Discuss the below:
1. Compare and contrast between make-to-stock and make-to-order systems. In your comparison, why does each system require different types of contracts?
2. What are the advantages and disadvantages of each type of contract?
3. What type of contract would you choose? Give reasons for your decision.
Derek
An easy way to look at make to stock and make to order systems is the push versus pull system which is the same concept with a different label. With make to stock, we are basically having a forecasted demand and the production is pushed along a manufacturing order and stocked at the end. Make to order happens with a demand or purchase and is pulled along the manufacturing process. Depending on the associated risks of the buyer and supplier, different types of contracts are needed.
Buy-Back Contract:
Advantages in the Buy Back contract are that the buyer can reduce the risk involved in unsold items and can get back some incentive from the supplier. At the same time the supplier can get a higher order due to the incentive that he is providing to the buyer.
The Disadvantages in the Buy Back contract are that the supplier needs to spend money in the reverse logistics which will result in higher costs for the supplier.
Revenue Sharing Contract:
Advantages in Revenue-Sharing Contracts are that the buyer has the advantage of getting the products at a cheaper rate. This increase in risk to the supplier is compensated by sharing the revenue that the buyer makes on the services offered from the product.
The disadvantages are it requires a correct feedback of revenues from the buyer. So, this requires huge trust from the buyer to the supplier. Secondly as there is requirement of excellent information system on the revenues, this involves in higher administrative costs.
Quantity-Flexibility Contracts: It benefits the buyer as the unsold items to an extent will be funded totally by the supplier. But there is risk for the buyer after that certain extent.
Sales Rebate Contracts: This can increase the sales of the products; as a result, it benefits the retailer. But there is a risk at the supplier end in meeting the rebate costs.
For which contract I would choose would be hard to pick without other information such as if I am a buyer or seller, what kind of company I am, and many other factors. The reason for more than one type of contract is because of these very reasons and will be debated by both buyer and supplier to make sure they can agree and probably would use multiple contracts as well.
Brent
We were given the topic of discussing contracts and answering the three questions below.
1. Compare and contrast between make-to-stock and make-to-order systems. In your comparison, why does each system require different types of contracts? They require different types of contracts in order to fulfill the different types of systems they work with. Each type of contract is already different within itself, but now they both are different as they work differently within the transportation world.
2. What are the advantages and disadvantages of each type of contract? There are many advantages to each type of contract system. The advantages of the make to order contracts are simple, is this is solely based on how much you sell and make for the company versus make to order is relying upon how many you project and are planning for your projections are key to establishing a good working environment within in your company. Each company within their own right can work with either one of these contracts it really just depends on which way they would like to go.
3. What type of contract would you choose? Give reasons for your decision. If I had to choose one contract to use in the transportation industry I would choose make to stock contract types. This is the most normal type of operations for me and how I envision the industry. This allow all levels of business to match between production, inventory and workload. This will provide you with the amount you need in the end.