Supply chain management is undoubtedly one of the significant and core operations in the portfolio of a business. You can come across various components in your supply chain management approach with a profound impact on business and bottom lines. Therefore, many business owners look forward to opportunities in selecting the ideal alternative among push and pull strategy in supply chain.
Even people without any idea about the importance of supply chain strategy can vouch for selecting ideal supply chain strategies. Almost all businesses, ranging from giants like Walmart and Amazon to small businesses, depend largely on supply chain management. So, let us take a deep dive into a comprehensive understanding of push and pull strategy in supply chain management.
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Importance of Supply Chain Strategy
First of all, it is important to know that various businesses don’t feel the need to create supply chain strategies. However, clarity regarding the approaches for working with customers, vendors, and distributors could help them achieve different benefits. The term ‘supply chain strategy’ might seem like the fitting choice for large corporations only.
On the contrary, a supply chain strategy could support companies in working effectively with different product vendors and distributors. Therefore, you need to find out what is push and pull strategy in supply chain for understanding their value. So, what is exactly involved in a supply chain management strategy? Let’s understand.
- Decisions regarding the structure of the supply chain and activities throughout different stages of the supply chain
- Selection of particular location alongside with different capacities of facility
- Identification of products to be manufactured alongside the location of the storage facility
- Determining the modes of transportation alongside the sources for collecting information
With all these important traits, a good supply chain strategy could help businesses in achieving a competitive advantage in target markets. Here are some of the notable benefits of selecting a comprehensive supply chain strategy for your business.
- Properly planned supply chain strategies could help in supporting your business goals.
- Supply chain strategy gives you the opportunity to establish an ideal infrastructure to evaluate and analyze your historical data for insights.
- Effective supply chain strategies could offer clarity regarding position of raw materials and finished inventory in the supply chain.
- Ideal supply chain strategies could feature optimized designs to cope with modifications in internal product design. As a result, businesses could maintain parallels with rapid innovation.
- Markets are evolving consistently at a radical speed, and your supply chain strategy helps identify changing demands and adapt accordingly.
The characteristic traits and benefits of a supply chain strategy clearly showcase the importance of reflecting on the debate of push vs pull strategy in supply chain. Generally, supply chains are responsible for dictating the timing of manufacturing products, delivery to storage and warehouses, followed by delivery to retail stores or shipping to customers. In the conventional sense, supply chains have been focused on using the massive collection of historical data for predicting the seasonal trends of the future.
Furthermore, the COVID-19 pandemic has introduced massive disruption across supply chains throughout the world. Therefore, we were able to identify the various fragilities in our supply chains with the arrival of a global pandemic. As customers all over the world experience the impact of radical shifts in supply chains, businesses have to choose supply chain strategies that can provide an ideal definition of best practices for their procurement department.
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What is Push and Pull Strategy in Supply Chain?
The simplest approach for evaluating the differences between push and pull strategy in supply chain management is understanding the definitions. With a clear impression of the definitions of push and pull strategies, you can find how they are relevant for different use cases. Different organizations have different requirements from their supply chains, with a particular emphasis on providing the best customer experience.
The primary requirements of supply chains either involve adaptability with immediate consumer demand or coping up with future projections. Therefore, businesses have to work on meeting customer demand or the long-term customer forecasts in determining whether they need a push or a pull strategy.
What is Push Supply Chain Strategy?
The first entry in the comparison between push and pull strategy in supply chain is the push strategy. The push strategy in the supply chain is ideal for a scenario in which the estimated demand defines the inputs of the process. Basically, it is reasonable to consider push supply chain strategy as an approach based on forecasts. Organizations using the push strategy depend on forecasts for determining the amount of stock they have to order.
One of the most common entries among push and pull strategy examples related to the former refers to the manufacturing of seasonal items. For example, a manufacturer in China would not start producing Christmas decoration products when customers start visiting stores for purchasing holiday decorations. On the contrary, it would make decisions about producing the products at a time prior to the holiday season according to the estimates of product quantity that consumers would demand.
The advantage of push strategy in the battle of push vs pull strategy in supply chain is also evident in the form of the high volume of SKUs. The push strategy takes each product into account irrespective of the varying demands associated with them. The push strategy in the supply chain also involves aggregate forecasts such as weekly forecasts from distribution centers to the retail stores. Subsequently, the manufacturer can distribute products to different stores on the basis of forecasts rather than the demands of individual stores.
Here is an outline of the notable traits of push strategy that make it unique in the comparison of push and pull strategy in supply chain.
- Businesses with better predictability in their supply chains are more likely to choose the push strategy.
- Push supply chain strategy has the primary trait of demand that could be forecasted easily.
