Fill Up the Tank: Push and Pull Supply Chain Management
Nick Ostdick - September 29, 2016
The difference between a push and pull supply chain management strategy is really no more complicated than how you manage putting gas in your car. You either fill up your tank every Monday even if you have more than enough to make it through the week (push) or you monitor the gas gauge and only refuel when you absolutely need to (pull). Because a pull system is based more on demand or need and less on forecasts or anticipated demand, a pull system is much more akin to lean supply chain management principles which are designed to reduce waste and increase efficiency at each touch point in a specific company’s value chain.
Even with this in mind, so many manufacturers within the automotive industry still rely on a push system as the basis of their supply chain management strategy. While there may be some elements of the push style needed in order to leverage a supply scheme with the greatest possible coverage, the push system comes with a number of liabilities in terms of managing stock and inventory, bottlenecks and disruptions, and efficient allocation of resources for planned production programs.
On the flip side of the coin, the pull method is not a one-size-fits-all strategy, but incorporating a number of intelligent planning software solutions, companies that utilize a pull management strategy are much more likely to deploy a cost-effective, efficient supply chain capable with enough resilience for today’s competitive, global market.
Pull in The Real World
To help illustrate the impact a pull strategy can have in the real world, let’s examine an OEM a friend of mine worked four or five years ago during the heart of the global recession. This OEM relied primarily on a push strategy for its supply chain management, basing its planned production programs on forecasts and past customer demand data. As a result, when the recession hit and this past customer data was of little help in creating accurate forecasting based on the tumultuous economic climate, this OEM struggled to reduce production quickly enough to combat supply overages and wasted stock. This resulted in severe bottlenecks and disruptions from container management to the production floor to the back office.
This may be an extreme example, but it paints a telling portrait of just how important a pull strategy can be in helping to reduce the complexity and uncertainty in today’s automotive supply chain. In such a variant-rich industry, companies need complete visibility and transparency across the entire value chain in order to deploy effective demand planning and production programs to meet customer needs and fulfill orders. Powerful planning software solutions like Plan for Every Part (PFEP), Every Part Every Interval (EPEI), and BOM management give supply planners and managers the ability to see where component parts are located, their status, and the time and resources necessary to pull them as-needed for planned production programs.
By integrating these software solutions into their overall supply management platforms, planners and managers can rely more on a pull-based system that responds with efficiency to customer orders, modifications, and alterations - as we discussed in an earlier entry, the variant-rich nature of the auto industry means the parameters of planned production programs can change while component parts are in transit, and a pull system better equips planners and managers to respond to these alterations without the fear of bottlenecks or disruptions.
Benefits of Going Pull
Moving from a supply chain management strategy that relies on a push system to a pull system is not a small or insignificant task. However, the benefits OEMs can experience by making this shift far outweigh the challenges in creating best supply management practices for mid to long-term growth and viability. A pull-based environment not only provides companies with the visibility and flexibility to respond to the demands of today’s complex, evolving market, it also helps companies focus their planned production programs - including production facility and network management and part/resource allocation - to ensure more lean methods of operation.
Companies who successfully make the turn to a more pull-based strategy can see a number of benefits and competitive advantages such as:
Minimized warehouse inventory. By incorporating an optimized pull strategy, companies can minimize inventory by selecting the appropriate containers and parts for demand planning coverage without including parts not immediately required by production programs. Using the pull principles, companies have the ability to take what they need from various containers and leave what they don’t, which increases cost-effectiveness and reduces the risk of overages in terms of unused stock.
Improved efficiency. Adopting a strategy based more on customer orders and less on forecasts or predictions made from previous data helps companies better schedule key production programs, optimize the unloading of containers, and manage inventory and stock to ensure the right quantities in the right condition at the right time. This enhances a company’s overall supply management strategy and has ripple effects to the overall efficiency and productivity of all elements of the production sequence.
Enhanced visibility and responsiveness. Because a pull system more closely aligns with current demand or customer orders, OEMs will be able to leverage a more responsive supply stream capable of adapting to modifications or alterations in orders. This is because OEMs are responding to the parameters of each specific order or production program rather than relying on safety stock or past inventory for coverage. As a result, companies can also enhance their overall demand planning strategies through the enhanced visibility and transparency a pull system provides.
Filling your car with gas every Monday without fail may provide the peace of mind that you’ll never run out, but it can also be a financial liability if you only drive a few miles on that given week - essentially, you’ve wasted resources - money - that you could have allocated elsewhere to greater effect. This is why OEMs should rely more heavily on the pull system of supply chain management, which responds with greater flexibility to the complexities and uncertainties of today’s global automotive landscape.
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