components are ₹8,000 (assumed). Annual carrying rate is 20% (assumed).

Finished goods: 4 × 10 = 40 units, worth 40 × ₹12,000 = ₹4,80,000. Holding cost is ₹4,80,000 × 20% = ₹96,000 a year.

Components: 40 × ₹8,000 = ₹3,20,000. Holding cost is ₹3,20,000 × 20% = ₹64,000 a year. Lead time after the components stage is 3 + 2 = 5 days, which equals the customer wait, so the gap closes.

Pure make to order: nothing held, but the customer waits 15 days against 5. Holding components pays only if make to order would lose more than ₹64,000 of margin a year. At an assumed ₹3,000 margin a unit, that is about 21 units (64,000 ÷ 3,000 = 21.3), or roughly 1.5% of the 1,460 units sold. If more than that many customers walk away from a 15-day wait, hold the components.

The model ignores safety stock and reorder cycles, so real stock will be higher. Change the inputs to yours and the ranking can change. For steady, high-volume items made in large batches, check Batch Production before assuming a stock build costs what the example shows.

Keep separate records for the two types, and tie every order to stock or to a production run. In Arka Inventory, which we build natively on Salesforce, that means the following.

Two kinds of bill of material. We offer a standard bill of material and an order-based bill of material. We suggest the standard form for stocked and repeat products and the order-based form for products made to a customer's specification. Bill of Material feature is on our Advance and Enterprise plans. Bill of Materials Example shows a layout to start from.

A material availability check. You can assess the availability of materials against the bill of material before you promise a date. That is the check that shows whether component stock really closes your gap.

Kitting for assemble-to-order work. Kitting and Bundling combines items into a kit and tracks component availability, which supports assemble-to-order work. It is on our Advance and Enterprise plans.

Forecasting for stocked items. Forecasting and Purchase Automation plans purchases from real orders, forecasts and stock, which supports stocked items.

Committed stock. Commit Inventory lets you commit inventory to orders and allocate or reallocate it by delivery date, which helps prevent overselling.

Visibility. Your team sees stock across warehouses, inventory on order, lead times and raw material availability inside Salesforce, so sales can promise from what is available.

Whatever system you use, test the switch before you rely on it. Raise one sales order for a stocked product and one for a made-to-order product. Check that each links to stock or to a production run, and that costs post to the accounts you expect. If you move a product from one strategy to the other, repeat the test.

For the idea behind stocking nothing at all, see Just in Time Inventory.

Run the five checks in the how-to-choose list on a trial with your own data. As of November 2026, we offer a 15-day free trial with full access and no credit card. Standard onboarding takes at least two weeks, depending on how ready your data is. To run this test on your own products, book a demo on our contact sales page. Support: support@arkainventory.com or +91 93902 73833, Monday to Friday, 9 AM to 6 PM IST. More than 30 paying B2B customers use Arka Inventory.