Background of the Study

1 CHAPTER 1 INTRODUCTION

1.0 Preliminary

This chapter presents the overall review of the study including the background of the study, problem statement and objectives of the study. Afterward, the background of companies and products are also described. Lastly, the expected outcome is explained in this chapter.

1.1 Background of the Study

Make-to-order MTO and Make-to-stock MTS are the production operation systems that are used in the industries. Usually, overcapacity and capacity shortage are occurred during the production system and will affect the balancing of the demand supply of the product. In order to reduce imbalance problem in the production stability, MTO and MTO strategies were applied the industries. MTO is the production operation system geared to satisfy the customer requirement only upon receiving a customer’s order. Usually, MTO offers a high variety of customer specific and more expensive product. The production plans of MTO are ordering execution and the performance focused on the order such as the average, response time and average order delay. During MTO production operation, the competitive priority is shorter delivery lead time. This priority will lead the company in reducing the delivery 2 time and will be the just in time JIT in delivering the product to the customer. MTO also have the main operational issues such as capacity planning, order acceptance and rejection and attaining high due date adherence. MTS is the production system where the industries make the product in stock. This MTS production operation strategy will cause the problem in the inventory. The MTS’s products have low variablity and not expensive product. MTS is always planning to meet the demand focus on anticipating the demand. Usually, MTS measured the performance through the product focused where the line item fill rate and the average inventory level will be measured. The competitive priority of the MTS is higher fill rate and the main operation issues are inventory planning, lot size determination and the demand forecasting. Kingsman et al. 1996, Vollman et al. 1997 and Silver et al. 1998 had widely discussed the issues in pure MTO and MTS operation production. It is important to recognize the operation production systems in pure MTO and pure MTS strategy to know the suitable system to undergo in the operation production system. In deciding the suitable the system which will go through to the production system, it depends on the specific things such as the process of the product, the material and the capacity of the product. Sometimes, the combined MTO and MTS are necessary in the production situation because of different strategy contexts in which the products are produced. According to Soman et al. 2005, they postulated that mix of MTO and MTS products their interaction with the limited shared capacity open interesting possibilities as well as problem for production planning. For example, on the other hands, MTS product might be manufactured to fill capacity in periods of low demand for MTO items bit on the other hands, we do not fully understand these interaction to answer the question such as how much inventory should kept or hoe due dates should be kept or how due dates should be set in the combined MTO and MTS production situation. 3

1.2 Problem Statement