Manufacturing is the making of goods by hand or by machine that upon completion the business sells to a customer. Items used in manufacture may be raw materials or component parts of a larger product. The manufacturing usually happens on a large-scale production line of machinery and skilled labor. Manufacturing is a very simple business; the owner buys the raw material or component parts to manufacture a finished product. To function as a business the manufacturer needs to cover costs, meet demand and make a product to supply the market. A factory operates one of three types of manufacturing production:
- Make-To-Stock (MTS) –the manufacturer will plan production activity in advance. If they produce too much they may need to sell surplus at a loss and in producing too little they may miss the market and not sell enough to cover costs.
- Make-To-Order (MTO) –Inventory is easier to control and the owner does not need to rely as much on market demand. Customer waiting time is longer though and the manufacturer needs a constant stream of orders to keep the factory in production.
- Make-To-Assemble (MTA) – The factory produces component parts in anticipation of orders for assembly. By doing this, the manufacturer is ready to fulfill customer orders but if orders do not materialize, the producer will have a stock of unwanted parts.