Consumers benefit greatly from supply chain management, yet few people think about the planning, cost, or activities involved in getting fuel to the filling station, fresh foods to the store shelf, or essential medical supplies to the hospital emergency room.
Considerations for Push or Pull In the last postwe presented a quick overview of the push and pull concepts. An example in this context is seen in the manufacturing strategy for Dell's online channel where the computers are assembled only after a firm customer order has been placed.
This allows Dell to simply carry the generic sub-assemblies like the HDD, RAM module, motherboard, and so on, and assemble the final customized product to order when an order is placed. This helps in reducing the finished goods inventory that is otherwise subject to obsolescence as the trends for product and demand change.
But if you consider Dell's manufacturing strategy for computers that it sells through retail channels such as Wal-martit must produce and distribute the machines without a firm knowledge of what the customer may demand. This is similar to the conventional "build-to-stock" model.
These two examples also exhibit what is known as the postponement or speculation strategy. In the postponement strategy, the firm has the ability to postpone the final assembly of the product to the latest stage possible.
The company avoids building finished goods as long as possible but must contend with a short lead-time to fulfill orders and manage demand variability.
The company has traded the cost of obsolescence for cost of extra resources by trading inventory for ability to quickly react to demand.
In the speculation strategy, the firm builds to stock by estimating demand. The company can build to forecast demand but carries the risk of finished goods obsolescence. Here the cost of obsolescence has been balanced against the increased efficiencies.
Of course, these two strategies of postponement and speculation do not lend themselves equally to all types of products and services, therefore constraining the options based on the industry, product, and the targeted customer segments.
For example, consider a typical retail operation. Should the company directly replenish the stores as the stocks on the shelves deplete?
Or, should the company replenish the stores from a warehouse that stocks inventory and then replenish its warehouses by placing orders on suppliers?
In the first case, when stores are directly replenished by orders placed on the suppliers, the company saves on the warehousing expense altogether, though it may carry higher inventories as it manages several hundred stores, each individually carrying inventories to avoid the risk of stock-outs.
In the second case, the company can build a warehouses to optimize inventory to hedge against the stock-out risk, but adds the cost of creating and maintaining a warehouse. In both of these scenarios as well, the company is dealing with balancing the cost of inventory against the cost of resources and fulfillment-time.
Therefore, in making the push-pull decisions, companies are primarily balancing the cost of inventory, resources, and fulfillment cycle-time. The factors that generally affect these conditions are as following.
While no generic determinations can be made, understanding the concept of balancing these costs and the factors governing them provides an objective method for making such decisions.
When the product demand is certain, stable, and can be forecasted with relatively high accuracy, then a push strategy may work well.
But when demand uncertainty is high, consider pull strategies for managing demand. Low demand variability provides an opportunity to create highly efficient manufacturing or distribution processes that may not be very flexible but minimize the cost of unit production.
High demand variability works against such efficiencies. The products that are customized and typically require personalization at the consumer level, will do well with a pull strategy for effective demand management. These products are typically branded and consumers place high emphasis on personalization aspects, examples being custom handbags, custom shoes, computers, and even some cars.
Some industrial products like rolled steel can fall in this category as well. However, the fulfillment lead-time must be managed to be competitive.
When the products are utilitarian, they lend themselves to push strategies for manufacturing as well as supply chains. The product characteristics described above generally also describe the economies of scale. With manufacturing based on large economies of scale and hence no or low customizationpush strategies are generally compatible, otherwise consider pull strategies.
When the manufacturing setup changes are expensive and time-consuming, a push-based strategy should be evaluated. Consider pull strategies when setup changes are quick and do not affect the manufacturing efficiencies substantially. Lead-time in this context means the lead-time to fulfill demand.
This can be a replenishment, manufacturing, or distribution lead-time or a combination of these, depending on the specific situation. Higher lead-time generally favor push-systems to build inventory so that end-demand can be fulfilled relatively quickly.
Pull systems must be responsive to be effective, push systems are generally more cost effective though they not have the same amount of flexibility as the pull-systems may have. Want to know more about supply chain processes?
How they work and what they afford? You will find every supply chain function described in simple language that makes sense, as well as see its relationship to other functions.Learn about Dell's social policies that govern the way we build our products, treat our employees and sustain our operations across the globe.
| About Dell We invite you to take a tour of our supply chain: Visit the production floor. Used with other products in Manugistics’ Supply Chain Planning suite, the system analyzes manufacturing, distribution and sales data against expected demand and business climate information, to help WL decide how much Listerine (and other products) to make and distribute, and how much of each raw ingredient is needed.
Department of Industrial Engineering Supply Chains: Definitions & Basic Concepts Jayant Rajgopal, Ph.D., P.E. Department of Industrial Engineering University of Pittsburgh. Article on supply chain management shows how to lower supply chain and material overhead costs as part of an 8 part cost reduction strategy.
The law of supply and demand explains the interaction between the supply of and demand for a resource, and the effect on its price.
This statistic provides a forecast of data storage demand and supply worldwide, from to In , demand for storage is estimated to reach 14, exabytes, exceeding the world's storage.