- Push and pull strategy refers to two different approaches to managing the flow of goods in a supply chain management.
- A push strategy aims to keep products in stock even before the customers order them.
- A pull strategy produces goods in accordance with the demand of the customers.
- While Coca-Cola uses a push strategy, companies like Toyota use a pull strategy in supply chain management.
- There are many similarities between push and pull strategies, including their goal and need for flexibility.
- The differences between the two range from lead time to inventory management.
- In real life, most businesses like Amazon use a mix of both push and pull strategies.
Juggling between what is a push and pull strategy in supply chain management? Which is better than the other? Which strategy to adopt? Well, you have landed on the right page. This article will help you explain the types of strategies in supply chain management and what happens when push and pull are combined.
Every successful business relies heavily on efficient supply chain management to run its everyday operations. Some of the most successful companies in the world, like Amazon and Walmart, rely heavily on new and sophisticated techniques in supply chain logistics to run their operations. On average, companies waste approximately 25% of their inventory due to overstocking, leading to significant financial losses. Moreover, inventory costs can consume about 15% of a company’s revenue, underscoring the importance of effective inventory management within the supply chain. So it is important to understand the concept and how you can utilize push and pull strategies un supply chain management.
Hence, this is a very active space that sees a lot of innovation in all aspects of the chain. Let’s look at the push and pull strategies in supply chain management and see which approach works for which business.
What is Supply Chain Management?
Supply Chain Management (SCM) plays a pivotal role in today’s competitive business landscape. To ensure smooth operations and customer satisfaction, implementing effective strategies is crucial. Supply Chain Management refers to the coordinated activities involved in the production, procurement, storage, and distribution of goods and services from their point of origin to the end consumer. It encompasses a network of interconnected entities, including suppliers, manufacturers, logistics providers, retailers, and customers.
But why should you implement these strategies in SCM?
Implementing a push strategy allows manufacturers to streamline production schedules and allocate resources based on forecasted demand. This approach minimizes production delays and optimizes inventory management. In fact, a study by Aberdeen Group revealed that companies using a push strategy can improve customer satisfaction by up to 20%. By meeting demand promptly, businesses can enhance the overall customer experience, building loyalty and driving growth.
On the flip side, implementing a pull strategy enables companies to produce goods based on actual customer demand, reducing excess inventory and minimizing carrying costs. A study conducted by Gartner found that companies embracing the pull strategy can cut inventory costs by up to 50%. This approach provides the flexibility to respond quickly to market changes and customize products according to customer preferences. The result? Improved efficiency, reduced waste, and enhanced profitability.
Push Strategy in Supply Chain Management
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 them plan for events in the future and be prepared when winter comes. This gives the companies time to meet their needs and time to figure out other logistics like where to store the inventory.
But instead of responding to actual demand, a push strategy relies on often wrong predictions. High variable expenses, divestments, discounting, missed sales, stock shortages, high levels of debt, and rescheduled production cycles are other drawbacks of this approach.
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Advantages of Push Strategy
Better Inventory Control
A key advantage of a push strategy in a supply chain is better inventory control. Using the push strategy, manufacturers can produce products in advance, stock them, and then sell them with rising demand. This reduces the risk of stock-outs. Notably, stock-outs can lead to lost sales and customer frustration. Further, manufacturers can also reduce the risk of overstocking and related costs by using a push strategy.
A push strategy in the supply chain helps manufacturers have a better understanding of demand patterns. Using the push strategy, manufacturers can have a more accurate view of the market. This leads to improved forecasting accuracy. Improved forecasting accuracy is crucial for effective planning and decision-making.
Reduced Lead Time
Another advantage of a push strategy in the supply chain is that it can reduce lead times. In this strategy, customers receive the products faster as products are produced and stocked even before the customer places an order. This can be particularly beneficial in today’s fast-moving markets where customers are looking for quick and reliable delivery.
Alignment of Supply and Demand
A push strategy can help align supply and demand in a better way. This reduces the risk of obsolescence. Using a push strategy in the supply chain, manufacturers can respond quickly to changes in demand and make necessary adjustments to production and inventory levels.
Focus on Standard Products
A push strategy in the supply chain can allow manufacturers to focus on producing standard products in high volume. This will help in reducing costs and improve efficiency. As production processes can be streamlined using a push strategy, the production of standard products will increase.
Limitations of Push Strategy
Customer Demand Variability:
In a push strategy, products are manufactured based on forecasts and pushed into the market. However, unpredictable changes in customer demand can lead to inventory imbalances and excess stock. This challenge highlights the importance of accurate demand forecasting and the need to adapt quickly to dynamic market conditions.
