Do we have Retail supply chain, FMCG supply Chain, automotive supply chain, IT supply chain etc? In my opinion, no and what we have is “PULL” Supply Chain and “Push” Supply Chain”. Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand. All the above industries fall under Pull or Push supply chain. We have also seen hybrid new model called “Pull and Push” supply chain. What ever is the industry, as long as you make supply chain efficient using either pull techniques or push techniques or both, that is what matters to the business.
What is Pull Supply Chain?
Under pull supply chain, products are manufactured or procured based on specific customer requests. We also know it as “Built to Order” or “Configured to Order” model. We often see this model operating in IT/High Tech Industries, where customization is the competitive advantage. Briefly, we have seen this model in automotive industry and it is being used in high end luxury market segment. The objective of this model is to minimize the Inventory carrying and optimize supply. Pull model are is as a response to growing uncertainty in demand and short product cycle. Some of the characteristics of this model include:
1. Volatile demand situation;
2. High rate of Customization;
3. Minimal Inventory Carrying;
4. Not a off the shelf product;
5. Highly dynamic and effective distribution network.
Even though there are many challenges in implementing a pull supply chain in a globalized environment, converting a push supply chain into a pull supply chain is considered as next frontier of innovation and lean thinking. Particularly if we are able to implement pull process for procurement activity and take advantage of Point of Sale information to provide the demand visibility to suppliers, it would be a great innovation. Again supply chain visibility is a very challenging aspect and costly proposition as well. However, if we are able to achieve overcoming all hurdles, the business would be saving costs (warehousing, inventory carrying; capital costs etc.) and also could introduce JIT or Cross Dock Operation which are again cost efficient models. As the pull of material is linked to POS data and store inventory data, the buffer inventory if any in the supply chain will get corrected automatically from time to time eliminating excess inventory. This process would eliminate waste and save costs and also known as agile supply chain model. Internet becomes the backbone of this model. This model could work very well in FMCG industry if the business model is well understood and a solution is developed and implemented efficiently.
What is Push Supply Chain?
Under Push model, products are manufactured or procured based on anticipated customer orders (speculative). This model is also known as Built to Inventory or Built to Sock. The name itself reveals its functionality. Products are manufactured in anticipation of customer needs. There are no prizes for identifying industries that use push model, it is obvious that retail heavily uses push model. Even though direct to store or cross docks are implemented, overall retail supply chain is based on push model. Some of the big names in the retail industry are trying to adopt the hybrid model which is a combination of pull and push. Some of the key challenges and characteristics could include:
1. High inventory costs,
2. Challenging working capital requirements due to low inventory turns;
3. Huge warehousing and distribution costs;
4. Inability to meet dynamic market conditions and
5. Seasonal demand and off the shelf product.
Push programs represent a top down approach. The core assumption of push programs is that demand can be anticipated and that it is more efficient and reliable to mobilize resources in pre-specified ways to serve this demand. However, in reality globalization posed several challenges and one of them is hyper-competition. Hyper-competition is a state, in which the rate of change in the competitive rules of the game are evolving rapidly and business survival is becoming a challenge. As the customers are becoming demanding, if the product is not available in the store, they are willing to look at other options in the market place. This is forcing retailers carry huge inventories and opt for low cost sourcing models which in turn increase the procurement cycle time. In case of demand slump due to financial recession or change buying habits or seasonal weather conditions, businesses are forced to create artificial demand by unleashing promotions in a scale never seek in market place. To objective is to draw the customer to the store and try to sell the product. Product proliferation and Scrambled Merchandising is further making push model more complex and challenging for the retail industry and for push model.
The world is becoming a complex place to do business. It is up to the Supply Chain managers to come forward and take the responsibility of aligning supply chain to business needs and objectives. There is an urgent need for Supply Chain experts who can customize supply chains to need of the hour. Do away with recycling supply chain professionals within the industry. Embrace change in order to innovate and improve supply chain health. A true supply chain professional should be comfortable working in a pull or push environment as long as S/he is functionally and professionally trained using both models. Having said that, supply chain is a not a rocket science, it is all about commonsense and thinking outside the box.
Cartoon Source: http://www.scdigest.com, contributed by Gerry Anderson