Understanding the contrasts between push and pull supply chain strategies is key to effective operations, especially in a world of fluctuating customer demands. As the scale of these demands grows, the question arises: which strategy is most effective for my operation?
This article discusses the importance of these strategies, their impact, and real-life examples.
What is a Push System?
A push system anticipates supply chain operation plans, inventory levels and activities in advance, based on forecasts and projections. It represents the initial point of the supply chain cycle, focusing on the warehousing and transportation of goods. A push system helps you anticipate future demand and manage inventory accordingly.
The push strategy focuses on predictions. It uses forecasts to plan inventory levels, procurement, and the distribution centers’ activities. While this supply chain strategy still requires a level of predictability, it is robust against demand uncertainty and maximizes capacity utilization in the best warehouse fulfillment centers. This strategy is an innovation in the supply chain and production process that helps in solving the problem of demand uncertainty. However, its effectiveness depends on the accuracy of methods of how to forecast demand and the data used.
What is a Pull System?
A pull strategy, on the other hand, responds directly to customer demand, ensuring flexibility and efficiency. Both strategies aim to deliver the right products at the right times. Read more about push and pull strategies here.
In contrast, the pull strategy is customer-first. It bases operations on actual customer demand rather than predictions, offering flexibility in response to changes in immediate consumer demand and patterns. This strategy plays a key card in meeting immediate customer needs, hence enhancing customer experience. It provides solutions to the problem of sudden changes in demand.
Pull Supply Chain Strategies
Pull strategies are a form of stock management in just-in-time. They aim at minimizing stock and focusing on last-minute supply. Under this strategy, the product is pushed into the supply chain whenever customer demands justify it. Those companies that operate under this strategy are examples of companies that wait until they have received an order to build their own computers and sell the product. A pull strategy can help businesses minimize costs by carrying as much inventory that can’t be sold. If a company doesn’t increase production in definite quantities, it risks losing the supply and demand for fewer products.
Real-World Example: How Walmart’s Supply Chain uses a hybrid push-pull system
Walmart provides an excellent example of the use cases of both push and pull warehousing strategies at scale. Their utilization of a hybrid push-pull strategy with data insights for inventory management and demand response illustrates the importance of these strategies in different steps for enhancing customer satisfaction, reducing waste, and increasing revenue. This is a use case that shows how these strategies matter in real-world situations.
Impact of Push and Pull Strategies on the Bullwhip Effect and Consumer Demand
The bullwhip effect describes the magnified fluctuations in orders that often occur in most businesses as customer demand ripples through the supply chain. Effective use of push and pull strategies can help mitigate this effect, creating a more balanced and responsive supply chain. This is where the goal of these strategies comes into play.
Impact of Technology on Both Push vs Pull Systems in Supply Chain Strategy
Technology is an instrumental tool for both push-and-pull supply chain strategies. Under a push supply chain strategy, technologies like AI and machine learning can improve the accuracy of forecasting, helping businesses better anticipate customer demand and plan their inventory accordingly.
On the other hand, in a pull strategy, technologies like IoT can enhance real-time visibility into customer demand, triggering the production or delivery of goods exactly when needed. Also, technologies like blockchain can provide a secure and transparent way of tracking goods in both pull systems and strategies, thereby reducing risks and improving trust.
How do Inventory Management Strategies Change Between a Push and Pull System?
In terms of inventory management and manufacturing processes, a push strategy often relies on maintaining safety stocks to buffer against forecast inaccuracies and sudden demand changes. Techniques like the Economic Order Quantity (EOQ) model can be used to balance order size and frequency, minimizing overall inventory costs. Conversely, a pull production strategy typically employs methods like Just-in-Time (JIT) inventory, where goods are produced or ordered to meet actual demand. This approach minimizes stockholding costs but requires accurate demand sensing and quick response capabilities.
Risk Management in Supply Chain
Risk management in a supply chain varies between push strategies and pull strategies. A push strategy can guard against supply disruptions by maintaining a safe stock, but there is a risk of overproduction if demand forecasts are inaccurate. On the other hand, a pull production strategy, relying on actual demand, can minimize overproduction and stockholding costs. However, it requires a more robust system to prevent stockouts during sudden demand surges or supply interruptions.