Push strategy relies on maintaining high inventory levels to meet anticipated demand. However, this approach can result in carrying costs, product obsolescence, and the risk of stockouts. Effective inventory management techniques, such as just-in-time (JIT) inventory, can help address these challenges by minimizing holding costs and optimizing stock levels.
Aligning production capacity with anticipated demand is a crucial aspect of push strategy. Insufficient production capacity can lead to delays and missed delivery deadlines. Implementing efficient production planning processes, such as capacity analysis and resource optimization, can enhance production capabilities and minimize bottlenecks.
Information Sharing in the Supply Chain:
In a push strategy, effective communication and information sharing among supply chain partners become critical. Lack of real-time data exchange and collaboration can lead to inaccurate forecasts, delayed responses, and inefficient operations. Embracing technology-driven solutions like integrated information systems and collaborative platforms can foster seamless communication and enhance overall supply chain performance.
- FMCG (Fast Moving Consumer Goods) companies such as Unilever and Coca-Cola use a push strategy in their supply chain management. They predict consumer demand for their products and then push their inventory to retail stores and meet the increasing demand.
- Toy manufacturing company Lego uses a push strategy very effectively. They anticipate consumer demand for certain toys during holidays and peak periods and use a push strategy in their supply chain management to produce in-demand products in high volume.
- Book publishers such as Penguin Random House, HarperCollins, and Simon & Schuster use a push strategy in their supply chain management. These publishers forecast the demand for new releases and stock their inventory in bookstores and online retailers even before the releases are available for readers to buy.
Pull Strategy in Supply Chain Management
Under the pull supply chain, the manufacturing and supply process is driven by actual customer demand. In this type of supply chain logistics, inventory is acquired on a need basis. This type of planning benefits includes 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 only orders the parts it needs. In this case, the business waits until it gets an order to procure the parts required for the repair.
Advantages of Pull Strategy
Enhanced Customer Relationships
Satisfied customers are the lifeline of any business. A pull strategy in supply chain management can help businesses build strong, long-lasting relationships with their customers. Businesses can use a pull strategy to demonstrate a commitment to customer satisfaction by quickly and accurately fulfilling customer demand. This can lead to increased customer loyalty and customer requisition rate.
Dynamic Response to Customer Demand
One of the key benefits of a pull strategy is that it allows businesses to respond dynamically to changing customer demand. This strategy helps manufacturers closely monitor customer behavior. It helps them to adjust production and delivery. Pull strategy helps businesses to survive even in a highly competitive market.
Better Quality Control
With a pull strategy in the supply chain, businesses can take a more hands-on approach to quality control. In a pull strategy, businesses only produce products when they are needed. This allows businesses to produce only high-quality products.
Sustainable Supply Chain
A pull strategy in supply chain management can help businesses reduce waste, minimize surplus inventory, and improve overall sustainability. Businesses produce products as they are needed using a pull strategy. Further, using this strategy, manufacturers can closely monitor demand and reduce their environmental impact.
Better Resource Allocation
A pull strategy in supply chain management can help businesses allocate their resources more effectively. Businesses using this strategy are not tied up in surplus inventory or overproduction. They can also avoid the need for large amounts of working capital to support surplus inventory. This can result in improved cash flow and resource utilization and save costs.
Limitations of Pull Strategy
In pull strategy, products are manufactured based on actual customer demand. However, managing order fulfillment efficiently poses challenges such as lead time reduction, ensuring product availability, and minimizing stockouts. Streamlining order processing, optimizing logistics networks, and implementing robust demand-driven replenishment systems can alleviate these challenges.
The bullwhip effect refers to the amplification of demand fluctuations as they propagate upstream in the supply chain. This phenomenon can result in excessive inventory, inefficient resource allocation, and increased costs. Employing collaborative forecasting techniques, sharing real-time sales data, and fostering strong relationships with suppliers can mitigate the bullwhip effect and improve supply chain coordination.
Technology and Automation:
Leveraging technology in a pull strategy can enhance visibility, enable accurate demand sensing, and automate various supply chain processes. Integration of advanced technologies like Artificial Intelligence (AI), Internet of Things (IoT), and predictive analytics can enable real-time demand monitoring, efficient order processing, and proactive inventory management.
