Applying push and pull strategies in the supply chain

Push and pull strategy is considered one of the most popular supply chain management methods today, helping businesses optimize production, distribution, and inventory management. The flexible combination of these two strategies not only enhances the ability to respond quickly to market demand, but also minimizes the risk of excess inventory, creating an efficient and sustainable supply chain. In this article, join RX Tradex to delve deeper into the push and pull strategy in the supply chain, key components, implementation methods as well as supporting technologies to achieve optimal efficiency in supply chain management.

1. Understand push-and-pull strategies in the supply chain

Push and Pull strategy is a supply chain management method that combines two pull and push strategies to optimize production, distribution, and inventory management.

The Pull strategy focuses on production based on specific orders rather than anticipating demand in advance. With this approach, demand from customers is often very clear and stable, resulting in low or even no inventory levels. Demand information is transmitted directly through the links in the supply chain, helping to limit the bullwhip effect – a phenomenon in which demand is exaggerated through stages, leading to false forecasts.

The Push strategy works based on long-term demand forecasting, production and distribution before the actual order is issued. However, because forecasts are often inaccurate, supply chains under the push model tend to have high inventories and incur many production and transportation costs due to the need to react quickly to changes in consumer behavior.

The Push and Pull strategy is when the supply chain is separated into two stages: the first stages operate according to the push strategy, based on forecasts; while the final stages operate according to the traction strategy, meeting the actual demand from the market. This approach helps to balance flexibility and cost-effectiveness in supply chain management.

2. Components of a push-pull strategy

2.1. Pulling strategy

The pull strategy in supply chain management is based on meeting the actual needs of customers using real-time data to ensure high accuracy in the ordering and inventory process. The process of production and supply of goods is adjusted according to detailed needs from the market.

The core of the pulling strategy is to buy and stock up on inventory only when there is a clear need. This model focuses on effective inventory management by minimizing the amount of inventory, while requiring businesses to react quickly to fluctuations in product demand.

Outstanding characteristics when businesses choose a supply chain strategy include:

• Avoid unnecessary inventory procurement costs and minimize the risk of unsold inventory.
• Ensure quick response to specific orders or needs from customers.
• The actual needs of customers are the decisive factor for bringing products into the supply chain.
• There is no requirement to stock up on backup inventory.
• Production and distribution are based entirely on actual demand, helping businesses optimize resources.
• There may be risks if supply does not meet demand in time in situations where demand increases suddenly.

2.2. Push Strategy

The push strategy in the supply chain is in line with the pre-estimated demands, determining the entire production and distribution process. This is a forecast-based approach, in which businesses rely on analyses and forecasts to decide how much inventory to import.

The advantages of the push strategy are evident when businesses need to manage a large number of products. This strategy covers all products without depending on the specific demand fluctuations of each item. In the supply chain according to the push strategy, the forecast is often synthetic, for example, the weekly forecast from distribution centers to retail stores. The manufacturer then distributes the product to stores based on these forecast numbers rather than relying on actual demand from each retail location.

3. Implement a pull-and-push strategy

The push-and-pull strategy in supply chain management is a comprehensive solution that combines both traditional and demand-based manufacturing models, helping businesses achieve the perfect balance between business efficiency and customer satisfaction. By leveraging the power of data, accurately forecasting market demand, and flexibly adjusting production processes, businesses can optimize the entire supply chain.

To successfully implement this strategy, businesses need to take the following steps:

• Collect and deeply analyze market data, including consumer trends, customer behavior, and competitor activity.
• Based on the data collected, build a flexible production plan, capable of quickly adapting to market fluctuations.
• Harmonious combination of push and pull:
  • Push strategy: Produce and distribute products based on demand forecasts, ensuring that there is always stock available to serve customers.
  • Traction strategy: Production is based on actual orders, which helps to minimize inventory and minimize inventory risks.
• Regularly monitor and evaluate the effectiveness of the strategy, promptly adjust to optimize efficiency.
• Take advantage of modern technologies such as artificial intelligence (AI), machine learning, WMS, SCM to improve forecasting, inventory management, and optimize the entire supply chain.

