The efficiency of the supply chain strategy of an eCommerce business can have a big impact on the growth and success of the business. The supply chain involves a network of individuals and companies who are part of the process of creating a product out of raw materials and getting it to a consumer. In eCommerce, the supply chain has many different parts that work together to complete the fulfillment of client orders.
Some of the functions of a supply chain include marketing, product development and distribution. A supply chain management strategy can be very important for eCommerce businesses of all sizes. Understanding the difference between using a push vs pull system can affect how you run your business and how profitable it is.
What is a Push System?
In a push system, goods are produced based on forecasted demand. This approach may be used for items that have predictable sales and aren’t likely to have fluctuations in demand. For these items, production is started in anticipation of demand.
An example of when push production makes sense is in the sale of seasonal items. Production of holiday decorations begins well before the holidays. Decisions about probable demand in push production are made based on data that analyzes demand from previous years.
Pros and Cons of a Push System
When a push system is used, all the people involved in the supply chain such as manufacturers and distributors have plenty of time to plan ahead for the purchase of raw materials and space needed for shipping or storage. Products are kept in stock ahead of demand, which means as soon as orders are received from clients, demand can be met and orders can be shipped without delay.
A disadvantage of the push system is the fact that consumer demand isn’t always predictable. There’s a risk of overstocking and if too much stock is on hand, storage costs may be higher than they should be. Another drawback is that making decisions about probable demand requires a large up-front investment.
What is a Pull System?
The supply chain strategy known as the pull system is based on actual demand rather than anticipated demand. Raw materials don’t arrive until after an order is placed in pull production, meaning that pull manufacturing is started as orders are received and not before. Only the inventory and raw materials needed for existing orders are kept on hand. Other terms for a pull system are just-in-time inventory system or lean inventory management.
Pros and Cons of a Pull System
Benefits of a pull production system include limiting the amount of inventory you keep on hand and controlling costs by not purchasing raw materials until you know that they’re needed. By limiting the purchase of raw materials and inventory, the cost of storage space is lower.
One drawback of this approach is if you have a sudden spike in sales, you may not have enough inventory or materials on hand to fill orders. If there’s insufficient inventory on hand to satisfy demand, the time taken for fulfillment may be longer than expected, which may create dissatisfaction for clients.
Deciding Which Supply Chain Strategy to Implement
There are advantages and disadvantages to both pull systems and push systems, and the best choice for your supply chain strategy depends on the industry you’re in. For example, a bakery may need to use a push system so that they’ll have baked goods on hand when people visit their store.
A computer manufacturer may use a pull system and wait to build a computer to the specifications stated in an order. Pull production may be the best choice for a company with limited warehouse space and limited working capital while an established company with a high volume of sales may prefer push production.
A Hybrid Approach to Supply Chain Strategy
Many companies use a hybrid approach that combines aspects of both a push system and a pull system. Using a hybrid approach, some items are kept on hand while others aren’t held in inventory unless there are orders.
A hybrid approach may be a good choice if your company offers a wide variety of products. One way of using both a push and pull approach is to keep raw materials on hand but you would hold off on production until orders are placed.
Choosing the Best Approach to Supply Chain Strategy
Finding the best approach to supply chain strategy and inventory management is crucial for an eCommerce business. Technology can help to optimize supply chain efficiency by improving warehouse and inventory management processes.
Tracking key metrics and analytics can help you decide whether your current approach is working. Reviewing historical data can help you identify trends and buying patterns. This information can help you decide whether to use a pull system or a push system in the supply chain strategy of your eCommerce business.
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About ShipHero
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.