Real-world examples of Pull Strategy
- Toyota is a well-known example of a company that uses a pull strategy in its supply chain management through Just-in-Time (JIT) manufacturing. Instead of producing large quantities of a product ahead of time and storing it in a warehouse, JIT manufacturing produces products only when there is an actual demand for them. This approach helps reduce inventory costs and waste. This pull strategy also helps in increasing efficiency by only producing what is needed.
- Many companies, such as UPS and FedEx, use a pull strategy in their reverse logistics operations. These companies pick up returned products from customers only after they have placed a return request. This helps to reduce the amount of unnecessary transportation and handling of returned products. Using a pull strategy here also helps in minimizing the amount of inventory that needs to be stored in a warehouse.
- Companies like Vistaprint use a pull strategy. They produce printed products, such as t-shirts and business cards, only after a customer places an order. This helps to reduce waste and the cost of maintaining a large inventory.
Comparison between Push and Pull Strategy
Despite their differences, there are some similarities between push and pull strategies in supply chain management:
- Both push and pull strategies in supply chain management rely on data and technology to make informed decisions. For example, push strategies use data such as sales history and market trends to make forecasts. Meanwhile, pull strategies use real-time data from point-of-sale systems to respond to changes in demand.
- Both strategies require a certain level of flexibility and adaptability. In a push strategy, the supply chain must be able to quickly finish production to meet an increase in demand. On the other hand, in a pull strategy, the supply chain must be able to respond quickly to changes in demand by adjusting production accordingly.
- Both strategies focus on satisfying the end consumer. No matter if it is a push strategy or a pull strategy, the supply chain must deliver the right product to the right customer at the right time.
- Both strategies involve multiple stakeholders in the supply chain. These include suppliers, manufacturers, distributors, and retailers. Each stakeholder plays a critical role in ensuring that the products reach the customers properly.
While there are many similarities between the push and pull strategies in a supply chain, there are also several key differences between the two:
Lead time vs. Response time
Push strategies to have longer lead times. This is because, in this strategy, products are produced in advance based on demand forecasts. Meanwhile, pull strategies have shorter response times. In this strategy, production is adjusted quickly according to the changes in demand.
Push strategies typically have higher upfront costs. Businesses using this strategy produce products in advance. However, businesses using the pull strategy have lower upfront costs. They adjust their production based on actual sales.
Businesses using push strategies balance inventory levels based on demand forecasts. Meanwhile, pull strategies minimize inventory levels by only producing what is actually sold. This difference in inventory management can impact both the cost structure and the flexibility of the supply chain.
Forecasting vs. Real-time data
Push strategies often rely on historical data and demand forecasting to determine production levels. Meanwhile, pull strategies rely on real-time data from point-of-sale systems to determine and adjust production levels.
Implementing Push and Pull Strategy in Supply Chain Management
Steps to Implement Push Strategy
1. Demand Forecasting and Production Planning
To implement a successful push strategy, businesses must accurately forecast customer demand and plan their production accordingly. By utilizing historical data, market trends, and predictive analytics, organizations can estimate future demand, allowing them to optimize production schedules and minimize stockouts.
2. Inventory Management
Efficient inventory management is crucial in a push strategy. Organizations need to strike a balance between maintaining sufficient stock levels to meet anticipated demand and avoiding excessive inventory. Implementing technologies like RFID tagging, barcode scanning, and automated tracking systems can enhance visibility and streamline inventory management processes.
3. Distribution and Logistics
In a push strategy, distribution and logistics play a vital role in ensuring timely delivery of products to customers. Establishing strong partnerships with reliable logistics providers, optimizing transportation routes, and leveraging advanced tracking systems are essential steps to minimize lead times and enhance overall supply chain efficiency.
4. Performance Monitoring and Continuous Improvement
To sustain and improve the push strategy, organizations must monitor key performance indicators (KPIs) and implement a culture of continuous improvement. Regularly analyzing metrics such as order fulfillment time, production efficiency, and customer satisfaction enables businesses to identify areas for enhancement and drive operational excellence.
Steps to Implement Pull Strategy
1. Establishing Customer Demand Signals
Unlike the proactive nature of the push strategy, the pull strategy focuses on responding to customer demand signals. Implementing robust communication channels and feedback mechanisms enables organizations to capture accurate customer demand data. These signals can include purchase orders, sales data, customer surveys, or even social media interactions.
2. Lean Manufacturing and Just-in-Time (JIT) Principles
To implement a pull strategy effectively, organizations should adopt lean manufacturing principles and just-in-time (JIT) practices. By minimizing waste, reducing lead times, and synchronizing production with actual demand, businesses can achieve greater efficiency, cost savings, and improved customer responsiveness.
