When it comes to inventory management strategies, there are several different methods and systems that warehouses and inventory-based businesses use. Two efficient (and related) strategies are the push and pull systems. Both systems have their applications, benefits, and weaknesses, and while many organizations might choose to deploy either one, many also adopt a hybrid method. Understanding the differences between push vs. pull systems will help you decide how to best deploy these strategies in your organization.
Here’s everything you need to know about the push and pull systems, and considerations for utilizing them.
Understanding the Push System
A push system is an approach to inventory management where production and distribution are typically driven by demand forecasts, meaning that a business will stock inventory based on predicted customer demand. This system is often best suited for items with predictable demand patterns, stable market conditions, or when items have long lead times.
How exactly does a push system work? First, a business will produce a demand forecast to predict future interest in inventory. This forecast will be informed by historical sales data, market trends, sales/promotional data, and economic trends. Based on these insights, a detailed production schedule is then created. This schedule dictates the amount of each product to be stocked within a certain time frame, and the inventory is stocked according to those plans.
For a simple example of a push system, we can look to bakeries, which bake predetermined amounts of pastries every morning, based on what the baker thinks their customers will want.
Advantages of the Push System
Push systems have several key advantages. Firstly, they typically lead to high inventory levels, which allows businesses to ensure they have sufficient stock to meet unexpected surges in customer demand. Also, since products are readily available, push systems can quickly fulfill large orders or accommodate sudden spikes in demand, without delays or stockouts, which can ultimately improve the customer experience. Research shows us that about 70% of customers are “much less” likely to shop at a retailer if the item they bought is not delivered within two days of the promised date.
Disadvantages of the Push System
One of the main disadvantages of the push system is the risk of overstocking. If demand forecasts are inaccurate, or there are unexpected dips in consumer demand, businesses can end up with excess inventory. This can lead to excessive storage costs, or lost revenue from unsold goods, as well as the potential for waste (especially if products become obsolete or expire, for example).
Because of this, push systems need to be informed by highly accurate forecasts, and are often best used for items with predictable demand in stable markets.
Understanding the Pull System
A pull system is another common inventory management approach that has many useful applications. It focuses on producing or stocking goods in response to actual customer demand, rather than forecasts. In this system, stocking is triggered by real-time demand signals, which ensures that the products are only ordered when there is a confirmed need. It’s built on the just-in-time manufacturing approach which focuses on producing and delivering products when they’re needed.
How does a pull system work? It’s very simple: production/ordering is triggered after a business receives a customer order. For an example of this in action, we can look to online custom furniture, where a furniture company produces pieces based on a customer’s order specifications.
Advantages of the Pull System
Some of the primary advantages of pull systems are that they keep inventory levels efficient, and reduce the risk of overstocking unsold items. This system can also allow for a high level of customization and ensures items remain fresh, relevant, and relevant. Additionally, pull systems allow businesses to quickly adapt to changes in customer demand and market trends. Pull systems also reduce costly inventory waste. Keep in mind that around the world, about $163 billion in inventory is wasted every year.
Disadvantages of the Pull System
Because a pull system keeps inventory levels low, there is a risk of stockouts, especially if demand suddenly spikes, there are production delays, or there is a supply chain disruption. Pull systems also depend on the reliability and responsiveness of suppliers: any delays or issues in the supply chain can lead to customer delays.
A Hybrid Approach
As you can see, when it comes to push vs. pull systems, both have their applications and advantages, and certain types of businesses might choose to use just one approach. But you can also decide to use a push-pull hybrid system, which combines elements of both systems, to optimize a business’ supply chain. When you deploy a hybrid approach, you can leverage the benefits of each system, to achieve a balance between efficient production management and responsiveness to actual customer demand.
A push-pull hybrid approach can work in a few different ways. For example, you might choose to use a push system for your core items which have consistent demand, and a pull system for specialized, customized orders. Alternatively, you might choose to adopt the philosophies of each system: for example, you might choose to have certain activities dictated by the push system (such as raw material procurement and the initial manufacturing stages), and others dictated by the pull system (such as final assembly and packaging).
Advantages of the Push-Pull Hybrid Approach
A push-pull hybrid approach to inventory management offers several significant advantages because it allows you to combine the strengths of both systems and choose their applications. Some of the key advantages include:
- Balance: When you combine these two approaches, you can balance high service levels with cost efficiency. For example, if you deploy a pull system in the later stages, you can reduce the risk of overproduction and excess inventory.
- Responsiveness: This combination of systems allows businesses to respond quickly to demand fluctuations. This can be particularly beneficial in industries with high variability in demand, or during times of market instability.
- Optimization: Push-pull hybrid approaches can allow you to maintain optimal inventory levels, thanks to their basis in strong forecasting. This means keeping the right amount of inventory on hand, without tying up capital and warehouse space in excess inventory.
- Risk reduction: By strategically deploying both strategies, you can reduce the risk of the impacts of things like supply chain disruptions, economic fluctuations, and materials shortages.
Disadvantages of the Push-Pull Hybrid Approach
As with any system, a hybrid approach to the push vs. pull systems can have some disadvantages. These might include:
- Complexity: A push-pull hybrid approach introduces additional complexities into the supply chain, and properly executing it requires strategic management and coordination between the push and pull segments.
- Data: The push portion of the hybrid approach still relies on accurate demand forecasting. If you lack the technological infrastructure for accurate forecasting, you might end up with inaccurate data which misguides your strategy.
- Suppliers: The success of the hybrid approach also depends on the reliability and responsiveness of suppliers. Any disruptions in the supply chain, such as delays or issues with components, can impact the entire system.
When it comes to the push vs. pull systems, both have their advantages and applications, which can help your inventory-based business optimize its supply chain. By choosing the right system (or a hybrid approach) you can provide top-tier service to customers, ensure your operations are efficient, and reduce excessive costs and waste.
StockIQ: Powering Your Inventory Systems
Whichever system you choose to deploy in your organization, StockIQ can provide you with the data, forecasts, and insights you need to make the best decisions for your business. StockIQ is user-friendly supply chain management software that allows you to control inventory, simplify ordering, and improve forecasting. You can use StockIQ’s tools (like demand forecasting, inventory analytics, and supplier performance) to inform any inventory strategy you choose to use.
Find out what StockIQ can do for your business by contacting us today or requesting a StockIQ demo.
