Push and pull Systems in SCM
- Push: Control information flow is in the same direction of goods flow
- Semi push or Push-pull: Succeeding node makes order request for preceding node. Preceding node reacts by replenishing from stock that is rebuilt every fixed period.
- Pull: Succeeding node makes order request for preceding node. Preceding node reacts by producing the order, which involves all internal operations, and replenishes when finished.
- Semi-pull or pull-push: Succeeding node makes order request for preceding node. Preceding node reacts by replenishing from stock that is rebuilt immediately. There are several levels of semi-pull systems as a node can have stock at several layers in an organization.
Push-based supply chain
Push-based supply chain, products are pushed through the channel from production up to the retailers. This means that production happens based on demand forecast.
Under the push supply chain, the logistics are driven by long-term projections of customer demand. For example, at the end of the summer season, clothing brands start to manufacture more warm clothes. This type of planning becomes valuable to companies as it helps plan them for events in the future and be prepared when winter comes. This gives the companies time to meet their needs in time and also gives them time to figure out other logistics like where to store the inventory.
But instead of responding to actual demand, a push strategy relies on predictions that are often wrong. High variable expenses, divestments, discounting, missed sales, stock shortages, high levels of debt, and rescheduled production cycles are other drawbacks of this approach.
A push-model supply chain is one where projected demand determines what enters the process. For example, warm jackets get pushed to clothing retailers as summer ends and the fall and winter seasons start. Under a push system, companies have predictability in their supply chains since they know what will come when long before it actually arrives. This also allows them to plan production to meet their needs and gives them time to prepare a place to store the stock they receive.
Pull-based supply chain
Pull-based supply chain, procurement, production, and distribution are demand-driven rather than based on predictions. Goods are produced in the amount and time needed.
Under the pull supply chain, the process of manufacturing and supplying is driven by actual customer demand. In this type of supply chain logistics, inventory is acquired on a need-basis. The benefits of this type of planning include less wastage in the case of lower demand. The problem, however, is that the company might not have enough inventory to meet rising demands due to unforeseen factors. For example, an auto repair shop that only orders parts that it needs. In this case, the business waits until it gets an order to procure the parts required for the repair.
A pull strategy is related to the just-in-time school of inventory management that minimizes stock on hand, focusing on last-second deliveries. Under these strategies, products enter the supply chain when customer demand justifies it. One example of an industry that operates under this strategy is a direct computer seller that waits until it receives an order to actually build a custom computer for the consumer.
With a pull strategy, companies avoid the cost of carrying inventory that may not sell. The risk is that they might not have enough inventory to meet demand if they cannot ramp up production quickly enough.
Pull System: Dependent on Demand and limitations to WIP
The Pull System is a lean manufacturing method that uses the Just-in-Time strategy of not producing goods until an order is received. Instead of forecasting demand, the pull system produces ‘as needed’.
This is particularly useful for companies that deal with high demand uncertainty, low product mix, and low importance of economies of scale.
Push System: No dependency on Demand nor limits on WIP
A company using the push system will forecast demand and employ the Material Requirements Planning (MRP) process to produce goods and services ahead of time. This is related to the Just-in-Case concept.
This forecast may not always be accurate and will require inventory stockpiling, but it remains a useful strategy for products that tend to have a lot of work in progress (WIP) or long lead times.
The push system is particularly useful for products with low demand uncertainty or with high importance of economies of scale in reducing costs.
Push and Pull Strategies in Practice
In real life, no businesses rely entirely on either push or pull logistics, but instead employ a mixture of the two to make the best use of them. Modern-day supply chain operations are very complex and consist of some steps from getting the raw materials to the delivery of the final product to the end consumer. The process roughly consists of the following steps:
- Determining the availability of raw materials. Even before the product can begin to be made, it is important to plan where and how the raw materials can be acquired cheaply.
- Processing the raw materials in a factory to yield the final products. This step varies from company to company like food-based products, cloth-based products, etc.
- Then the finished product is taken to a storage facility or a distribution facility.
- The packaged product is taken to a retail store or shipped directly to the customer as needed.
- Most supply chains in the world resembles this basic outline. Now, push and pull strategies can be employed by planners by taking into account the expected demand and other factors. The most successful shipping companies like Walmart and Amazon conduct a lot of research into the various factors that determine demand and incorporate that knowledge into their supply chain.
Use of pull, push, and hybrid push-pull strategy
- A push-based supply chain strategy is usually suggested for products with low demand uncertainty, as the forecast will provide a good indication of what to produce and keep in inventory, and also for products with high importance of economies of scale in reducing costs.
- A pull-based supply chain strategy, usually suggested for products with high demand uncertainty and with low importance of economies of scales, which means, aggregation does not reduce cost, and hence, the firm would be willing to manage the supply chain based on realized demand.
- A hybrid push–pull strategy, usually suggested for products which uncertainty in demand is high, while economies of scale are important in reducing production and delivery costs. An example of this strategy is the furniture industry, where production strategy has to follow a pull-based strategy, since it is impossible to make production decisions based on long-term forecasts. However, the distribution strategy needs to take advantage of economies of scale in order to reduce transportation cost, using a push-based strategy.