Push-Pull Supply Chain Strategies and Examples

Chapter 6: Push–Pull

Question 1 — Push-Based vs Pull-Based

When demand uncertainty is low, a push-based supply chain allows the firm to reduce costs by making use of economies of scale in production and distribution without increasing inventory holding costs. A pull-based supply chain reacts to real customer orders rather than to forecasts. Thus, lead times and variability in the system are reduced by matching supply and demand. This leads to improved customer service and decreased inventory holding costs.

Question 2 — Industry Examples

As discussed, the automobile industry has traditionally employed a push-based supply chain strategy by building inventory for the dealer warehouses. On the other hand, in industries in which demand is relatively low and the finished products are extremely expensive, e.g., semiconductor equipment and aircraft manufacturing, the supply chains would be almost purely pull-based.

Question 3 — Moving the Push–Pull Boundary

By moving the push–pull boundary earlier, lead times and variability in the system are decreased and service levels are improved due to increased ability to match supply and demand. Also, inventory levels are decreased because there is little or no inventory in the pull portion of the supply chain. By moving the push–pull boundary later, costs can be reduced by taking advantage of economies of scale. Furthermore, inventory levels may decrease due to risk pooling effects and reduced safety stocks, if, for example, the push–pull boundary is moved later by delaying product differentiation.

Question 6 — The Box

1. Box I. In the rapid prototyping industry, demand is uncertain and economies of scale are not important because all products are custom-made.
2. Box II. In chip manufacturing, economies of scale are important because semiconductor manufacturing requires large capital investment, but demand is uncertain.
3. Box III. In the chemical industry, demand has low variability and economies of scale are important.
4. Box IV. In the pharmaceutical industry, economies of scale are less important and demand uncertainty is relatively low.