Sometimes It's Better Not to Be So Pushy
Supply chain processes fall into one of two categories: pull systems, where a company initiates execution in response to a customer order (reactive) and push systems, where execution is initiated in anticipation of customer orders (speculative).
The boundary that separates push processes from pull processes is one measure of a supply chain's "lean-ness"—the farther upstream that pull starts, the leaner the supply chain.
Consider even the most agile and lean operation, such as Dell's build-to-order supply chain (vs. the more recent Dell make-to-stock retail channel). Dell designs, assembles, tests, packages and ships online or phone orders in a process known today as "mass customization." It is still push to a degree, but the boundary is farther upstream, starting with procurement.
Even in that case, critical suppliers operate satellite facilities near Dell manufacturing sites. Those facilities are designed to be flexible and agile to support just-in-time production and can ship product within two hours of request.
The push/pull boundary is critical to making strategic network design decisions with a global view of how supply chain processes relate to customer orders. For example, if Dell did not closely collaborate with its supply partners located nearby, with the uncertainty of customer orders, it would have to carry a large amount of inventory. And, without flexible manufacturing processes, Dell wouldn't be able to fulfill customer demand on time and at a reasonable cost.
A Strategy That Fits
A flexible and responsive supply chain strategy is a better fit with Dell's competitive strategy of providing a large variety of customized products rather than one focused largely on cost. Furthermore, if it weren't for strategic sourcing, Dell would be much less successful as it works closely with suppliers and shares design and production processes while providing them with cost, timing, and quality targets.
The relative proportion of push and pull processes also impacts supply chain cost and performance. When deciding between push vs. pull, companies look at the tradeoffs between the cost of inventory, resources, and fulfillment cycle time.
Factors to consider are:
- Demand variability and product lifecycle. Mature products with stable demand can be more easily handled with push. Products in introductory or growth stages, with high forecast variability, lend themselves toward a pull strategy.
- Product variability. Similar to the Dell example, products that are customizable or make to order are a better fit for pull strategies, while products that are standardized are a better fit for push strategies.
- Setup times. While Lean is all about reducing changeover times, it's not always possible to do so. In those cases, push might make sense. If you can get relatively fast changeovers, then pull is the answer.
- Lead times. Manufacturing and distribution facility capabilities, size, and location relative to the customer may drive lead times. In general, the longer the lead time required to fulfill orders, the better fit for a push system.
Many companies have more than one supply chain based on products, customers, distribution channels, and other factors. It's a worthwhile effort to consider the push/pull boundaries you have in place today and where they should be to best serve your customers and shareholders in the future.