It is known that inventory management is based on the structure and objectives of the company's distribution network according to the sector in which it operates. This is done by deciding on the distribution channels through which to deliver products to customers and seeing which are the most optimal in terms of customer service and cost and resource savings.
To this end, there are two ways to fill inventory in a distribution channel: Push and Pull. Knowing their definitions and their advantages and disadvantages is crucial to choose the right strategy according to the industry you work in and your needs.
If you want to know the differences between Push and Pull distribution, their benefits and drawbacks and for which cases one strategy or the other is intended, read on.
In a Push distribution system, it is the manufacturer or supplier that decides how many units of product are manufactured and distributed. First, they aggregate all the lower level storage points to historical demand and then perform demand forecasting to determine quantities. Next, replenishment inventory is shipped through the warehouses from the originating supply facilities.
This method makes the first nodes of the supply chain responsible for replenishing the stock, manufacturing the efficient amount of goods to be able to ship them to their distributors and avoid excess inventory.
One of the advantages of this method is that high inventory levels can be maintained by predicting demand to generate a safe stock level. This is a producer-centric strategy. Therefore, for products that have peaks in demand at specific times of the year or are in high demand throughout the year, such as the food sector, such an approach is effective.
However, one of the most notable drawbacks of Push distribution is that, as this decision is made by the lowest nodes in the supply chain, it is far removed from the actual demand being demanded by current customers. For this reason, it suffers from a notable lack of transparency and visibility into the needs of those customers.
That is why it is difficult to adjust to peaks in demand that are difficult to predict and provide good service, usually causing stock-outs. In addition, it requires good management to maintain a good product flow.
In contrast to Push distribution, Pull distribution consists of the lowest node of the supply network, the end customers and retailers, deciding how much stock to order to meet their needs. The factories or manufacturers then receive this order and start producing around a direct demand.
After the other processes, inventory managers can choose between two techniques: reorder point (ROP) or distribution requirements planning (DRP). The decision to choose a Pull technique depends on how stock moves through the channel and the level of control needed.
This mode of distribution plays between the risk of stock shortages and excess safety stock due to demand variability, so it is essential to maintain a balance between inventory levels.
Among the benefits of the Pull distribution strategy, one is that it has limited inventory, as it is produced when a customer places an order, so it is a reactive mode of operation and stands out as a customer-centric methodology. For example, this occurs in cases of customized and higher value products, such as cars with the Just in Time method.
However, this Pull distribution mode has several drawbacks that work against it. For example, if a node in the supply chain makes inventory management errors, this can lead to overstocking and increased operating costs, losing money. It is also possible to cause customer dissatisfaction if there are damages or delays in their order.
Another disadvantage is that picking times will have a big impact on throughput because most of the requests will be very rushed orders with a high level of stress. Therefore, a picking optimizer helps to improve warehouse routes and increase the productivity of the warehouse, since picking is one of the most intensive and costly activities, representing up to 55% of the total expense of the warehouse operation.
There are obvious differences between Push and Pull distribution from which to choose one strategy or the other depending on the sector in which you operate and the type of products you offer. Since each of them has its benefits and drawbacks, the question is to study them well in order to choose the most appropriate and efficient one to have and maintain an optimal inventory management.
At Hedyla, we adapt the solutions according to the strategies and needs of a warehouse, for that reason our WMS (Warehouse Management System) is flexible according to each case.
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