- Businesses opting for a push supply chain strategy are likely to have better feasibility of planning production for coping with estimated needs.
- Push supply chain strategy presents the mandatory requirement of a large, accessible inventory or committed storage space.
- Retailers can get an adequate amount of time for ensuring effective preparation of facilities for storing inbound inventory.
- Businesses do not have desired flexibility for adapting to consistently fluctuating demands with the push supply chain strategy.
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What is Pull Supply Chain Strategy?
The next entry in the discussion on push and pull strategy in supply chain management refers to pull strategy. As a matter of fact, the pull strategy in supply chain management relies on actual customer demand by utilizing real-time data to ensure better accuracy of inventory orders. The process of manufacturing and supply of goods is based on actual customer demand derived from consumption on granular levels.
Basically, the pull supply chain strategy focuses on acquiring inventory only when it is needed. The pull model in supply chain strategy primarily focuses on inventory management with reduction of stock on hand. At the same time, it also implies the need for comparatively faster responses to fluctuations in product demands.
The examples of pull strategy from push and pull strategy examples could showcase how it presents a better advantage in situations driven by consumer demand. For example, a high-end custom jeweler would receive an order from a client, carry out consultation with them and discuss the particular requirements of customers for the product before ordering gemstones and precious metals for manufacturing the product. This is a clear example of the pull supply chain strategy as the jeweler did not have any inventory before receiving the order. The jeweler waited until receiving the order and then procured the materials needed for production.
In order to improve your understanding of pull supply chain strategy in discussions on push vs pull strategy in supply chain, it is important to notice its unique traits.
- Businesses could opt for a pull supply chain strategy for avoiding the costs of procuring inventory that they will not be able to sell.
- Pull supply chain strategy also focuses on the facility of rapid response for a particular demand or order.
- The verification of customer demand is an essential factor for introducing products in the supply chain with a pull strategy.
- Pull supply chain strategies don’t involve requirements for the business to have backup inventory.
- Product demand is the sole determining factor for production and distribution levels in a pull strategy for the supply chain management.
- The pull supply chain strategy also points out towards possibilities of creating risks in scenarios where supply could not address demands.
Implementation of Push and Pull Strategy in Supply Chain
After understanding “what is push and pull strategy in supply chain”, it is important to learn about their implementation. The real-life applications of push and pull strategies in supply chain management could provide further clarity beyond their definitions. It is practically impossible for any business to depend completely on push or pull logistics completely.
As a matter of fact, many businesses are considering the use of both in unison for achieving the best of both of them. It is quite inevitable to note that modern supply chain management operations are highly complicated and depend on multiple steps. The whole supply chain process primarily includes different steps as follows,
- The process of supply chain management starts with determining whether raw materials are available or not. It is one of the crucial requirements that you should focus on planning the source and approaches for procuring raw materials at low costs, even before manufacturing the product.
- The next step in the supply chain, irrespective of push and pull strategy in supply chain, refers to processing. Raw material processing in a manufacturing factory can help in achieving the final product, and the process could differ from company to company according to the types of products, such as cloth-based or food-based products.
- In the following stage, the finished product would have to be taken to a retail store or shipped directly to customers as required.
Example of Real Implementation of Push and Pull Strategies
Although most businesses follow this outline in their supply chain, demand and other business factors can influence decisions. Companies such as Walmart and Amazon employ large-scale research on different factors responsible for driving demand. At the same time, the companies provide suitable measures for the incorporation of research knowledge in supply chain strategy. The example of Amazon could clearly show how you can use the push and pull strategy in supply chain management effectively.
There is no doubt regarding the dominance of Amazon in the online retail space presently. So, have you ever wondered how Amazon is capable of dealing with inventory worth billions of dollars? If you look closely, Amazon follows a unique blend of push and pull strategies to ensure effective supply chain management.
For example, Amazon selects strategic locations for its warehouses while ensuring that they are closer to city centers and metropolitan areas. Therefore, Amazon clearly exhibits an example of push strategy by choosing the location of warehouses on the basis of forecasts regarding downstream demand. Furthermore, Amazon relies on a pull strategy when selling products from third-party sellers for reducing the risk of unsold inventory.
Take a look at the differences in push vs pull strategy in supply chain here –
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The implications related to the selection of a suitable supply chain strategy continue to evolve over the course of time. The push and pull strategy in supply chain operations have unique advantages and functionalities for the supply chain operations of businesses. However, it is also important to reflect on the possibilities of using a hybrid model that offers the best of both worlds.
As the world recovers from large-scale disruptions in supply chains globally, it is important to select supply chain strategies. So, choose a specific supply chain strategy to cater to the needs of your customers and get ready to take your business ahead!