What are push-pull supply chain strategies and can they help small enterprises looking to reduce their inventory holding costs? Well, when thinking of a “push” strategy, think of how businesses try and drive customer demand by getting customers to purchase the company’s finished goods. In this case, the company has inventory and essentially pushes that inventory to customers.
On the other side of the equation are “pull” strategies. In this case, the company relies upon customer demand to pull the company to procure inventory through its supply chain and ship finished goods to its customer base. So, given these two scenarios, what are “Push-Pull” strategies and why are they combined in demand-driven industries.
Most companies have come to associate Push-Pull with Dell’s approach to supply chain management. The company's approach is somewhat similar to those JIT (Just in Time) philosophies made so popular by the Japanese automotive manufacturers after the Second World War. Unfortunately, most small enterprises lack the economies of scale, purchasing power, volumes, and clout with suppliers, in order to make JIT work. In addition, JIT requires consistent, linear demand spread across a small and robust product line, one where the company’s manufacturing relies upon a fixed bill of materials.
Push-Pull strategies are different in that they combine two approaches to make the supply chain work. Dell’s strategies rely upon pre-manufacturing a portion of their computers as part of their “push” strategy, and then using customer demand as their “pull” strategy to finish the computer. This allows them to provide what they, and their customers, consider to be a fully customized product.
You can learn more about JIT, Push-Pull and Min-Max by going to: Choose the Right Supply Chain Strategy: Make it an Easy Choice
Dell's Unique Solution
One could argue that the push portion has a fixed bill of materials in order to pre-manufacture most of the company's product offering. The pull portion would match the customer's requirements in order to deliver a fully customized finished good. In the end, it means the company is running an order fulfillment and supply chain strategy, one where customer's pull demand through the company's supply chain once they place a purchase order.
The above video is from the post: Dell Push-Pull: An Order Fulfillment and Supply Chain Strategy
Dell’s strategy allows small enterprises, and particularly small manufacturers, to shorten their product lead times without relying upon a full scale adoption of JIT. Instead, they are able to push products to customers and use their customers' demand to deliver customized products. Ultimately, the customer plays a more prominent role in pushing the company’s inventory requirements and in pulling finished products.
This entire process reduces lead times, lowers the company’s inventory holding costs, increases sales and market share, and improves customer retention and loyalty. Managed properly, small enterprises using Push-Pull supply chain strategies can distinguish their product offerings by providing a customized product, without the customized price. It affords them a level of flexibility in determining their product's pricing, that in the end, may help them distinguish themselves from their competition.
Push-Pull supply chain strategies can work for small enterprises. However, it does require accuracy in sales forecasts, an understanding of the company’s inventory holding costs and the mechanism to drive customer demand through aggressive sales. When small enterprises look at JIT, they often see a supply chain strategy whose benefits are clearly distinguishable for larger enterprises, but whose benefits are out of reach for smaller companies with infrequent and cyclical customer demand. In this case, JIT may be the pinnacle of supply chain efficiency, but it’s incredibly difficult to attain that efficiency when small enterprises lack the criteria to make it work.
To read more about how Dell’s Push-Pull strategies might help your small enterprise, please read:Small Manufacturers Can Use Dell’s Push-Pull Supply Chain Strategy
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