As more retailers seek to replenish stocks based on demand signals, they'll be asking manufacturers to develop more agile production systems that can quickly respond to those signals. In this regard the concept of produce-to-demand offers a way forward.
Historically, manufacturers have produced to a forecast, a practice known as "make-to-stock." The forecast is based on the sales history for an item as well as any planned special promotions. Making goods to stock lets a manufacturer conduct long, lower-cost production runs before switching a production line over to another item.
The opposite approach is make-to-order production (think of the computer manufacturer Dell in the 1990s). But that method is not practical for most consumer packaged goods (CPG) companies, which mass-produce standardized products that are sold in grocery and retail stores.
Produce-to-demand offers an approach that's halfway between make-to-order and make-to-stock. In a produce-to-demand setup, a company would conduct smaller batch runs of an item. Up-to-date information about store sales, inventory on hand, and replenishment needs at distribution centers would trigger shorter production cycles.
Although produce-to-demand appears promising for many CPG manufacturers, it's not for everyone, as consultants Thomas Moore and Jeff Schutt point out in their article, "Are you a candidate for produce to demand?" in the Q3/2011 issue of CSCMP's Supply Chain Quarterly. Successful produce-to-demand candidates fit a certain profile. They have in place (or can implement) the information systems and production technology required for agile manufacturing, and their products lend themselves to shorter manufacturing cycles.
If your company fits that description, then it behooves you to look into produce-to-demand manufacturing. Any strategy that will help your company reduce inventory on hand and free up working capital is certainly worth considering.