push and pull

February 18, 2020

How do companies maintain their stock to ensure they meet demand? How can they keep customers happy while reducing overhead expenses? With push-pull strategy.

In push-based models, production schedules are based on forecasts and analysis of possible future demand for products so that products are ready in advance. For example, winter coats are produced in advance and pushed to retailers as summer ends.

In pull-based models, actual orders or purchases from customers initiate events in the supply chain, which minimizes the amount of necessary inventory investment. Companies save money on carrying inventory, but might lose out if they cannot produce inventory quickly enough to meet customer demand.

Amazon’s supply chain model is primarily push-based, with a pull-based model for infrequently-ordered items using third-party sellers hosted on their site. For items fulfilled by Amazon, it locates warehouses strategically near metropolitan areas, forecasts demand using modeling, and stocks products in the warehouses in advance, allowing rapid fulfillment of orders. Amazon’s supply chain innovations focus on getting the product to the customer as quickly as possible: first with two-day delivery with Amazon Prime, then one-day shipping, then one-hour delivery using their own delivery service. Amazon also uses automation to reduce errors and improve delivery times, including robotic fulfillment of orders, drone delivery, and autonomous vehicles. Amazon’s supply chain efficiency and innovation has allowed it to grow exponentially, from revenues of approx. $5B in Q4 2007, $13B in Q4 2010, $25B in Q4 2013, $44B in Q4 2016, to $87B in Q4 2019.

While Amazon’s innovative push-based strategy is a major success, previous experts had championed a pull-based system, pointing to Toyota’s “Just-In-Time” supply chain innovations. Toyota focused on the complete elimination of all waste, “making only what is needed, when it is needed, and in the amount needed.” Toyota produces vehicles based on orders received by car dealers. In a process called kanban, it then sequences each part in the rest of the supply chain so that each part is ready just in time to be assembled. In this way, Toyota minimizes its inventory of parts, and ensures organizational focus on quality.

Apple uses a pull strategy to operate their globalized supply chain. When releasing a new product, they create buzz, but they don’t overstock their products for a launch. Apple topped the list of the Gartner Supply Chain Top 25 rankings seven years in a row. Regarding its tech products, CEO Tim Cook stated, “Inventory is fundamentally evil. You kind of want to manage it like you’re in the dairy business. If it gets past its freshness date, you have a problem.” But Apple’s pull-based system is sensitive to global issues and events: the spread of coronavirus, or Covid-19, has impacted its Chinese suppliers. At Chinese plants where Apple’s iPhones are assembled, only 10% of employees had returned to work last week. In a February 17 update, an Apple press release indicated they would likely not meet their quarterly revenue guidance partly due to the coronavirus impact on product manufacturing.

Gartner, Inc., has a new winner for its top supply chain company of 2019: Colgate-Palmolive. Colgate uses a push-based system in response to global challenges and events such as fuel prices, political and legislative concerns, environmental factors, and world economic issues. Colgate outsources most of its global production to contract manufacturers. When a product is made, it must find a home. Colgate’s strategy to achieve efficient supply chain is to reduce miles from its network. Colgate realized that they were sending trucks with empty space to make their deliveries, so they opened small distribution centers and consolidated shipments, saving millions of dollars. Using a transportation management system (TMS), Colgate can track details while maintaining their focus on improving efficiency and reducing transportation costs.

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