JANUARY 22, 2018
Is a Push or Pull Strategy Better for your Supply Chain?
Increasing customer demands combined with the challenges of omni-channel retail; means that every supply chain needs a clear strategy going forward.
Smart operators also learn from their competitors. Generally, there are three ways you can improve your supply chain: people, processes and technology.
But none of this is possible without a strategy.
One such strategy is a push supply chain strategy.
What is a push strategy?
A push logistics strategy is a forecast-led approach. Companies who use this approach rely on forecasting in order to know how much stock to order. Decisions are made when stock is ordered.
Due to the high volume of SKUs, this approach generally considers each product the same regardless of their varying demands.
Forecasting is achieved at the aggregate level, such as a weekly forecast from the DC to retail stores. Products are then transported to stores based off forecasts rather than individual store demands.
The main advantages of this strategy include enabling long-term planning, readily available stock, economies of scale, and allows for more planning and control.
However, the main weakness of a push strategy is that it takes a long time to react to changes in the marketplace. Instead of reacting to real demand, a push approach relies on forecasts that are often grossly inaccurate.
Other disadvantages of this strategy include high carrying costs, disposals, discounting, missed sales, stock shortages, high debt levels and rescheduled production cycles.
What is a pull strategy?
A pull supply chain strategy utilizes real-time data so that inventory orders are more accurate.
This approach is based off actual consumption at a granular level. This includes store, SKU and daily POS data – in addition to forecasts.
Advantages of a pull strategy include higher service levels, lower carrying costs, decreased inventory levels and fewer markdowns. But perhaps most of all: the pull approach enables supply chains to adapt to demand faster, and allows for SKU and store differences.
However, the pull approach is not without its weaknesses. A pull strategy faces difficulties as lead times begin to increase and demand changes regularly. It’s also more difficult to achieve economies of scale as production and distribution are determined by real demand.
Putting it together:
In reality, most retailers adopt both a push and a pull strategy. This is commonly known as a push-pull strategy.
They might use a push-based system to send products to warehouses or stores, but from there they use a pull-based system as they wait for customers to buy the product.
By utilizing both a push and a pull strategy, you can react efficiently to changing customer demands while still creating economies of scale within your existing operations.
To successfully implement a push-pull strategy, you need to establish a foundation of sound systems and processes.
- The ability to be able to consistently communicate with your customers across your supply chain
- Planning systems that ensure the right products are in the right place – at the right time
- Execution systems that can be efficient at scale
- Logistics vendors that will keep your promises to your customers
- Being in close proximity to your main customer bases
In order to achieve these objectives, you will need a new breed of distribution and logistics systems. Essentially, technology that is responsive to your omni-channel requirements and aligned to your push-pull strategy.
Below are the crucial technological requirements:
WAREHOUSE MANAGEMENT SYSTEMS (WMS):
You need a WMS that is flexible and can manage both your push and pull distribution operations. You should also be able to control the processes and workflows in order to optimise each system to work for – rather than against you.
You need logistics systems that are programmed to understand push distribution and transfers, and reduce the cost of freight while not compromising on customer service.
CUSTOMER SERVICE APPLICATIONS:
You need the means to not only meet delivery dates, but enable clear and honest communication with customers at every stage of the buying cycle.
HIGH-VOLUME PARCEL APPLICATIONS:
Parcel shipping has resulted in modern applications with better scalability; that offer increased carrier options and are 100% accurate.
Regardless of your partner agreements, you need to keep each partner informed and give them the best chance of executing at a high standard.
EDI tools should be scalable and flexible. This in turn accelerates transactions between fulfillment channels and your trading partners. As a result, you can further decrease costs and increase productivity.
In summary, we have established that both the push and pull strategy have strengths and weaknesses. In fact, a push-pull strategy utilizes the advantages, and minimises the disadvantages of both approaches.
In order to implement a successful push-pull strategy, you need to utilise the right technology, leverage existing assets and consider new partnerships – so that you can improve operations and increase your bottom-line.
If you want to know more about a push-pull supply chain strategy, talk to us today.