4. Notes when applying the push-pull strategy

The implementation of a Push and Pull strategy in the supply chain needs to be done based on the specific goals of the business, which can be a pull, push, or a combination of both to optimize operational efficiency. Here are some important considerations to ensure your push and pull strategy is implemented effectively and mitigate risks:

• Define clear goals: Before starting, businesses need to clearly define specific goals such as increasing production efficiency, optimizing inventory, or improving the ability to meet customer needs to choose the right method.
• Internal Competency Assessment: Assess the production capacity, management system, and current processes of the enterprise to ensure that there are sufficient resources and the ability to implement the Push and Pull strategy effectively.
• Inventory optimization: In a push  strategy, inventory optimization is a key factor to minimize inventory costs and inventory risks. In contrast, with a pull strategy, optimizing the ability to respond quickly to actual needs is critical to maintaining customer loyalty.
• Accurate Data Management: Data management is the cornerstone of a Push and Pull strategy. Data on market demand, consumer trends, and forecasts need to be constantly updated to make timely and correct decisions.
• Create strong connections: Strengthen alignment and cooperation between supply chain stakeholders such as suppliers, distributors, and partners to ensure that the process is operated smoothly and synchronously.
• Continuous monitoring and evaluation: Regularly monitor and evaluate the activities of the Push and Pull strategy to detect problems early, thereby adjusting and improving the process to suit market fluctuations.
• Flexible adjustment according to the market: Throughout the implementation process, flexible adjustment of the strategy based on changes in customer needs and market conditions is necessary to ensure efficiency and success.

5. Technology to support the push-pull strategy

Technology plays an increasingly important role in optimizing and improving the effectiveness of pull and push strategies in supply chain management. Here are some typical technologies that effectively support the implementation of this strategy:

• Warehouse Management System (WMS – Warehouse Management System): A WMS system helps businesses track and manage inventory accurately, from warehousing, to inventory, and transportation dispatch. As a result, WMS not only supports the reduction of excess inventory, but also ensures that goods are always ready to meet demand in a timely manner.
• Supply Chain Management (SCM): SCM integrates the entire supply chain process, from demand forecasting, production planning, to product transportation and distribution. With SCM, businesses can easily coordinate supply chain activities, optimize inventory, and quickly adjust production to market fluctuations.
• Artificial Intelligence (AI) and Machine Learning (Machine Learning): AI and Machine Learning help analyze big data from various sources, provide accurate market demand forecasts, and propose reasonable adjustments in supply chain strategies. The application of AI not only improves the accuracy of forecasts but also optimizes the decision-making process, from production to distribution.
• 3D printing technology: 3D printing contributes to both pull and push strategies with outstanding advantages:
• Pull Strategy Support:

• Increased flexibility: 3D printing technology allows businesses to produce customized products based on specific customer orders. Instead of having to stock in bulk, products can be printed directly on demand, which reduces storage costs and stocking risks.
• Rapid testing and feedback: With the ability to create prototypes quickly, 3D printing helps businesses test products at a low cost. Customers can test and evaluate before mass production, minimizing production risks.
• Push Strategy Support:
  • Optimize production processes: 3D printing technology allows for the rapid production of complex parts and components, saving time and money. Businesses can flexibly adjust production according to market demand without maintaining large inventories.
  • Limited Inventory Production: 3D printing allows for the production of small inventories and only when there is a specific need, which reduces storage costs and the risk of obsolete goods.

6. Conclusion

The application of push-and-pull strategies in supply chain management brings a balance between flexibility and cost-effectiveness, meeting the changing needs of the market. This combination allows businesses to both maintain reasonable inventory levels, quickly respond to customer needs, and make the most of available resources. With the support of advanced technology solutions, businesses can confidently implement push and pull strategies, improve competitiveness and sustainable development in the market. Participating in Vietnam Manufacturing Expo (VME) 2024 will be an opportunity for businesses to discover more about modern technology solutions to optimize supply chains and promote business activities to new heights.