In my recent post entitled, Explaining Push-Pull Supply Chain Strategies for Small Enterprises , I outlined how Dell’s approach to supply chain management differs from Just in Time, or JIT. I made an argument that Dell’s strategy is ideally suited to small and medium sized enterprises because it matches their customers’ cyclical and seasonal demand patterns. However, I didn’t provide any insight into how companies can define their “Push” strategies relative to their “Pull” strategies. To clarify both of these aspects of Dell’s approach, we’ll review each in detail and provide insight into how small manufacturers can use a multipronged approach to ensuring their “Push-Pull” strategy is successful.
Making Push-Pull Work
It’s essential to be cognizant of the differences between JIT and Dell’s Push-Pull. When thinking of JIT, think of how companies rely upon a fixed bill of materials in order to make a finished product. In this case, JIT works for those manufacturers who make a finished product and then actively sell that product to the company’s customers. In addition, JIT requires constant, linear customer demand coupled with strong purchasing power and an ability to dictate service levels with suppliers. It takes quite a lot to make JIT work!Automotive manufacturers use JIT because they have consistent demand and large economies of scale. So, how does Push-Pull differ?
Unlike Just in Time, a “Push-Pull” strategy doesn’t rely upon a finished assembly or product. It isn’t predicated on having a finished product and using the company’s sales & marketing to then sell that product. Instead, it focuses on pre-manufacturing the majority of the product, waiting for a customer order, and then finishing the remaining steps in order to provide a custom-made assembly. The “Push” portion of the company’s strategy is how Dell pre-manufacturers, or assembles, most of the assembly. The “Pull” portion of their strategy is the customer’s demand for a custom-made product. The benefit of combining both provides the company with the ability to shorten its product to market lead times, while differentiating its product offering in the eyes of customers.
What Are Some “Push” Strategies?
The benefit of Dell’s approach is fairly obvious. It allows smaller manufacturers to deliver custom-made products in a fraction of the time of competitors. However, for this approach to work means small companies must standardize the majority of their product offering. This requires using a semi-fixed bill of materials to pre-manufacture or assemble most of the product. The remaining “customized” portion must allow for an immediate turnaround time that is conducive to the market’s and customers’ needs. Ideally, the pre-manufactured portion should represent 70% of the completed assembly and require a fixed bill of materials. The remaining 30% customizable portion doesn’t require a fixed bill of materials, but must empower the company to capture market share with an aggressive lead time.
Another important aspect of the push strategy for small manufacturers must be their willingness to hold inventory for extended periods. This means they must be willing to adopt a min/max approach to inventory management, or a variation thereof. Now, most small enterprises cringe at the mention of min/max as an inventory strategy. However, there is simply no other inventory management approach that matches the cyclical and seasonal demand patterns small manufacturers face. Dell’s Push-Pull combines the short product to market lead times of JIT, without needing the large inventory purchasing volumes. In addition, the company’s sales team must continually update their sales forecasts to ensure their customers’ demand match available inventory counts.
What are Some “Pull” Strategies?
Granted, not every company has the economies of scale, purchasing power and market reach like Dell does. However, there are some simple strategies small companies can use within their “Pull” strategies that can ensure consistent demand for their products. In essence, it’s about driving the customer’s requirements and ensuring they continually come back for more. We’ll keep the pull portion of this strategy as simple as possible by breaking them down into “Market Focused” Pull strategies and “Customer Focused” Pull strategies.
1. Market Focused Pull Strategies
Like the name implies, your company’s market focused pull strategies requires your marketing efforts be centralized around driving customer interest. Simplify your marketing approach by focusing on where your customers congregate. Next, get the message out about your company’s ability to turn around a custom-made product in a fraction of the time of your competitors. Identify your target audience, deliver the message and track your message’s effectiveness.
2. Customer Focused Pull Strategies
Once you secure that business, you need to enact customer focused pull strategies that keep customers coming back for more. These customer focused strategies are predicated on using customer reward programs, discounts, as well as purchase incentives to keep customers returning. Marketing’s role is to identify the opportunity and provide sales with qualified leads. Sales must in turn be proactive in retaining that business with incentives that spur customers to continue to order.
Small manufacturers can adopt Dell’s Push-Pull supply chain strategies. It requires a commitment to streamlining your production packages, using min/max inventory strategies - or a variation thereof, and capitalizing on your company’s ability to deliver custom-made products. Shorten your product to market lead times, retain customer business with incentives, and you will increase market share. Dell’s strategy isn’t simply a supply chain strategy. It combines its supply chain approaches with a strong focus on sales & marketing initiatives that drive customer demand. It's predicated on identifying customers interested in a custom-made product, and providing them a competitive price and a shorter product lead time.
To read more about using Dell’s supply chain strategies, please read: Small Manufacturers Can Use Dell’s Push-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
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