Choosing Between Push and Pull Strategies
Choosing between a push and pull strategy for your own supply chain management strategy involves considering several factors, each with its unique impact on your supply chain efficiency and operation:
- Business Model and Product Nature:
The nature of your products and your business model plays a significant role. Are your products long-lasting, or do they have short lifecycles? Is your market stable, or does it fluctuate frequently? - Demand Predictability
If your business experiences predictable demand patterns, a push strategy could be effective. It allows for accurate forecasting, efficient inventory planning, production scheduling, and engaging with distributors. However, the risk here is overproduction if demand is overestimated or changes unexpectedly. - Market Volatility
On the contrary, if your market is highly volatile, a pull strategy might be better. This strategy is flexible and customer-centric, enabling you to respond swiftly to demand changes. By focusing on customer demand sensing, real-time communication, just-in-time inventory, and strong supplier engagement, waste can be significantly reduced, and customer satisfaction can be improved. - Real-Time Data Management
The pull strategy’s effectiveness largely depends on your ability to manage real-time data and ensure supplier flexibility. Thus, your infrastructure capability to handle real-time data should be a key consideration.
In summary, the choice between push and pull-based supply chain management strategies should be made after carefully analyzing your capacity for demand forecasting, understanding the volatility of your supply chain partners and market, considering your product lifecycle, and assessing your capability to manage real-time data. Such comprehensive analysis can guide you in implementing the most effective strategy for your supply chain.
Implementing a Push Strategy in Your Supply Chain
Implementing a push strategy in your supply chain inventory system can be an effective way to control your inventory and manage demand. Here are some steps to a push system to follow:
Accurate Demand Forecasting
Use historical data, market trends, and predictive analytics tools to generate accurate demand forecasts. Understand the patterns, peak times, and seasonality in your business.
Inventory Planning
Based on both production and demand forecasts, plan your inventory. This includes determining safety stock levels to buffer against unexpected changes in demand or supply.
Production Scheduling
Schedule production to match the forecasted demand. This ensures that sufficient goods and raw materials are produced in advance to meet customer needs.
Distributor/ Retailer Engagement
Engage with distributors or retailers to ensure that products are delivered at the retail store at the right time. This requires effective communication and coordination.
Monitoring and Adjusting
Regularly review the forecast accuracy and make necessary adjustments. This ensures your push strategy remains effective even as market conditions change.
A push strategy requires a robust infrastructure for data collection, storage space analysis, and communication with production processes. Also, it requires a certain level of predictability in future demand itself. If implemented effectively, a push strategy can help you maximize your supply chain’s efficiency and utilization.
Implementing a Pull Strategy in Your Supply Chain
A full pull system and strategy is driven by actual customer demand, allowing for a more flexible and responsive supply chain. Here’s how to make pull systems and implement it:
Customer Demand Sensing
Implement real-time data collection systems to sense and meet customer demand more accurately. This data integration ability could involve point-of-sale data, online traffic analytics, or customer feedback.
Real-time Communication
Set up real-time communication with suppliers and manufacturers. When a sale is made, the information is instantly relayed, triggering a replenishment order.
Just-in-Time Inventory
Adopt a Just-in-Time (JIT) inventory approach. Produce or order goods as needed based on actual or anticipated demand, reducing costs and minimizing inventory costs.
Supplier Engagement
Establish strong relationships with suppliers. The pull strategy requires suppliers to be flexible and responsive to changes in demand.
Continuous Monitoring and Adjusting
Keep track of key performance indicators such as lead times, order fulfillment rates, and stockout rates. Use this data to continuously optimize your pull strategy.
While a pull strategy requires a significant level of coordination and real-time data visibility, it can reduce waste, minimize stockouts, and improve customer satisfaction. Implementing a pull strategy is particularly effective in highly volatile markets or for products with short lifecycles.
Concluding Thoughts
In a rapidly changing world, it is essential for retailers to adapt their supply chain strategy strategies to stay ahead in their operations. With careful planning and capacity utilization, supply chains can effectively meet customer demands. The result is a more efficient and responsive supply chain that benefits economies at large. After all, in the world of supply chain management, retailers hold the cards and everything counts.
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ShipHero is a US-based, leading solution provider in the fast growing eCommerce fulfillment space. ShipHero served over $5 billion of eCommerce orders in 2020 and is growing rapidly. ShipHero provides warehouse management software for brands that operate their own warehouses as well as outsourced fulfillment as a service from ShipHero owned and operated North American warehouses. Some notable customers include Universal Music Group, Glossier and Canadian Tire. ShipHero is a Shopify Plus partner and more than 10% of Shopify Plus stores globally use ShipHero.
