A successful supply chain manager is a person that has a good understanding of the various tactics and tradeoffs between logistics drivers in a given supply chain. This understanding helps supply chains achieve a balance between cost efficiency and responsiveness all the time. Perhaps one of the most famous solutions used for this purpose is the adoption of push and pull strategies. The emphasis in these two strategies is on demand forecasts and enlightenment to customer preferences. In this lesson, and through an example, I'll explain how you can leverage push and pull strategies to achieve maximum efficiency and responsiveness in your supply chain. Let's say you're watching this video during your lunch break at work. You are in a shopping mall close to your work and you are deciding what to buy for your lunch. What choices do you have? If you're in a rush and just want a quick bite, you can buy a packaged sandwich from the closest grocery store. If you prefer a bit more variety, you might go to the food court and choose your favorite sushi plant. You might even mix different types of sushi on one plate. The third option could be that you pick a fancy restaurant and order a medium rare steak with a glass of your favorite Shiraz. Think about these three options for a minute. As a supply chain manager, how are the supply chains behind these three choices of food different? What are the strategic and logistics implications of these supply chains? Which one has a more market responsive supply chain and which one has a more physically efficient supply chain? For the supply chain of packaged factory sandwiches, the preparation of sandwiches in the factory and their distribution through the supply chain network are usually based on long-term forecasts of demand. The final product, the sandwiches, are pushed to the market based on these long-term forecasts, this is called a push or make to stock strategy. The advantages of push strategy is that the logistics planning here aims at cost efficiency and economies of scale in purchasing, producing, and transporting bulk inventory. For example, the sandwich factory might benefit from discounts for buying large quantities of tomato and lettuce from the farmers. Also, these vegetables are transported in full truckloads to the factory and the sandwiches are probably transported in full truckloads to distribution centers, plus minimizing the costs of inbound and outbound transportation. The disadvantages of the push strategy though, are that if, for example, customers tastes change or some other factor affects their preferences and subsequently the demand in the market, the supply chain is very slow to respond to these changes and might incur significant losses in the transition process. Let's look at your third option now, the fancy restaurant. Here, the preparation and delivery of food is done after receiving your order. Although the food ingredients are bought and prepared based on a day-to-day forecast, the actual preparation and delivery of food is completely based on customer demand or demand driven. This is called a pull or make to order strategy. The advantages of pull strategy are that production and distribution of inventory are based on real customer demand, and that the final product or service is customized. The amount of excess inventory, or in this case, food waste, is minimized and customer satisfaction around the product increases due to the higher-quality and customization. However, a big disadvantage of pull systems is that it is much more difficult to benefit from the economies of scale and the costs of the finished goods is much higher. Also, the speed of order fulfillment or lead times for end customers is much higher in pull systems. In this example, you would need to wait at least a couple of minutes for your food to be prepared. But in the sandwich example, there is almost no waiting time. As you might have guessed by now, push strategy is more suited for physically efficient supply chains, whereas pull strategy is a better fit for market responsive supply chains. Now, you might ask, is there a way to enjoy the benefits of both push and pull strategies in a supply chain? The food court example is a typical push-pull system. The sushi place in the food court has already prepared a sushi, which is a push strategy. But the big difference here is that you can choose different types of sushi and create a customize and appetizing sushi plate, which is a pull strategy. What is important here is that in the push part of the sushi supply chain in the food court, the sushi place aggregates demand forecasts of his customers and prepares a certain quantity of sushi from each time. Aggregated demands are in general, more accurate than demands for individual products or services. The sushi place not only ensures customer satisfaction from customized sushi plates, but it also enjoys the cost efficiency of demand aggregation and an economy of scale in preparing the sushi. This is called the push-pull strategy. The transition between push to pull strategies is called the push-bull boundary. In the sushi example, the push will boundaries between sushi preparation and sushi delivery to end-customers. Supply chain managers are experts in identifying where the push-pull boundaries should be for them to have the highest level of cost minimization and customization in their supply chains. Now, think about some of the products you use on a daily basis. Pick one and think about whether they could use the push-pull strategy and where they should put the boundary in their supply chain. Then again, think about the logistics required for the push part compared to the pool part. This exercise will help you think holistically about optimization and flexibility in supply chains.
