This page is for anyone who needs to compare Make to Stock with Make to Order in money terms: a merchandiser, a brand owner, a factory manager, or a student. It follows lesson 4.1's rule and lesson 4.2's look at Make to Order. Here the flow is money: what an order costs, and who carries that cost, once a brand starts building stock ahead of a sale rather than filling a sale that already exists.
A brand that makes to its own forecast takes on three costs a confirmed order mostly avoids: it must guess demand before any sale exists, it must pay to hold whatever is not sold immediately, and it must eventually discount whatever the guess overestimated. Without this skill, a merchandiser or owner can mistake a forecast-based order for a confirmed one, borrow a completely unrelated quantity as if it were evidence, and be surprised when unsold stock sits in a warehouse costing money every week it stays there.
You need: lesson 4.1 (Make to Order and Make to Stock) is useful first, though not required.
By the end of this lesson you can:
Not covered here: how Make to Order changes lead time and cash flow (lesson 4.2), how a single company runs both patterns together (lesson 4.4), and the practical exercise that classifies several real documents (lesson 4.5).
| Term | Meaning |
|---|---|
| Make to Stock (MTS) | Producing against the seller's own sales forecast, rather than a single confirmed buyer order. |
| Make to Order (MTO) | Producing only after a specific buyer has confirmed a specific order, rather than against a forecast. |
| Sales forecast | An estimate of how much of a product will sell, made before any confirmed sale exists. |
| Warehousing cost | The rent, handling and insurance cost of holding finished goods in a warehouse before they are sold. |
| Markdown | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
Under Make to Stock, a brand commits to a quantity, a price and a size and colour mix before any customer has agreed to buy it. That single choice creates three costs. First, forecasting risk: the brand may be wrong about how much will sell. Second, warehousing cost: whatever is finished but not yet sold has to sit somewhere, and that somewhere charges rent. Third, markdown risk: whatever the forecast overestimated is eventually discounted to clear it. Make to Order mostly avoids all three, because production only starts once a specific sale is already confirmed; there is no quantity to guess, little or no extra time in a warehouse, and no forecast to have been wrong about.
None of these three costs looks the same in every business. A new style with no sales history carries more forecasting risk than a repeat style. A brand with its own shops carries the warehousing cost itself; a brand that ships straight to a wholesale customer passes some of it on. The table below sets out the shapes you will meet most often, across domestic and export brands, and across Make to Stock, Make to Order and the hybrid lines that mix both.
| What can differ | The shapes you meet | Why it matters to you |
|---|---|---|
| Forecasting risk | An MTS brand commits to a quantity, price and size/colour mix before knowing whether customers will buy that much. A repeat style with two years of sales history carries less risk than a brand-new style. | A wrong forecast is not a small error; it is unsold stock and, later, a markdown. |
| Warehousing cost | MTS goods sit in a warehouse or stockroom from the moment they are finished until sold: real rent, handling and insurance. An MTO order shipped straight to a confirmed buyer mostly skips this. | Every extra week in a warehouse is a cost, even before any markdown is needed. |
| Markdown risk | If an MTS forecast is too high, the unsold stock is eventually marked down to clear it. Domestic brands running their own shops usually decide their own markdown timing; export brands selling wholesale may see the markdown happen at the retailer's shop instead, on stock they no longer own. | Whoever holds the unsold stock when the selling window closes is the one who pays for the markdown. |
| What MTO skips | Because MTO goods are already sold before they are made, there is no forecast to be wrong, no extended warehousing before sale, and, barring a cancellation, no markdown risk on the confirmed quantity. | This is the main reason a factory prefers a confirmed order: the buyer, not the factory, carries these three costs. |
| A hybrid company | A single factory or brand can run an MTS line for its own shops and an MTO line for export buyers at the same time, each carrying a different mix of these three costs. | Read each line on its own terms; one company's MTS costs never explain its MTO line, or the other way round. |
Order B is Northline Apparel's real, confirmed order with Delta Garments: 3,000 five-pocket jeans in 12 oz denim, sold before a single pair is cut. This case borrows Order B's product and figures only to show, by comparison, what a Make to Stock version of the same style would face. Picture Cedar & Co., the domestic brand with 12 shops, deciding to make this same jeans style to its own forecast instead. Cedar & Co. would need to forecast how many pairs its 12 shops can actually sell, hold whatever is not immediately sold in its own stockroom or warehouse, and eventually mark down whatever the forecast overshot. None of this touches Delta Garments' real Order B, which stays exactly as fixed: sold in full, on a letter of credit, before production starts.
The worked numberNo MTS-specific markdown figure exists for this denim style, so this lesson uses Order A's own markdown as the general illustration of what a markdown looks like in cash terms; it is not a claim about Order B's own jeans.
To assess MTS exposure for a given order, follow these steps.
