Effective supply chain management is a key concern for all companies operating in a global business environment. Push and pull strategies form the backbone of supply chain management and determine how companies manufacture, store and deliver their products to customers. But how do managers find the right balance between supply and demand to avoid risks and remain flexible at the same time? We discuss the difference between push and pull strategies and why ever more companies are adopting a hybrid approach.
Push and pull – the advantages and disadvantages of the two approaches
The choice between push and pull strategies in supply chain management is crucial for companies, as it has a direct impact on how resources, production, warehousing and deliveries are organized. Supply chain managers are therefore well advised to consider the different concepts of the two approaches to managing supply chains and meeting customer needs.
The push strategy: If companies pursue a push-based approach, their production or ordering of goods is based on forecasts and internal decisions before actual customer demand is available. Assuming that there will be interest in the product, it is initially stocked in large quantities and then actively launched on the market. The advantages of this strategy include the following aspects:
- The products are always available so that customer requests can be met immediately.
- As larger quantities are ordered, the manufacturing costs per unit drop – mass production is generally cheaper and is often given preferential treatment by production facilities.
- Inventory and production can be relatively easily controlled and planned, as they are based on forecasts.
On the other hand, there are some disadvantages that companies should consider when introducing the push strategy:
- The risk of excess stock in the warehouse increases. If demand falls or is lower than expected, companies will find it difficult to sell their stock. This can lead to financial losses.
- The high storage costs can also become a burden: After all, high product inventories require corresponding space, which has an impact on the monthly rent. The costs for insurance and storage also increase.
- Push systems are considered less flexible: companies may find it difficult to adapt quickly to unexpected increases or decreases in demand.
- If products are stored for a long time, there is an increased risk that they will become obsolete or lose value before they can be sold.
Push strategies are therefore particularly useful in situations and sectors where there is a certain predictability in terms of demand. For example, during the Christmas period, demand for certain products such as gift wrapping, festive or winter clothing is relatively predictable and likely to be higher than usual. Such seasonal fluctuations can be adhered to with the push model: Companies that benefit greatly from pre-Christmas business often produce well in advance and keep goods in stock to ensure that they can meet the increased demand in the relevant weeks.
The pull strategy: In contrast to the push approach, products are only ordered or manufactured when there is customer demand. For example, companies implement the just-in-time method and thus react directly to the market situation. The advantages of the pull strategy include
- Overstocks in the warehouse and waste are avoided as far as possible, as the products are only procured after the order has been placed.
- Pull models are more flexible than push strategies, as they are designed from the outset to respond directly to changes in demand. As a result, they adapt more quickly to rising or falling market requirements and reduce the risk of missed sales opportunities.
- Resources are used efficiently as products are only manufactured or ordered in the quantities that are actually needed. This explicit alignment with demand can cut costs and reduce environmental impact.
However, there are also some disadvantages to the pull strategy that companies should be aware of:
- While an empty warehouse certainly saves costs, it also makes deliveries at short notice more difficult. Despite the flexibility of the pull strategy, a sudden massive increase in demand can lead to bottlenecks and consequently to longer delivery times and dissatisfied customers.
- Due to smaller order quantities, the costs per product are usually higher compared to mass batches, which means that there are fewer scaling effects.
- To ensure that the required goods are available at the right time, managers need to manage complex supply chains that can only be planned to a limited extent.
Trends are fast-moving – to avoid goods that are not in demand, the pull model is often used in sectors such as the fashion or electronics industries, where demand changes quickly or is sometimes difficult to predict. The same applies to customer-specific production or the procurement of building materials: here, too, action is often only taken once an order has been placed.
Push, pull or hybrid model?
The key to success lies in finding the right balance between efficiency and responsiveness. To achieve this, ever more companies are opting for a combination of push and pull. With such a hybrid model, they are pursuing the goal of combining the best of both approaches in their SCM strategy, thus minimizing potential disadvantages and putting their supply chain on a broader footing. This pays off especially when companies offer an extensive product range. They benefit from being able to react flexibly to different market conditions: Standardized goods with stable demand continue to be offered in accordance with the push principle, while individualized or trend-driven goods are produced according to the pull model.
A hybrid supply chain can also have a positive impact on risk management by reducing bottlenecks or financial losses. If unexpected increases in demand occur, the pull strategy takes effect, while the push elements always maintain a basic supply. Seasonal fluctuations can also be absorbed with a combination of both approaches: In peak periods, companies use the push strategy, while off-season, they seamlessly switch to pull. Last but not least, this flexibility also has an effect on the fulfillment of different customer needs. Companies can serve both customers who rely on fast deliveries and those who prefer low-cost products.
The decision to adopt a hybrid strategy and its implementation in supply chain management requires careful planning, precise coordination and detailed analyses of individual products, target markets and customer requirements. To achieve this, companies must continuously monitor their supply chain and adapt to changing conditions.
Integrating push and pull elements with digital solutions
Digitization has improved companies’ ability to customize and integrate push and pull approaches into their supply chain. Advanced technologies and analysis tools play a crucial role in this context and thus take SCM to a new level. ERP systems, for example, offer a comprehensive platform that enables the effective consolidation and coordination of different business processes. Advanced analytics and big data in turn provide precise forecasts of trends when it comes to demand.
The Internet of Things (IoT) continuously provides real-time data to monitor production facilities, stock levels and transportation, while cloud computing enables flexible collaboration and constant access to relevant information. Blockchain can be used to increase transparency and security along the supply chain. AI and machine learning support the processing and evaluation of large amounts of data – the analysis results provide a sound basis for decision-making. CPFR technologies (Collaborative Planning, Forecasting and Replenishment) facilitate collaboration with supply chain partners and thus optimize supply chain management.
Conclusion: Utilizing synergies – push and pull combination for successful supply chains
Push and pull are two fundamental approaches in SCM that have both advantages and disadvantages. The choice between them depends on a variety of factors – companies are therefore increasingly opting for a hybrid model. However, combining the two strategies requires a holistic approach in which innovative technologies and processes must be seamlessly linked. In today’s global, dynamic business world, push and pull in SCM are indispensable tools for establishing and maintaining a competitive supply chain in the long term.