What are the most proactive marketing strategies for manufacturers selling to OEMs using Dell’s Push-Pull? When answering this question, think of how manufacturers must meet the equipment manufacturer's unique requirements. Pass initial qualification trials, secure approved vendor status and then move forward with providing the original equipment manufacturer with consistent, on time delivery of components and finished goods. The conventional approach was always to build first and sell later. However, this simply isn’t conducive to meeting a customer's specific requirements, requirements that often change at a moments notice. So how does Push-Pull empower manufacturers to better handle the customized needs of original equipment manufacturers and what role should the company’s marketing play?
Dell’s Push-Pull Supply Chain Strategy is predicated on pre-manufacturing 70% of a given assembly, waiting for a customer order and then completing the remaining 30% to accommodate the OEM’s needs. The “push” portion of the company’s marketing strategy should be focused on influencing the equipment manufacturer's requirements on the initial 70% pre-manufactured portion. The "pull" portion of the company’s marketing strategy is to accommodate the equipment manufacturer's customized needs for the remaining 30% of the finished product. The focus is therefore to standardize the 70% pre-manufactured portion with a fixed bill of materials, and to customize the remaining 30% with a floating or flexible bill of materials.
This means the company must be willing to hold its semi-finished inventory for some time before getting the customer's order to proceed on completing the remaining assembly. However, the benefit is that the manufacturer is able to deliver a custom-made product in a relatively short period. The outline below is a demonstration of how a company might pull standard parts to pre-assemble the 70% portion and then pull the remaining 20% customizable portion upon receipt of order.
The above outline is from the post: Reducing Product Cycle Times with Standard Parts (the post includes five steps that can be used to standardize production packages)
Securing Vendor Approved Status
Success with Dell’s approach depends upon your company’s ability to secure vendor approved status with the original equipment manufacturer for the finished product and to limit the approval process time on each customizable option. As such, if you provide the customer with too many customized options, they may insist on your company getting approved for each and every one of those options. Therefore, it’s essential that you discuss your vendor approval status with the equipment manufacturer directly. Try to reduce this limitation on their end, while limiting the number of customizable options on your end. Next, insist upon vendor status being granted on first deliveries of each customizable option.
The table above is from the post Emulating Dell: Outlining a Small Manufacturer’s Push-Pull Strategies
1. Market Focused Pull Strategies: Your market focused pull strategy must be focused on driving the OEM’s needs. Granted, most original equipment manufacturers dictate their requirements. They provide your company with an envelope to meet, and you have to meet it. However, what equipment manufacturers absolutely hate is to deal with late deliveries on time critical parts. If your company can distinguish your product offering by explaining how you’ll offer them a custom-made assembly in a fraction of the time, then they may just opt to adjust that envelope to accommodate your product.
2. Customer Focused Pull Strategies: Your market focused pull strategy must set up the second portion of your overall strategy – that being your customer focused pull strategy. In order to ensure you customer “pulls” product, you must have a contractual agreement on supply. Within this agreement, you could use incentives, discounts or rewards to vault your company to preferred vendor status. Again, be sure to mitigate the time it takes to get that approval by limiting the options you provide, getting a concession from the OEM, or getting vendor status approved on initial deliveries.
Manufacturers can use Dell’s Push-Pull inventory and supply chain strategy. However, it’s not merely a new approach to managing inventory, but a different approach to how a company goes about manufacturing product. One of the biggest concerns manufacturers have is how to meet the tight delivery dates OEM’s expect without incurring high overtime costs. Dell’s approach allows manufacturers to pre-manufacture the majority of the assembly, and yet still be able to deliver a custom-made product in a fraction of the time.
While there are inventory holding costs within Dell’s approach, the company must be able to make sure its gross profit on the sale more than covers these holding costs. If it does, then move forward. In this case, Dell's approach is ultimately a supply chain and order fulfillment strategy, one where customers pull demand through the company's supply chain.
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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