A common mistake is assuming markdown risk only applies to Make to Stock. A Make to Order order can also be marked down, if the buyer's own retail forecast, downstream of the factory, proves wrong. The difference is where the risk sits. Under MTO, that markdown risk is the buyer's problem, after a sale to the factory has already happened; the factory has already been paid. Under MTS, the same brand carries both the forecast risk and the eventual markdown risk, because it is the one holding the stock it forecast wrong.
A brand that makes to its own guess about future sales takes on three costs a confirmed order avoids. It must guess how much will sell before anyone has agreed to buy it. It must pay to store whatever is not sold right away, in rent and handling. And it must eventually cut the price of whatever it guessed too much of, to clear it out. A factory working from an order that is already sold skips all three, because nothing is made until the sale exists. The guess, the storage cost and the price cut all belong to whoever commits to the guess.
Cedar & Co.'s owner, Omar, is deciding how many units of a new denim style to commit to for its 12 shops. The style matches Order B's fixed product: 12 oz denim, five-pocket jeans. Cedar & Co. has no prior sales history for this exact style.
Omar receives this note from his merchandiser:
Is matching Order B's quantity a sound basis for Cedar & Co.'s own MTS forecast? Decide before you open the answer.
No. Order B's jeans quantity, 3,000 pieces, reflects Northline Apparel's own confirmed demand as a Make to Order buyer selling through its own channels; it says nothing about how many pairs Cedar & Co.'s 12 shops can actually sell of a style with no sales history.
Cedar & Co.'s forecast needs to be built from its own shops' likely sell-through: similar styles' past performance, shop count, and typical sell-through rate. Using someone else's confirmed-order quantity as a forecast number confuses a sold quantity, Order B's jeans, with an unsold, forecast one, Cedar & Co.'s new style. That confusion is exactly the Make to Order and Make to Stock distinction this course teaches: one number was already sold before it was set; the other has not been.
No specific quantity or price has been fixed for Cedar & Co.'s hypothetical jeans line, so this stays a qualitative comparison, built on the same markdown illustration used above.
If Cedar & Co. over-forecasts and must eventually discount unsold units at a similar markdown rate to clear them, that cost, lost margin plus the warehousing cost already spent holding them, falls entirely on Cedar & Co. Delta Garments' own production order from Cedar & Co. was firm the moment it was placed, exactly as lesson 4.1 established, so Delta Garments carries none of this. A markdown of this size is not a rounding error against a factory's own profit share on an order like Order A, USD 0.26 per piece; it is many times that, which is why the forecast risk behind it belongs to whoever set the forecast, not to the factory that filled a firm order.
Open the workbook's "Decide" sheet. Add a row for Cedar & Co.'s hypothetical MTS jeans line, using this lesson's forecasting, warehousing and markdown discussion to answer each question, then compare it with the real Order B facts.
| Question | Order B (real) | Cedar & Co. (hypothetical) | Your order |
|---|---|---|---|
| Confirmed sale, or forecast? | Confirmed sale | Forecast | |
| Who owns the forecast risk? | Not applicable | The brand itself | |
| Runs the other pattern too? | No | No | |
| Classification (formula) | MTO | MTS |
Fill the last column from your own facts, not memory, and let the formula compute the result.
1. Name the three costs that Make to Stock mainly carries and Make to Order mostly avoids.
2. Why is it unsound for Cedar & Co. to borrow Northline Apparel's Order B jeans quantity, 3,000 pieces, as its own MTS forecast for a new style?
3. A factory has an export order for 15,000 confirmed T-shirts, already sold to a brand on a letter of credit. Can that order ever face markdown risk?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Make to Stock (MTS) | إنتاج حسب المخزون | Fabrication sur stock | Stoğa üretim | Producing against the seller's own sales forecast, rather than a single confirmed buyer order. |
| Make to Order (MTO) | الإنتاج حسب الطلب | Fabrication sur commande (MTO) | Siparişe göre üretim (MTO) | Producing only after a specific buyer has confirmed a specific order, rather than against a forecast. |
| Sales forecast | توقع المبيعات | Prévision des ventes | Satış tahmini | An estimate of how much of a product will sell, made before any confirmed sale exists. |
| Warehousing cost | تكلفة التخزين | Coût d'entreposage | Depolama maliyeti | The rent, handling and insurance cost of holding finished goods in a warehouse before they are sold. |
| Markdown | تخفيض السعر | Démarque | İndirim (markdown) | A reduction in the shop price of goods that have not sold as forecast, used to clear the remaining stock. |
| Sell-through rate | معدل البيع الفعلي | Taux d'écoulement | Satış oranı | The share of stock actually sold within a planned period, used to judge whether a forecast was right. |
You now know what MTO mostly avoids and what MTS carries. The next lesson looks at companies, like Delta Garments, that run both patterns at once, and how to tell which pattern applies to which line. Back to the course map