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Week 4: Push/Pull System - Assignment Example

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The two categories depend on the timing of their execution relative to customer demand. Push and pull strategies are considered to be part of the traditional supply chain system popular in the…
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Week 4: Push/Pull System
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Push/Pull System Supply chain processes fall into one of the two categories, push or pull systems. The two categories depend on thetiming of their execution relative to customer demand. Push and pull strategies are considered to be part of the traditional supply chain system popular in the 1980s manufacturing revolution. However, modern companies are now applying a combined strategy approach called the push-pull supply chain paradigm (Levi et. al, 2007).
The Push System
In this system, processes are executed in anticipation of customer or retailer orders and are speculative in nature (Chopra, 2007). Production and distribution decision rely on long-term forecasting of demands. The demand forecasts used by manufacturers are based on customer orders received from retailer warehouses.
Disadvantages
Since the movement of inventory towards the customer happens only if an order is made, manufacturers tend to respond very slowly to demand. Push-based supply chains take longer to react or adapt to the changing marketplace. Such delays create inefficiencies within companies as supply chains are unable to meet the changing market demand patterns and demand for certain products disappears leading to obsolete inventory back in the warehouses. Also the variability in orders tends to increase as they are received from the retailers and warehouses. What happens then is that the company holds excess inventory as safety stock. Excess inventory due to increased variability then creates unacceptable service levels and makes a product obsolete as warehouses cannot accurately match the expected demand to supply (Levi et. al, 2007).
Product Examples
A push-based system is popular for products with low demand uncertainty. Manufacturers of Books and CD are characterized as high-volume and fast moving can use this strategy.
Pull system
This system indicates that processes are executed in response to a customer order and tend to be reactive in nature. Demand and companies drive production and distributions do not hold any inventory. Manufacturing is only undertaken when the customers make specific orders. Pull supply chain activities depend on fast flowing information mechanisms within the supply chain participants .this information regards customer demand orders (Chopra, 2007).

Advantages
Levi et. al (2007) states that pull systems are popular as they reduce lead times. This is due to the ability of the chain to almost accurately anticipate and respond to incoming orders. They reduce inventories at the warehouse and retailers. Order variability is also reduced especially at the manufacturers level due to the decreased lead time once variability is reduced, and inventory also decreases as the manufacturer can better match demand to supply hence no need of safety stock.
Product Example
A pull system is popular for products with high uncertainty and is used by companies whose economies of scale in production and distribution are not significant. A computer company like Dell Inc. uses this strategy whereby customer order their products then manufacturing process takes place based on the placed order. This allows a product made exactly to the customer’s specification. So products with a high demand uncertainty such as computers and furniture can use this system.
Overall, push-based system increases transportation costs, leads to high levels of inventory due to the need to store safety stock and high manufacturing costs in cases where rapid demand orders call for emergency production. When compared to push-based supply system, pull-based supply system reduces inventory levels due to less order variability, allows better management of resources such as facilities and inventory. It also reduces system costs such as inventory management costs and storage costs.
References
Chopra, Sunil, (2001). Supply Chain Management. Strategy, Planning & Operation. Oxford; oxford Press.
Levi, David Simchi and Edith Simchi Levi (2003). Designing and Managing the Supply Chain: Concepts, Strategies, and Case Studies. New York; Cambridge Publishers. Read More
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