What Is Manufacturing? Definition and Guide

Manufacturing is the making of goods by hand or by machine that are intended to be sold to customers upon completion. Items used in manufacturing may be raw materials or component parts of a larger product. Manufacturing usually happens on a large-scale production line with machinery and skilled labor.

Types of manufacturing processes

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): A factory produces goods to stock stores and showrooms. By predicting the market for their goods, 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): The producer waits for orders before manufacturing stock. 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.

Keeping risks under control is key

With all three types of manufacturing there are risks. Supply too much and you flood the market, causing a drop in price and a drop in profits. By not meeting demand, the customer may go elsewhere with a drop in sales for the manufacturer.

Quality control is also a big factor in successful manufacturing. The manufacturer will need to keep a close eye on quality of product from beginning to end, with many tests along the way. If mistakes happen, the long-term consequences may be serious.

A manufacturing business may need many parts for the complicated assembly of a quality product or just the few for making a simple good.  Keeping production costs to a minimum, having good quality control and excellent sales management are key to reducing the risk in any type of manufacturing.