Inventory management is a vital part of any supply chain. Thanks to it we manage our merchandise and we are able to know the status and location of our products, which in turn allows us to adequately respond to the needs of our customers and our logistics. In addition, optimizing its management will have a direct effect on numerous costs, such as storage and purchases.
Inventory control systems are usually divided into two types: Push and Pull, depending on the way in which the products are introduced into the supply chain. Push (push, in English) refers to inventories in which it is the seller who “pushes” his merchandise in the direction of the customer. On the contrary, in the Pull methods, inventories work reactively to the actions of the client, as he demands and acquires the products.
Another definition that is usually applied to them is that Push inventories are made to be stored (make to stock) while Pull inventories are made on demand (make to order).
Push and Pull systems
In order to be able to push that merchandise towards the markets, the critical aspect in the Push systems is the prediction of the demand. In other words, being able to know with the greatest possible precision what the consumption of our products will be. The amount of effort, technology, variables and data used to refine these predictions is increasing.
However, predicting with sufficient accuracy is still very difficult and the differences with the real demand will make us incur costs (storage, excess product, lack of product if we estimate below reality, etc). Fortunately, the improvement in information systems has made it possible to get to know the evolution of demand more quickly, helping to better correct deviations.
Pull systems are born from a desire to evolve towards more efficient production and logistics. In this kind of inventory management, the idea is that the production and distribution system reacts according to demand in real time; as the public consumes the product. Both the production and the replacement of products are carried out under these Pull directives.
Pull inventories do not need to create those demand prediction models that we have seen in push environments. But, in return, they need to be much more demanding with their production and logistics systems and establish parameters for their production and replacement tasks (how often or how often the production or replacement of each product has to be carried out).
In addition, you also need efficient collaboration and high technological integration with the rest of the links in the chain to know inventory needs at all times.
The objective of a Pull system is to reduce waste in manufacturing, reduce the costs associated with stock storage and improve the efficiency of the supply processes, generating and sending only the right merchandise at the precise moment in which it is needed.
Advantages, disadvantages and differences of the Push and the Pull
Both systems present their own advantages and disadvantages. For example, in Push systems, in which we fill the distribution channels with our products and generate stocks without the certainty of selling it, we are exposed both to the devaluation of the merchandise and to the total loss of its value (due to expiration, for become obsolete, etc.).
Also, by sending the product to the market before it has found a buyer, we lose customization possibilities. We will never be able to customize as much as in products expressly made on demand and, furthermore, bringing a greater number of ranges to the market will increase our logistics and production costs and without reaching the maximum levels of customization.
The problem of Push inventories to accurately predict demand makes them have to live, practically by definition, with the error. There are many factors involved in demand, and some of them are especially unpredictable: success of new products or advertising campaigns, responses from the competition, changes in the economy of the regions in which we sell, etc.
Pull systems can mean longer waiting times for customers
In the Pull environment, on the other hand, it can be more difficult to take advantage of the economy of scale, by operating with less volumes than Push. For example, the repetition of processes is easier to optimize in large volumes, as well as the reduction of transport costs. That is why it is very necessary to study our supply chain and balance how much we can save, for example, in stock costs, against the savings that the mass production of the product could entail.
It must also be taken into account that Pull systems can mean longer waiting times from the origin of the order until its arrival at the customer. This makes it common to use pull methods in shops and retailers, with products of great consumption and lower value, stored to be quickly replaced and with an easier to predict demand. On the contrary, the more difficult it is to know the demand for a product, it will be more indicated for a Pull inventory, as is the case with highly personalized products. And that customization capacity becomes a competitive advantage.
Push and Pull inventories also differ in the place where the merchandise is usually located. Pull systems tend to locate most of their smallest stock -when they have it- near the source of origin, the point of production. While the Pull pushes the merchandise up the supply chain, bringing it closer to the points of sale. It is common, for example, that they are located in proximity distribution centers.
Despite having treated them as two opposing systems, it is very common for companies to use mixed systems. We can think of a brand of electronic devices. To supply large stores, it is possible that you make demand forecasts and want to do that Push process that puts your product in front of your potential customers in stores. Which also allows them to have that physical and visual presence in the shop windows that helps them in their marketing efforts.
However, to this you can add an online sales and distribution channel, which works on demand, in which there is room for the most personalized models and which, due to sales volume, do not consider it profitable to produce, inventory and distribute en masse. to sell in general stores.
It is common to work with Push techniques and with predictive models to which systems are added to know the demand that we are having in real time and be able to adapt to it. Achieve accurate predictions that allow that initial push of merchandise and, at the same time, be able to respond in real time to the differences that are taking place with respect to the predictions.
Finally, another mixed technique is to pull to the distribution centers close to the points of sale and, from there, supply the final points of sale according to the demand they are having in real time.