The document discusses push and pull strategies in supply chain management. It describes push strategies as relying on production decisions based on forecasts, while pull strategies are demand-driven based on customer orders. A push-pull hybrid combines the advantages of both by using forecasts for early supply chain stages and customer demand for later stages. The bullwhip effect and benefits of postponement are also covered. Finally, factors for determining the optimal push-pull boundary based on demand uncertainty and economies of scale are presented.

1. Edited By JQuek

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

6.  The Variability in the size and timing of orders increases
at each stage up the supply chain, from customer to
supplier
 Natural dynamic of multistage nature of supply chain
◦ Unrelated to erratic customer demand
◦ Large fluctuations force distributors, manufacturers, and suppliers
to carry larger inventories
◦ Reduces overall profitability of supply chain
 Eliminate bullwhip by giving participants access to
consumer-demand information
◦ Inter-organizational information systems needed to share data
Copyright © 2010 Pearson Education,
Inc. Publishing as Prentice Hall CE13-6

7.  Figure CE13-4
Copyright © 2010 Pearson Education,
Inc. Publishing as Prentice Hall CE13-7

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.

16. Pull Push
Pull
Push
I
Computer
II
IV III
Demand
uncertainty
(C.V.)
Delivery cost
Unit price
L H
H
L
Economies
of Scale

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.

22. Locating the Push-Pull Boundary