Supply Chain (SC) in a factory extends from the factory where its products are manufactured to the instant the items are in customer's hands or deliver to distribution centres and made available in the Retail channel. The distribution facility uses the products to supply a Retail store or, fulfil the needs of an e-commerce business or fulfilment centre. To achieve it, the combination of Push and Pull strategies can be an option. Push and pull plans both work within the Supply Chain.
A Push-model Supply Chain is one where projected demand determines what enters the process. For example, umbrellas get pushed to retailers a month before the raining season starts. Some benefits:
Companies have predictability in their Supply Chains since they already know what and when will come – long before it arrives.
To plan production to meet their needs.
It gives retailers time to prepare a place to store the stock they receive.
A Pull-model Supply Chain strategy is related to the just-in-time school of Inventory Management that minimises stock on hand, focusing on last-second deliveries. One example of an industry that operates under this strategy is a direct computer seller that waits until it receives an order actually to build a custom computer for the consumer. Under these strategies:
Products enter the Supply Chain when customer demand justifies it.
Companies avoid the cost of carrying inventory that may not sell.
The risk is that they might not have enough inventory to meet demand if they cannot speed bump production.
Push and pull strategies, both working within the Supply Chain
Every Supply Chain is a hybrid strategy. For example, your company might choose a Push-based system, but it stops at the Retail store waiting for the customer to “pull” the product off the shelves. Manufacturers might decide to create inventories of raw material, wait until the price goes up, and then release it (at least, he can use it later.)
For instance, a TV set sub-assemblies might be built into a push strategy. Then, final configurations are made to a pull strategy, and because most of the profit comes from the service contract, not the TV set, the overall goal should be to maximise your total Average Revenue per Unit (ARPU) through product availability, imperative in these competitive markets. But product availability impacts your product in two different ways, giving the two different consumer attitudes you are serving:
• Consumers with a strong-brand loyalty (e.g. towards Lego's latest model) who may wait for significant launches and availability.
• Consumers with little brand loyalty who focus on price and availability; the impact of product availability on the ARPU is significant because there is less margin to it.
CONCLUSIONS: The need for two different SC strategies depends on the product and its lifecycle. A Push-driven approach is needed for new products with strong consumer loyalty to manage scarcity, fair allocation and priorities, such as Retail priorities, key accounts, or wholesale requirements. And a Pull demand-driven strategy for other products with less brand loyalty. It must be accomplished over a three level of the Supply Chain with Retailers, which can include carrier-owned stores, but also include distributors, franchised stores and e-commerce.
There are more challenges associated to these strategies, including seasonality peaks, lifecycle, short productions, high-demand volatility, or the of new technology like Machine Learning and Artificial Intelligence, and the operation of a multichannel network; tools that synchronise all data, replenishment, demand sensor, inventory, orders, processes, to guarantee customer service.
Dave Food
Subscribe to our emails & exclusive free content.
