An effective supply chain strategy is a roadmap that enables a company to deliver its products to customers as efficiently as possible. It covers each side of the supply chain, from sourcing raw materials to final delivery.
The most productive supply chain planning revolves around your customers’ needs. Many businesses often use a combination of both push and pull approaches to supply chain management.
When picking the right supply chain strategy, carefully consider your requirements as an organization and your customers’ demands. Do your customers expect a quick delivery, or are they willing to wait for their products to arrive at their own pace? In the following article, we will explore the push and pull strategy and how it adds value to your supply chain optimization.
What is a Push Strategy?
In a push strategy, products are developed based on the forecasted demand. This strategy is useful when goods have predictable sales and are not likely to have fluctuations in demand. For such products, production kicks off when the demand is accurately anticipated.
One of the best examples of the push strategy in action is the production of seasonal items. During seasons like Halloween or Thanksgiving, decorations retailers, candy manufacturers, and turkey sellers utilize this strategy of forecasting, preparing, and selling to increase productions and profits.
Pros and Cons of the Push Strategy
When using the push method, every entity involved in the supply chain, like manufacturers and distributors, has ample time to plan to purchase raw materials and adequate space required for storage or shipping. Goods are stored in stock ahead of demand, which means once customers place their orders, demand can be accurately met and shipped without delays.
One of the major drawbacks of the push method is that customer demand is not always reliable or predictable. There is a risk of excess inventory, and if too much is on hand, extra storage costs may be higher than your expected budget. Another disadvantage is that making decisions about future demand requires heavy up-front investment.
What is the Pull Strategy?
The pull strategy in supply chain management is based on actual orders rather than anticipated demand. Raw materials are not purchased until customers place their orders, meaning that manufacturing does not begin until orders are received and not before that. Only the raw materials and inventory space required for existing orders are kept on hand. Other terminologies for pull strategy are lean inventory management or just-in-time inventory.
Pros and Cons of the Pull Strategy
The focal point of the pull strategy includes regulating and limiting the amount of inventory you keep on hand and minimizing costs by not buying raw materials until you get the perfect picture of future sales. The pull strategy is highly beneficial for businesses that need expensive raw materials. This method enables them to not invest too much in advance and utilize cash and resources where they need the most.
One major pitfall of this strategy is if you face a sudden spike in sales, you may not have adequate inventory or materials to fulfill the orders. Suppose there is insufficient stock on hand to fulfill the demand. In that case, the time required for inventory fulfillment may take longer than expected, which may create unwanted dissatisfaction among customers, and you may lose significant market share.
Push or Pull Strategy: Which One to Pick?
There are various pros and cons to both push and pull approaches to supply chain management, and the ideal choice for your supply chain strategy depends on the sector you cater to. For instance, a bakery shop may need to apply a push system so that they will have baked goods available on time when customers visit their store.
An electronic manufacturer may apply a pull strategy and wait to build a computer according to the particular requirements mentioned in the order. Pull production is one of the best options for companies with limited storage space and working capital. In contrast, a well-established organization with a high sales volume can go for push production.
A Mixed Approach to Your Supply Chain Strategy
A lot of businesses apply a hybrid approach that combines both push and pull systems. Using a mixed strategy, some products are kept in hands while others are not held in inventory unless there are orders.
The hybrid strategy can be a good choice if your company has a wide range of products. One way of utilizing both the push and pull approach is to keep raw materials in stock and only push them forward once the final order is placed.
Selecting The Best Approach for Optimal Supply Chain Planning
Finding and applying the best supply chain optimization strategy and inventory management approach is vital for every business. Advanced technology can enable you to optimize supply chain efficiency by improving storage handling and inventory management.
Monitoring key metrics and analytics can allow you to decide whether your current approach is working or not for your business. You can connect your business with effective supply chain planning solutions that utilize your historical data to analyze current market trends and customer behavior toward your products.
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