3. Collaborative Planning, Forecasting, and Replenishment (CPFR)
Collaboration is key in a pull strategy. Establishing strong partnerships with suppliers, distributors, and retailers facilitates collaborative planning, forecasting, and replenishment (CPFR). Sharing demand data, conducting joint forecasting, and coordinating replenishment activities can streamline the entire supply chain, reducing inventory holding costs and enhancing overall responsiveness.
4. Evaluating and Adjusting the Pull Strategy
Continuous evaluation is crucial in a pull strategy to ensure its effectiveness. By monitoring customer demand patterns, analyzing order fulfillment cycles, and conducting regular reviews, organizations can identify potential bottlenecks or areas for improvement. Adjustments can be made to the supply chain configuration, inventory levels, or partnership agreements to enhance the pull strategy’s performance.
Factors to consider when choosing between strategies
Push and pull strategies in supply chain management are two distinct approaches to managing the flow of products from manufacturers to consumers. Both pull and push strategies have their own advantages and disadvantages. You should consider several key factors to ensure that you choose the right strategy that matches your business needs:
You should choose between a push or pull strategy considering the nature of the product that you are selling. You should keep the product characteristics in mind, like its shelf life, demand predictability, and variability.
You must determine the cost structure of your business before choosing between a push or pull strategy. Do you want to minimize upfront costs? Can you risk the cost of overproduction? Push strategies have higher upfront costs. Meanwhile, pull strategies have lower upfront costs.
Before choosing between a push or pull strategy, it is important to understand the target market condition and customer preferences. You must monitor customers’ purchasing behavior and demand patterns.
Push and Pull Strategies in Practise
Push and pull strategies are usually combined in practice to meet the needs of 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 resemble 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, research the various factors that determine demand and incorporate that knowledge into their supply chain.
Amazon is one of the world’s biggest online retailers, managing billions of dollars worth of inventory each year. Push and Pull logistics are a big part of their inventory management. Amazon’s warehouses are strategically placed, moving closer and closer to main metropolitan areas and city centers. As a result, it uses a pure push strategy for the products it stores in its warehouses based on the downstream demand forecast. On the other hand, it uses a pure pull strategy when it sells products from third-party sellers to minimize its own risk for unsold inventory.
Future Trends and Innovations in Push and Pull Strategy
Industry 4.0 and Digital Transformation
Industry 4.0 is the fourth industrial revolution, which is characterized by the use of cyber-physical systems, the internet of things, and big data analytics. These technologies are transforming supply chain management (SCM) by enabling companies to better track and manage inventory, optimize transportation and logistics, and improve customer service.
One of the key ways that Industry 4.0 is transforming SCM is by enabling companies to move away from a traditional push strategy to a pull strategy. In a push strategy, companies produce goods based on forecasts of future demand. This can lead to overproduction and inventory piling up, which can be costly and inefficient. In a pull strategy, companies produce goods only when they receive orders from customers. This can help to reduce inventory costs and improve customer satisfaction.
Digital technologies are making it possible for companies to implement pull strategies more effectively. For example, companies can use sensors to track the movement of goods throughout the supply chain. This data can be used to forecast demand more accurately and to adjust production levels accordingly. Additionally, companies can use big data analytics to identify trends in customer behavior. This information can be used to predict future demand and to ensure that the right products are available in the right quantities at the right time.
The move to a pull strategy is just one example of how Industry 4.0 is transforming SCM. Other areas of transformation include:
- Real-time visibility: Companies can use sensors and other technologies to track the movement of goods in real time. This information can be used to improve decision-making and to identify and respond to problems quickly.
- Collaboration: Companies can use digital technologies to collaborate with suppliers, customers, and other partners in the supply chain. This collaboration can help to improve efficiency, reduce costs, and improve customer satisfaction.
- Automation: Companies can use robots and other automation technologies to perform tasks that were previously done by humans. This can help to improve efficiency, reduce costs, and improve safety.
Industry 4.0 is still in its early stages, but it has the potential to transform SCM in a fundamental way. By embracing digital technologies, companies can improve efficiency, reduce costs, and improve customer satisfaction.
Artificial Intelligence and Machine Learning Applications
A push strategy is a supply chain strategy where goods are produced and distributed in anticipation of demand. This can be a good strategy for products with relatively stable demand, as it can help to reduce costs by minimizing inventory. However, it can also lead to overstocking and waste if demand is not as expected.
AI and ML can be used to improve push strategies by:
- Predicting demand more accurately: AI and ML can be used to analyze historical data and trends to predict future demand. This can help businesses to produce and distribute the right amount of goods, avoiding overstocking and waste.
