Juggling between what is a push and pull strategy in supply chain management? Which is better over the other? Which strategy to adopt? Well, you have landed at the right page. This article will help you explain what are the types of strategies in supply chain management and what happens when Push and Pull are combined.
Excited? So let’s get started.
Table of Contents
- Deeper Look Into Supply Chains Strategies
- Pull Supply Chain
- Push Supply Chain
- Push and Pull Strategies in Practice
- A Closer Look to Pull and Push Transactions
- The Verdict-Combination of PULL and PUSH Strategy
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 that sees a lot of innovation in all 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.
Deeper Look Into Supply Chains Strategies
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 task 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 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.
Push Supply Chain
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.
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 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 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 that manages around 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 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 third-party sellers to minimize its own risk for unsold inventory.
A Closer Look to Pull and Push Transactions
A “pull-based transaction” happens when a merchant pulls the transfers from the customer’s account through a debit transaction. In such a method, funds are pulled from the customer’s account by the merchant in order to proceed with the sales transaction.
A “push transaction” is when a merchant provides the customer with a “request for pay” token to receive the funds. The best example of such transactions is cryptocurrency transfer. In push transactions, customers push the payment to the desired address, and when the receiver is notified of the incoming fund, they further proceed with the sales transaction. Push payments just take seconds, compared to pull transactions.
It has been found that push payments offer several perks over pull payments in terms of enhanced security, better scalability, and faster Settlement. They offer better settlements compared to pull. This is because the merchant is paid instantly when the customer finishes the push request, and if any dispute arises, the merchant can revert or push back the funds immediately. Such transactions help in achieving a vibrant economic activity.
Better automation can also be achieved with push transactions as bots, and AI-enabled systems can create “request to pay” tokens, present as a QR code, send links to customers without any human intervention.
The Verdict- Combination of PULL and PUSH Strategy
As we have understood what is pull and push strategy, let’s understand what happens when both the strategies are combined. Many of the tech giants and even retailers use a pull-push strategy. In this combined approach, the approach aims to “push” customers to choose particular options and once options are chosen, the customer’s order “pulls” demand through the company’s supply chain.
However, they don’t tend to let customers choose just any option. Instead, they regulate the options provided to customers so as to depreciate lead times on delivery.
A combination of push and pull techniques are used by major brands. 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 using a combination of both Pull and Push approaches while maintaining economies of scale within your current operations.
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