Push Pull Inventory

PUSH VS PULL, INVENTORY WASTE PERSPECTIVE

Mike Dixon, PhD

One of the fundamental decisions organizations face is whether to employ a push or pull methodology in managing their inventory. Understanding these approaches and how they relate to inventory waste, flow, and value is essential for optimizing operations and meeting customer demands effectively.

Understanding Push and Pull Methodologies

At their core, push and pull are contrasting strategies used to manage the flow of goods through production and distribution processes:

• Push Methodology: Production and distribution decisions are based on forecasted demand. Goods are “pushed” through the supply chain, from production to the customer, often resulting in higher inventory levels.
• Pull Methodology: Production and distribution are driven by actual customer demand. Goods are “pulled” through the supply chain in response to real-time orders, aiming to minimize inventory levels.

Push Methodology and Inventory Waste

Role of Forecasting in Push Systems

In a push system, organizations rely heavily on demand forecasting to plan production schedules and inventory levels. Forecasting involves predicting future customer demand based on historical sales data, market trends, seasonality, and other factors.

Challenges with Forecasting:

• Inaccuracies: Forecasts are inherently uncertain. Overestimating demand leads to excess inventory, while underestimating results in stockouts.
• Static Plans: Push systems often involve fixed production schedules that are not easily adjusted in response to market changes.

Impact on Inventory Waste

• Excess Inventory: Overproduction based on optimistic forecasts results in surplus stock, increasing holding costs and the risk of obsolescence.
• Inflexibility: Fixed production and distribution schedules can lead to inefficiencies when actual demand deviates from forecasts.
• Reduced Flow Efficiency: Large work-in-process (WIP) inventories can clog production processes, slowing down the flow of value.

Relation to Flow and Value

• Flow Interruptions: Excess inventory creates bottlenecks, hindering the smooth flow of materials and information.
• Mismatch with Customer Value: Producing based on forecasts risks misalignment with actual customer needs, potentially delivering less value.

Pull Methodology and Inventory Optimization

Response to Actual Demand

Pull systems focus on producing and delivering goods in response to actual customer orders rather than forecasts. This demand-driven approach aims to keep inventory levels lean by producing only what is needed, when it is needed.

Just-in-Time (JIT) Production

Definition: JIT is a pull-based production strategy that strives to improve a business’s return oninvestment by reducing in-process inventory and associated carrying costs.

Key Principles:

• Demand Driven: Production is triggered by customer demand, not forecasts.
• Elimination of Waste: Focuses on reducing waste across all operations, including inventory, waiting times, and defects.
• Continuous Improvement: Encourages ongoing efforts to improve processes and reduce waste.

Benefits of JIT:

• Reduced Inventory Levels: Minimizes WIP and finished goods inventory.
• Improved Flow: Enhances the flow of materials and information through streamlined processes.
• Alignment with Customer Value: Ensures production is closely aligned with customer needs, enhancing value delivery.

Impact on Inventory Waste

• Minimized Excess Inventory: By producing only in response to demand, pull systems significantly reduce excess inventory.
• Improved Flow Efficiency: A leaner inventory supports smoother flow through processes, reducing delays and waiting times.
• Higher Responsiveness: Organizations can react more swiftly to changes in customer preferences, enhancing value delivery.

Relation to Flow and Value

• Optimized Flow: Pull systems facilitate better synchronization of production activities, promoting continuous flow.
• Customer-Centric Value Creation: By aligning production with actual demand, organizations ensure they deliver what customers truly value.

Push vs. Pull: Comparative Overview

Integrating Push and Pull Strategies

In practice, many organizations use a combination of push and pull strategies to balance efficiency and responsiveness.

Hybrid Approaches

• Push-Pull Boundary: Identifying a point in the supply chain or value stream where the strategy shifts from push to pull. For example, a company might push inventory to regional warehouses based on forecasts but use pull systems for final delivery to customers.
• Decoupling Point: The stage in the supply chain or value stream where customer demand directly influences production decisions.

Strategic Considerations

• Demand Predictability: For products with stable demand, a push system might be efficient up to a certain point. For products with volatile demand, pull systems are preferable.
• Lead Times: Longer lead times may necessitate some level of push to ensure availability, while shorter lead times support pull strategies.

Potential Limitations of Pull Systems

• Demand Variability: Extreme fluctuations in demand can be challenging to manage without some buffer inventory.
• Resource Constraints: Limited capacity or resources may restrict the ability to respond quickly to demand spikes.

Conclusion

Understanding push and pull methodologies is essential for optimizing inventory management and reducing inventory waste. Push systems, driven by forecasts, can lead to excess inventory and inefficiencies if not managed carefully. Pull systems align production closely with actual customer demand, minimizing inventory waste and enhancing flow and value delivery. Tools like JIT and Kanban support pull methodologies by enabling responsive, demand-driven operations.

