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Build to Stock Inventory model
Build to stock is an inventory management in which the production department or factory manufacture or plan production to fill up a warehouse or finish goods store until it is full regardless of consumer demand or preference for product lines.
In a true build to stock system the production manager or production team leader will conduct periodic inventory surveys of the finish goods warehouse and produce or submit orders whatever product lines have storage room to accommodate more finished goods.This ensures capacity utilization remains high.
In reality very few businesses operate on a build to stock basis because it is simply uneconomical to do so and the risk of accumulating obsolete stock is very high due to lack of inventory rotation or a proper warehouse management system such as a FIFO system.
This type of inventory management system can become a drag on cash flow for the business because if demand falls off it will reduce inventory turnover and extend days of inventory in the finish goods warehouse.
The only conditions where a build to stock inventory model would be justified would be when the following conditions are present :
-Demand for the product is very stable and predictable
-There are only few product lines
- Changeover times between products are lengthy and stock-outs are costly
In most cases inventory management models are a hybrid combination of both a build to stock and a build to order system or pull system . Some product lines may be managed as build to stock due to them having the characteristics outlined above.
Some popular fast food outlets operate on a build to stock basis during peak periods where the price of a product stock-out is far greater than the probability weighted cost that the finish meals will have to be disposed of.
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