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. Hence, this is a very active space which sees a lot of innovation in all the aspects of the chain. Let’s take a look at the Push and Pull strategies in supply chain management and see which approach works for which business.
Supply Chains: Taking a deeper look
From the procurement of raw materials to all the processing required and the final delivery of goods, companies, rely on supply chain management to quickly and efficiently handle the procedure. Supply chains dictate when the product should be made, delivered to storage and centers and finally delivered to a retail store or shipped. This is quite a complex tax and relies heavily on a lot of future proofing to account for delays and other volatilities. Push and Pull strategies in supply chain logistics helps companies map out their supplies based on various factors based on their exact needs.
- Pull Supply Chain – Under 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.
- Push Supply Chain – Under 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 meet their needs in time and also gives them time to figure out other logistics like where to store the inventory.
Push and Pull Strategies in Practise
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 from 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 product, 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 conduct a lot of research into the various factors that determine demand and incorporate that knowledge into their supply chain.
Amazon is one of the biggest online retailers in the world right now and manages about 200 billion dollars worth of inventory every 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 because it is based on the downstream demand forecast. On the other hand, it uses a pure pull strategy when it sells the products from the third party sellers to minimize its own risk for unsold inventory.