By relating these methodologies back to the principles of flow and value, organizations can make informed decisions about their inventory strategies. The goal is to ensure that operations are not just efficient but also effective in delivering consistent value to customers while minimizing waste. Whether adopting a push, pull, or hybrid approach, the key lies in aligning production and inventory management with customer needs and organizational capabilities.

Examples

1. Automotive Industry

Push Methodology in Automotive Manufacturing

In traditional automotive manufacturing, companies produce vehicles based on sales forecasts and push them through the distribution network to dealerships. Production schedules are planned months in advance, relying on market trends, historical sales data, and promotional activities.

• Characteristics:
  • Forecast-Driven Production: High reliance on predicting customer demand.
  • Large Batch Production: Manufacturing vehicles in large quantities to achieve economies of scale.
  • Inventory Levels: Significant amounts of finished goods inventory are stored at manufacturing plants, distribution centers, and dealerships.
• Challenges:
  • Excess Inventory: Risk of overproduction leading to unsold vehicles.
  • Obsolescence: Models may become outdated before they are sold.
  • Cost Implications: High holding costs for inventory and potential markdowns to clear excess stock.

Pull Methodology in Automotive Manufacturing

The Toyota Production System (TPS) is a prime example of a pull methodology applied in the automotive industry. Toyota pioneered Just-in-Time (JIT) production, producing vehicles inresponse to actual customer orders rather than forecasts.

• Characteristics:
  • Customer Order-Driven Production: Vehicles are manufactured when a customer places an order.
  • Kanban System: Visual signals used to trigger production and material replenishment.
  • Inventory Levels: Minimization of WIP and finished goods inventory.
• Benefits:
  • Reduced Inventory Waste: Lower holding costs and reduced risk of obsolescence.
  • Enhanced Flow: Streamlined production processes with fewer bottlenecks.
  • Customization: Ability to meet specific customer preferences without excessive delays.

Hybrid Approach in Automotive Manufacturing

Many automotive manufacturers adopt a hybrid approach, combining push and pull methodologies to balance efficiency and responsiveness.

• Implementation:
  • Push: Production of base vehicles or common components based on forecasts(e.g., chassis, engines).
  • Pull: Final assembly and customization performed in response to specific customer orders (e.g., color, interior features, technology packages).
• Advantages:
  • Economies of Scale: Maintaining efficiency in producing standard components.
  • Customer Responsiveness: Offering customization options to meet individual preferences.
  • Inventory Optimization: Reducing finished goods inventory while keeping production efficient.

Example in Practice:

• BMW’s Production System: BMW manufactures core vehicle components based on aggregated demand forecasts but assembles and customizes vehicles according to individual customer orders received through dealerships. This approach allows BMW to offer a high degree of customization while controlling inventory levels.

2. Publishing Industry

Push Methodology in Publishing

Traditional book publishing operates largely on a push model. Publishers print large quantities of books based on projected demand and push them to bookstores and distributors.

• Characteristics:
  • Forecast-Based Printing: Print runs are determined by expected popularity, marketing efforts, and pre-orders.
  • Inventory Levels: High volumes of printed books are stored in warehouses and retail outlets.
  • Distribution: Books are shipped to retailers in anticipation of consumer purchases.
• Challenges:
  • Excess Inventory: Unsold books may lead to returns, overstocking, and eventual pulping or discounting.
  • Obsolescence: Content may become outdated, especially in rapidly changing fields.
  • Environmental Impact: Waste generated from unsold books contributes to sustainability concerns.

Pull Methodology in Publishing

With advancements in digital technology, the publishing industry has increasingly adopted pull methodologies through Print-on-Demand (POD) services.

• Characteristics:
  • Order-Driven Printing: Books are printed individually or in small batches when an order is received.
  • Digital Printing Technology: High-speed digital presses enable cost-effective single-unit printing.
  • Inventory Levels: Minimal to no physical inventory held in advance.
• Benefits:
  • Reduced Inventory Waste: Eliminates the risk of unsold stock and associated holding costs.
  • Flexibility: Allows for updates to content without waste from obsolete editions.
  • Broad Catalog Offerings: Ability to offer a vast selection of titles without the need for large print runs.

Hybrid Approach in Publishing

Publishers often use a hybrid model to balance the benefits of both methodologies.

• Implementation:
  • Push: High-demand titles, bestsellers, and anticipated new releases are printed in bulk based on forecasts.
  • Pull: Backlist titles, niche genres, or less predictable works are offered via POD services.
• Advantages:
  • Demand Matching: Aligning print runs with demand levels to optimize inventory.
  • Cost Efficiency: Bulk printing reduces unit costs for high-volume titles.
  • Catalog Management: Ability to keep older or specialized titles available without the burden of physical inventory.

Example in Practice:

• Amazon’s Publishing Services: Amazon uses POD technology through its Kindle Direct Publishing (KDP) platform, enabling authors and publishers to offer titles without upfront printing costs. At the same time, popular titles are stocked in advance (push) to meet immediate demand through Amazon’s fulfillment centers.