Answer to Question #261142 in Management for Sahba

Question

What are pull and push system

Answer 1

Discussion

Push and pull distribution strategy is all about directing promotional route to market. Either by the product being pushed towards customers or the customers pulling the product through the retail chain towards them. In a push-based supply chain, products are pushed through the channel from production up to the retailers. In a pull-based supply chain, procurement, production, and distribution are demand-driven rather than based on predictions. Goods are produced in the amount and time needed.

Running a business can feel like a balancing act between making a profit and satisfying customers. An effective inventory management system can help one do both. First, one needs to figure out what an effective system looks like for their business. Most inventory management systems occur in one of two ways, a push system or a pull system. Choosing the right method can help one control how much inventory they have at any given time so their business can meet demand effectively. 

A pull inventory system prioritizes current demand. The supplier orders or manufactures goods in the quantity and time-frame needed, based on existing customer sales orders. On the other hand, the push inventory system uses demand forecasting. The manufacturer instead produces goods to anticipate customer needs and pushes them through the supply chain to retailers. Each strategy offers its advantages, and either could be the better option in particular situations. 

To make the most of push system inventory management, companies need to forecast stocking needs to meet consumer demand. The goal is to sell or push goods from the existing inventory to customers as orders come in. To create a successful push system, the business must have plenty of products in stock ahead of the demand. In manufacturing, this strategy is sometimes called ‘build to stock’. When a company uses the push system effectively, the business can meet consumer demand and ship products without delay. Merchandise is likely to be in stock all the time, and the company typically pays lower manufacturing costs per item by ordering in bulk. By reducing the potential for stock outs, a company can maintain excellent customer relationships and can take advantage of every sales opportunity.

Rather than looking ahead at anticipated demand, pull system inventory management involves a more short-term approach. The business relies on the ability to place orders for products as customers request them. For this reason, the pull system is often referred to as 'just-in-time' ordering or lean inventory management. The pull system is beneficial since a business doesn’t need to order or store products until it knows there’s a demand for them. The upfront investment in inventory is lower, and the company faces minimal losses on unsold products. 

Reference

Bonney, M. C., Zhang, Z., Head, M. A., Tien, C. C., & Barson, R. J. (1999). Are push and pull systems really so different?. International journal of production economics, 59(1-3), 53-64.