Difference between ‘Push’ & ‘Pull’ Strategy in Supply Chain Management

Definition

Push strategy: When an organization manufactures the product and then moves it down in the supply chain (warehouses, depots, distributors, etc.) based upon some assumed sales (i.e. forecast for a period) or expected order booking in the period.

Pull strategy: When an organization manufactures the product as per the consumption in the market or based upon the firm orders from the market.

Fundamental difference

The push strategy is based upon the forecast. Forecasting for an unknown future might lead to a mismatch in stock on hand and the incoming orders, as reality at times might differ from the forecast. The longer the horizon of the forecast, the more inaccurate it becomes due to the interference of multiple uncertainties of the given environment.

Example: What kind of weather a particular area would have the very next day, based upon the current weather parameters, would be relatively more accurate than the prediction about the same a month in advance.

There are two elements of the inaccuracy in the forecast — one, the underlying uncertainty of the future, and the other, the human error in prediction, which is mostly a judgment or a call based on individual experience. This is the root of the chaos in the supply chain, which leads to surpluses and shortages at various nodes in the supply chain.

Pull strategy resolves this conflict by reducing the horizon of the forecast and taking out the human error by only supplying what is consumed by the market and nothing less or more, thereby avoiding the shortages and surplus issues in the supply chain.

The TOC replenishment solution is a pull-based solution in which inventory is moved between the nodes of the supply chain based upon the consumption at that node. It aligns the supply chain to the market demand and enables the organisation to offer very high product availability to customers, without holding very high inventories across the supply chain.