2. State the Supply Chain Management Paradigm –
old and new strategies : Push & Pull
Describe the new SCM Paradigm
Be able to describe important terms and
definitions in supply chain management
integration
Locating the Boundaries of a Push or Pull strategy
3. What are the advantages of push systems?
What are the advantages of pull systems?
Is there a system that has the advantages of
both systems?
4. Production decisions are based on long-term
forecasts;
Ordering decisions are based on inventory forecasts;
What are the problems with push strategies?
◦ Inability to meet changing demand patterns
◦ Obsolescence
◦ The bullwhip effect:
Excessive inventory
Excessive production variability
Poor service levels
8. Production is demand driven
◦ Production and distribution coordinated with true
customer demand
◦ Firms respond to specific orders
Pull Strategies result in:
◦ Decreased inventory levels at retailers and
manufacturers
◦ Decreased system variability
◦ Better response to changing markets
But:
◦ Harder to leverage economies of scale
◦ Doesn’t work in all cases
9. Push-Pull Boundary
PUSH STRATEGY PULL STRATEGY
Low Uncertainty High Uncertainty
The Supply Chain Time Line
Customers
Suppliers
A shift from a Push System...
◦ Production decisions are based on forecast
…to a Push-Pull System
10. ◦ Initial portion of the supply chain is replenished
based on long-term forecasts
For example, parts inventory may be
replenished based on forecasts
◦ Final supply chain stages based on actual
customer demand.
For example, assembly may based on actual
orders.
11. Build to Stock
◦ Forecast demand
◦ Buys components
◦ Assembles computers
◦ Observes demand and
meets demand if
possible.
A traditional push
system
Build to order
◦ Forecast demand
◦ Buys components
◦ Observes demand
◦ Assembles computers
◦ Meets demand
A push-pull system
12. The push-pull system takes advantage of the
rules of forecasting:
◦ Forecasts are always wrong
◦ The longer the forecast horizon the worst is
the forecast
◦ Aggregate forecasts are more accurate
13. Risk pooling is an important concept in supply
chain management. Risk pooling suggests that
demand variability is reduced if one aggregates
demand across locations because as demand is
aggregated across different locations, it becomes
more likely that high demand from one customer
will be offset by low demand from another. This
reduction in variability allows a decrease in safety
stock and therefore reduces average inventory.
14. Delayed differentiation or Postponement is a
concept in supply chain management where the
manufacturing process starts by making a
generic or family product that is later
differentiated into a specific end-product. This is
a widely used method, especially in industries
with high demand uncertainty, and can be
effectively used to address the final demand
even if forecasts cannot be improved.
15. Benetton and their knitted
sweaters are initially all white,
and then dyed into different
colors only when the
season/customer color
preference/demand is known.
It is usually necessary to
redesign the product
specifically for delayed
differentiation, and re-
sequence to modify the order
of production manufacturing
steps.
17. Higher demand uncertainty suggests push
Higher importance of economies of scale suggests
push
High uncertainty/ EOS (End of stock) that is not
important such as the computer industry implies
pull
Low uncertainty/ EOS important such as groceries
implies push
◦ Demand is stable
◦ Transportation cost reduction is critical
◦ Pull would not be appropriate here.
18. Low uncertainty but low
value of economies of scale
(high volume books and cd’s)
◦ Either push strategies or
push/pull strategies might
be most appropriate
High uncertainty and high
value of economies of scale
◦ For example, the furniture
industry
◦ How can production be pull
but delivery push?
◦ Is this a “pull-push”
system?
19. Characteristics and Skills
Low Uncertainty
Long Lead Times
Cost Minimization
Resource Allocation
High Uncertainty
Short Cycle Times
Service Level
Responsiveness
Raw
Material Customers
PullPush
20. The push section:
◦ Uncertainty is relatively low
◦ Economies of scale important
◦ Long lead times
◦ Complex supply chain structures:
Thus
◦ Management based on forecasts is appropriate
◦ Focus is on cost minimization
◦ Achieved by effective resource utilization – supply
chain optimization
21. The push section requires:
◦ Supply chain planning
◦ Long term strategies
The pull section requires:
◦ Order fulfillment processes
◦ Customer relationship
management
Buffer inventory at the boundaries:
◦ The output of the tactical planning
process
◦ The input to the order fulfillment
process.