For many, emulation is the sincerest form of flattery. However, when it comes to choosing a supply chain strategy, what works well for some enterprises, doesn't work well for all. While this may be obvious to some, it isn't obvious to everyone. Ultimately, it's the reason why small manufacturers adopting a Just in Time (JIT) inventory approach are rarely able to run it successfully. However, this simply isn't the case with Dell's Push-Pull.
Using a Push-Pull System in a Demand-Driven Industry
Dell’s system works because the company has strong purchasing power and economies of scale which it spreads out across a robust product line. Its volumes are significant enough that it can pretty much dictate turnaround time on parts and materials from its vendors. Because those volumes are so large, a number of vendors set up locations and plants in close proximity to Dell’s. The end result is a system that works because the company has the volumes, the market share, the supply chain and ultimately, the clout with its vendors to make it work.
It is perhaps for these reasons that a number of small manufacturers shy away from Dell’s approaches. However, in many ways a Push-Pull system is ideally suited to the demands small manufacturers face, much more so than JIT. Dell’s order fulfillment and supply chain strategy is different from JIT, and it’s those differences that might allow a smaller enterprise to benefit from some, but not all, of the stalwart’s approaches.
Push-Pull Versus Just In Time
JIT is based on only pulling in what’s needed, when it’s needed. Companies are able to reduce inventory costs because they only purchase parts and materials they are guaranteed to sell, or use in manufacturing. Therefore, if the inventory the company brings in is sold within the same day, week, or month, then the company doesn’t encounter high inventory carrying charges. This improves their cash position and reduces their costs of capital.
A Just in Time strategy is ideally suited to large manufacturers who have both the purchasing power, and the sales volumes, to make it work. In addition, most of these enterprises have a small number of product lines, but significant volumes spread across those lines. Who runs JIT? Automotive manufacturers do because they have the economies of scale to make it work. In addition, they have a fixed bill of materials and they never deviate from those material requirements. In the end, they drive down their purchasing costs through huge volumes.
How is Dell Different?
While Dell's Push-Pull calls upon JIT’s strategy of minimizing inventory costs, it really is predicated on manufacturing the majority of the product itself, and waiting for the customer’s order. Once an order is placed, Dell then finishes the remainder of the assembly (computer) and is able to deliver a custom-made finished good. The company relies upon immediate turn around times on parts and materials from its vendors. The basic approach is to have the product in a semi-finished state. The product is then finished once a customer places an order. Delivery times are minimized and inventory costs are reduced.
The above video is taken from the post: Dell Push-Pull: An Order Fulfillment and Supply Chain Strategy
Pre-Manufacturing in a Demand-Driven Industry
Making a push-pull system work is predicated on “pre-manufacturing” the majority of the finished good. For instance, if a small manufacturer were to have its products ready in a 70% completed state, then the remaining 30% would fall under that “customizable” option. However, this doesn’t mean the small manufacturer has to rush in parts and materials only at that time when they’re needed – which is essentially JIT’s approach. Instead, small manufacturers can run a min/max system, retain inventory of those parts needed to complete the remaining 30% of the product, and not have to bend over backwards trying to make JIT work.
The Importance of Standard Sub-Components in Design
The above mentioned strategy requires manufacturers use standard sub-components in the initial design phase. This means that designs must incorporate as many common parts as possible. This reduces the costs of holding multiple inventory skews. It also reduces the likelihood that raw material and parts become outdated or damaged because of excessive handling and storage practices. One tool that can help your company locate your most common sub-components is that of the sub-structure analysis. An example is provided below.
The above is from: Bill of Materials Essentials: Substructure & Subassembly Analysis
Ultimately, if small manufacturers can focus the design of their products around their most common parts, and then hold what’s needed to finish off their product within a relatively short period, then yes, this push-pull strategy can work. In this case, they’ve taken the best portion of Dell’s strategy and adopted it to their business.
When it comes to small manufacturers, it’s always best to run an inventory and supply chain approach that meets the company’s business model and its customers’ order patterns. As mentioned, a number of companies read about the great approaches used by bigger, more powerful enterprises, only to be left wondering: “That’s great and all, but how does my company benefit from this?”.
Dell’s strategy is flexible enough that small manufacturers don’t have to run JIT (because they can’t). Instead, they can still benefit from its greatest doctrine: the ability to turn around parts in a fraction of the time, while reducing the company's cost of capital. I’ve included additional links to support the claim that small manufacturers can use a Pull supply chain strategy.
To read about an article where I was interviewed about Push-Pull strategies, please go to: The Institute for Supply Management, ISM, Calls Upon Drive-Your-Success
Reducing Product Cycle Times with Standard Parts
Supply Chain Management: Running a Better Supply Agreement
Small Business Inventory Management: Match Inventory to Business Model
Learn about the true costs of running a Min-Max inventory system.
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