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.