- Optimizing production and distribution: AI and ML can be used to optimize production and distribution schedules. This can help to reduce costs and improve efficiency.
- Reducing risk: AI and ML can be used to identify and mitigate risks in the supply chain. This can help to prevent disruptions and ensure that goods are delivered on time.
A pull strategy is a supply chain strategy where goods are produced and distributed only in response to customer demand. This can be a good strategy for products with volatile demand, as it can help to avoid overstocking and waste. However, it can also lead to stockouts and lost sales if demand is greater than expected.
AI and ML can be used to improve pull strategies by:
- Real-time demand forecasting: AI and ML can be used to forecast demand in real time. This can help businesses to quickly adjust production and distribution schedules to meet changing demand.
- Optimizing inventory levels: AI and ML can be used to optimize inventory levels. This can help to reduce costs and improve customer service.
- Managing supply chain disruptions: AI and ML can be used to identify and mitigate supply chain disruptions. This can help to prevent disruptions and ensure that goods are delivered on time.
By using AI and ML, businesses can improve their push and pull strategies and achieve greater efficiency, profitability, and customer satisfaction.
Here are some specific examples of how AI and ML are being used in supply chain management:
- Amazon is using AI to predict demand for products. This helps them to ensure that they have the right amount of inventory on hand to meet customer demand.
- Walmart is using AI to optimize its distribution network. This helps them to reduce costs and improve delivery times.
- UPS is using AI to track its shipments. This helps them to keep customers informed of the status of their orders and to identify potential problems early on.
Sustainability and Green Supply Chains
Sustainability is a growing concern for businesses and consumers. In response, businesses are increasingly adopting sustainable practices, such as using renewable energy, reducing waste, and improving energy efficiency.
Green supply chains are one way for businesses to reduce their environmental impact. A green supply chain is a network of organizations that work together to reduce the environmental impact of the products and services they produce.
There are many benefits to using green supply chains. These benefits include:
- Reduced environmental impact: Green supply chains can help businesses reduce their environmental impact by reducing waste, improving energy efficiency, and using renewable energy.
- Increased customer satisfaction: Consumers are increasingly demanding sustainable products and services. By using green supply chains, businesses can meet this demand and increase customer satisfaction.
- Reduced costs: Green supply chains can help businesses reduce costs by reducing waste, improving energy efficiency, and using renewable energy.
Overall, green supply chains are a win-win for businesses and the environment. Businesses that adopt green supply chains can reduce their environmental impact, increase customer satisfaction, and reduce costs.
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 steps from getting the raw materials to delivering the final product to the end consumer.
But here, it is crucial to note that, to build the optimal push versus pull combination, there is no one-size-fits-all approach to develop the ideal push vs. pull mix. When designing their specific combination of Push and Pull strategies, brands must understand their campaign objectives, target audience, and budget constraints.
You can respond effectively to evolving consumer demands by combining both pull and push approaches while maintaining economies of scale within your current operations.
FREQUENTLY ASKED QUESTIONS
The push and pull strategy in supply chain management refers to two different approaches to managing the flow of goods and materials within a supply chain. The “push” strategy focuses on predicting demand and producing products in advance to meet that demand, while the “pull” strategy focuses on responding to actual customer demand by producing goods only when they are ordered.
The main benefits of using a pull strategy in supply chain management are improved responsiveness to customer demand, reduced inventory costs, and greater flexibility in production. With a pull strategy, companies can respond more quickly to changes in customer demand, reduce the amount of inventory they need to hold, and adjust production more easily to meet changing demand pattern.
The main challenges of using a push strategy in supply chain management include the difficulty of accurately predicting demand, the risk of excess inventory and obsolescence, and the higher costs associated with producing goods in advance of demand. Additionally, a push strategy may lead to longer lead times and reduced flexibility in production.
A push strategy may be appropriate in supply chain management when demand for a product is relatively predictable and stable, or when the cost of carrying inventory is relatively low. Additionally, a push strategy may be a good fit for products with long lead times or those that are expensive to produce.
A company can balance its use of push and pull strategies in supply chain management by using a combination of both strategies, depending on the product and the market conditions. For example, a company may use a push strategy for products with predictable demand and a pull strategy for products with more volatile demand. Additionally, a company may use a push strategy for products with long lead times and a pull strategy for products with shorter lead times. By using a balanced approach, companies can take advantage of the benefits of both strategies while minimizing the risks and costs associated with each approach.