Terms like “Retail supply chain”, “Automotive
supply chain” or “FMCG supply chain” have become widely popular, but there is
not such a thing as a “specific” supply chain, there are basically two
categories, and almost all supply chain processes fall into one of these two
categories. All of the above industries fall under Pull or Push supply chain. In
fairness, a hybrid new model called “Push-Pull” is being accepted as a third
valid model but understanding the pull and the push models separately will make very
intuitive the Push-Pull model.
What is Pull Supply Chain?
Under pull supply chain, products are manufactured based on specific
customer requests, in fact, companies only make enough product to fulfill customer's orders. We also know it as “Make to Order” model
(click here to learn more). We often see this model operating in High Tech
Industries, where customization is the competitive advantage. Briefly, we have
seen this model in automotive industry and it is being used in high end luxury
market segment. The objective of this model is to minimize the Inventory and
optimize supply. One advantage of the Pull system is that there will be no excess of inventory that needs
to be stored, thus reducing inventory levels and the cost of carrying and
storing goods. However, one
major disadvantage is that it is highly possible to run out of product and not
being able to supply the merchandise on time, leaving the company unable to fulfill the order which contributes to
customer dissatisfaction.
What is Push Supply Chain?
Under Push model, products are
manufactured based on anticipated customer orders. Companies must predict which
products customers will purchase and determine what quantity of goods will be purchased.
This model is also known as Make to Sock. The core assumption of push programs
is that demand can be anticipated and that it is more efficient and reliable to
mobilize resources in pre-specified ways to serve this demand. Some
disadvantages of the Push model could include high inventory costs and huge warehousing
and distribution costs, plus the fact that forecast are often inaccurate and
sales can be unpredictable. An advantage of the push system is that the company
is fairly assured it will have enough product on hand to fulfill customer’s
orders.
Retailers heavily use push model but for
some time now the big names in the retail industry are trying to adopt the
hybrid Push-Pull model which is a combination of pull and push models.
The Push-Pull System
Some companies have come up with a
strategy they call the push-pull control system, which combines the best of
both the push and pull strategies. Push-pull is also known as lean inventory
strategy. The goal is the reduction of product shortages which can cause
customers to go elsewhere to make their purchases.
